1 Introduction
In 2016, Nigeria and Morocco signed a Bilateral Investment Treaty (BIT), which mandated that the foreign investor conduct an Environmental Impact Assessment (EIA) in accordance with domestic law and that both the foreign investor and the host State apply the precautionary principle to the investment.Footnote 1 The BIT also required that foreign investors comply with the international environmental obligations of the host State while operating the investment.Footnote 2 This treaty follows upon the heels of several other regional model international investment frameworks which require similar obligations.Footnote 3 BITs rarely impose obligations of conduct on foreign investors, given that they are not considered a means of economic regulation,Footnote 4 and their primary objective is the promotion and protection of investments. However, these treaties represent a new paradigm in investment treaty drafting. They try to hold foreign investors accountable for potential violations of domestic and international environmental norms. Further, both the precautionary principle and EIA are rules of customary international law.Footnote 5 Their inclusion in BITs gives rise to two pertinent issues.
First, though the precautionary principle and EIA are recognised as rules of Customary International Law (CIL), their status as CIL has been highly debated because they are, in essence, rules of procedure, and their form and content vary from jurisdiction to jurisdiction.Footnote 6 Therefore, for these rules to create binding obligations upon foreign investors, the host State must have first recognised these rules as CIL. This recognition may happen through domestic law or the ratification of an international treaty or even any other action of the host State which demonstrates acceptance of the rule.
Second, are foreign investors, most of whom are private multinational corporations, directly bound by these rules because of their inclusion in a BIT? Multinational Corporations as non-state actors are not considered to be subjects of international lawFootnote 7 and, while Investor-State Dispute Settlement (ISDS) tribunals have recognised that they need to operate the investment and act in accordance with the domestic and international environmental obligations of the host State, they have been reluctant to recognise that foreign investors may have any direct environmental obligations with the host State.Footnote 8
To discuss these issues, this chapter will be divided into three parts. The first part will briefly document how the international investment law regime has evolved from an isolated regime, focusing only on investment promotion and protection, to a regime which is trying to take investor responsibility into account. The second part of this chapter will discuss the incorporation of the precautionary principle and EIA as investor obligations into BITs, with reference to their status as CIL. It will correspondingly examine how these rules may bind the foreign investor if the host State has recognised them as CIL.
While the BITs analysed in this chapter seek to impose obligations on foreign investors, they also require the host State to apply some of these rules in conjunction with the foreign investors. Therefore, the third part of this chapter will be divided into two sections. It will first discuss how the inclusion of these rules of customary international environmental law in investment treaties will affect host States and whether host States can be held accountable by foreign investors for not implementing the precautionary principle or following EIA procedures.
The second part will discuss the decisions of investor-State arbitral tribunals towards the international environmental obligations of foreign investors as non-State actors. It will argue that while the inclusion of environmental rules in investment treaties is a welcome step towards ensuring investor responsibility, tribunals are not yet ready to acknowledge that foreign investors have responsibility towards the host State unless such obligations are a part of general international law or incorporated in domestic law.Footnote 9 It will also situate these decisions within the systemic reluctance of public international law frameworks to impose international environmental obligations on non-State actors such as multinational corporations. Most international efforts to regulate the environmental obligations of multinational corporations place the onus on State parties to create obligations of compliance, rather than create any direct obligation.Footnote 10
2 A Brief History of Environmental Regulation in Investment Treaties
The first BITs focused solely on investment promotion and protection, following a capital exporting model, which sought to protect investments in new nations and former colonies from nationalisation.Footnote 11 Initially, only a handful of BITs were signed between developed and developing nations, in part because of resistance from the New International Economic Order (NIEO) movement and the Permanent Sovereignty over Natural Resources (PSNR) resolution.Footnote 12 It was only in the early 1990s that certain States began signing investment treaties, following the collapse of the Soviet Union and the realisation that foreign capital was needed for economic development.Footnote 13
By the early 2000s, States had begun challenging the legitimacy of BITs, arguing that they were a restraint on the sovereign regulatory power of the host State, especially since the threat of investment arbitration could prove costly to developing host States – the concept of ‘regulatory chill’.Footnote 14 The signing of the North American Free Trade Agreement (NAFTA) in 1994, led to developed economies like the US and Canada finding themselves as respondents in investment treaty arbitration, because domestic environmental regulation was often challenged by foreign investors.Footnote 15 Many erstwhile capital importing States became exporters of capital and several BITs were signed between developing countries.Footnote 16 These reasons contributed to States’ rethinking of the regulatory scope of BITs, beginning with the model US and Canada BITs of 2004 and 2006 respectively.Footnote 17 These BITs contained Exception Clauses and Non-Precluded Measures to regulate the investment, a common component of most BITs today.Footnote 18
Since then, BITs have continued the trend of allowing the host State to regulate the investment. However, it is rare to see BITs impose obligations of environmental conduct on investors and host States. Countries use IIAs to attract foreign investment and as observed recently, it does not appear likely that express investor obligations of conduct will be included in investment treaties in the immediate future, since they may serve as deterrent to the signing of investment treaties and investors may shy away from making investments.Footnote 19
Admittedly, the BIT models being discussed in this chapter are a unique exception to BIT drafting practices, envisaging that both investors and host States will play a role in the environmental management of the investment. While the treaty drafting language does not have precedent, the objective of this chapter is to give an overview of the investor obligations enshrined in these treaties so that their implications from both the perspective of investors and host States can be understood.
3 Integrating Customary International Environmental Law in Investment Treaties
3.1 Treaty Drafting Practices
Over the past decade or so, several regional model investment treaties have tried to integrate the EIA and the precautionary principles as investor obligations. The clauses in the Nigeria–Morocco BIT are based on similar clauses from other model treaties as well the International Institute for Sustainable Development Model BIT.Footnote 20 In addition, the African Union in 2016 produced the Draft Pan African Investment Code, a comprehensive document which seeks to protect the environment through investor obligations and promote investment protection in the African continent.Footnote 21 However, are these obligations couched in terms which make them directly binding on foreign investors or is their enforceability dependent on domestic law or the host State’s international environmental obligations?
Article 14(1) of the Nigeria–Morocco BIT mandates ‘that investors or the investment shall comply with environmental assessment screening and assessment processes applicable to their proposed investments prior to their establishment as required by the laws of the host state or home state, whichever is more rigorous’.Footnote 22 Article 14(3) states that
investors, their investments, and host state authorities shall apply the precautionary principle to their environmental impact assessment and to decisions taken in relation to a proposed investment, including any necessary mitigation [sic] or alternative approaches of the precautionary principle by investors and investments shall be described in the environmental impact assessment they undertake.Footnote 23
Article 18(3) states that ‘[i]nvestors and investments shall not manage or operate the investments in a manner that circumvents international environmental, labour and human rights obligations to which the host state and/or home state are parties’.Footnote 24
These clauses are almost identical to the corresponding clauses of the International Institute of Sustainable Development (IISD) Model Investment Agreement. Article 12(a) of the IISD Model Agreement provides for investors to comply with the EIA processes of the home State or the host State, whichever is more rigorous.Footnote 25 The only addition is that Article 12(a) calls for the parties to adopt a minimum standard of EIA at their first meeting and comply with these standards on all occasions. Likewise, Article 12(d) requires investors to apply the precautionary principle to their investments.Footnote 26 Article 14(d) is identical to Article 18(3) of the Nigeria–Morocco BIT.Footnote 27
While the South African Development Community (SADC) Model BIT also adopts identical language to the Nigeria–Morocco BIT and SADC Model BIT, it goes a step ahead and prescribes the International Finance Corporation’s (IFC) performance standards on environmental and social impact assessments as an alternative to home State and host State laws.Footnote 28 Likewise, the Economic Committee of West African States (ECOWAS) Common Investment Code also adopts the precautionary principle and EIA as investor obligations but only mandates the investor to undertake an EIA and social impact assessment of proposed business activities and investments with respect to natural environment and the local population in the relevant jurisdiction. It also only mandates the investor to apply the precautionary principle to the EIA or social impact assessment, including any mitigating approaches.Footnote 29
Finally, the Pan African Investment Code (PAIC) does not mention the precautionary principle but simply mandates the investor to conduct an EIA.Footnote 30 However, the Nigeria–Morocco BIT, IISD Model Investment Agreement, ECOWAS Common Investment Code and the PAIC incorporate these obligations to try and hold the investor accountable for the violation of environmental norms; they do not, however, prescribe any standard to be followed for the implementation of the precautionary principle and EIA. In the absence of a domestic law incorporating EIA or the precautionary principle, these investor obligations may be rendered nugatory. Moreover, even if the investor must act in accordance with the host State’s international obligations, which may include the host State’s recognised rules of CIL, it will be difficult for the investor to implement these rules in the absence of domestic law. It is only the SADC Model BIT which expressly prescribes the IFC standards in absence of rigorous domestic standards.Footnote 31 However, the adoption of these standards is subject to an agreement between the investor and host State. Therefore, does the inclusion of these CIL obligations in BITs have any real significance for investor obligations, or are they just window dressing without any real effect? The next subsection, which discusses the customary nature of the precautionary principle and EIA, will try to answer this question.
3.2 Customary International Law Status of the Precautionary Principle and Environmental Impact Assessment and Their Relevance as Investor Obligations
3.2.1 The Precautionary Principle
The Precautionary Principle was first incorporated into international environmental agreements in the 1980s, though precautionary thinking had been present in domestic environmental policy.Footnote 32 The basic underlying idea behind this concept is that the lack of scientific certainty about the actual or potential effects of an activity must not prevent States from taking appropriate measures.Footnote 33 The most accepted formulation of the precautionary principle is in the Rio Declaration. Principle 15 states that:
In order to protect the environment, the precautionary approach shall be widely applied by states according to their capabilities. Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.Footnote 34
The precautionary principle is not so much a principle, as it is a rule or a standard.Footnote 35 This dichotomy marks a controversy regarding its actual status as a rule of customary international law. Though it has been included in several transboundary environmental treaties, all of which reflect the approach echoed in the Rio Declaration, its status as a CIL rule has been debated.Footnote 36 The debate surrounding its normative content also has a spillover effect in its application, as is it a rule that obligates a State to act irrespective of scientific uncertainty. Does such a spillover, therefore, shift the burden of proof to the proponent of a project (ie, the investor), or is it simply a standard which States may include in its domestic laws and policies, with varying environmental standards and thresholds?Footnote 37
There is one school of thought which argues that it is CIL, simply, based on the frequency of its inclusion in multilateral treaties and declarations, while another school of thought argues that it is not customary international law since actual State practice is difficult to prove empirically.Footnote 38 This is the classic rule vs standard dialectic.Footnote 39 CIL is often difficult to prove and depends upon whether widespread State practice (and corresponding opinio juris) can be established.Footnote 40 This grey area has not been resolved by the decisions of several international courts and tribunals, which have adopted what may be called a precautionary approach, where they have been reluctant to recognise the principle as CIL. This reluctance stems from the fact that while international treaties may enshrine the rule, its application, form and content differs across jurisdictions, which poses a challenge in establishing definitive State practice.
In the Southern Bluefin Tuna case, New Zealand and Australia filed for provisional measures restraining Japan from unilaterally designing and undertaking an experimental fishing programme.Footnote 41 Both New Zealand and Australia requested that the parties act consistently in accordance with the precautionary principle.Footnote 42 In their decision, the Tribunal did not expressly mention the precautionary principle, but stated that even though they could not conclusively assess the scientific evidence presented by the parties, further measures must be taken to preserve the rights of the parties and to avert further deterioration of Bluefin Tuna and that the parties must act with prudence and caution to ensure that effective conservation measures are taken.Footnote 43
Though the Tribunal did not expressly mention the precautionary principle, several separate opinions clarified the approach of the Tribunal, lending clarity to the application of the precautionary principle. Judge Laing stated that adopting an approach (sic), rather than a principle, appropriately imports a certain degree of flexibility and tends, though not dispositively, to underscore reticence about making pronouncements about desirable normative structures.Footnote 44 Judge Treves, while regretting that the precautionary principle was not expressly stated in the order of the Tribunal, underscored the importance of the Tribunal adopting a precautionary approach even though it was reluctant in taking a position whether it was a binding position of international law. Observing that the measures prescribed by the Tribunal aimed at stopping the deterioration of the Southern Bluefin tuna stock, it was essential that the Tribunal adopt a precautionary approach since there was scientific uncertainty whether the situation of the stock had improved.Footnote 45 In fact, he equated the notion of precaution with ‘caution’, an aspect inherent in the very notion of precautionary measures.Footnote 46
Reinforcing this approach, in the EC Asbestos dispute, the WTO Appellate body adopted a precautionary approach, stating that member States have the undisputed right to determine the level of health protection they deem appropriate and that Canada, the proponent of the exports, would have to prove that their ‘controlled use’ alternative would achieve the same level of protection.Footnote 47 In the Nuclear Tests case, the separate dissenting opinions of Judges Weeramantry and Palmer supported the idea of the Precautionary Principle being a rule of customary international law relating to the environment.Footnote 48 In the EC-Hormones dispute, the WTO Appellate Body, while noting that the Precautionary Principle did not override the treaty obligation of Article 5.7 of the WTO Agreement on Sanitary and Phytosanitary Standards to base measures on a risk assessment, noted that it would be unnecessary to take a position on whether the precautionary principle had been authoritatively formulated as a general principle of customary international law, since ‘responsible, representative governments commonly act from perspectives of prudence and caution where risks are irreversible…’.Footnote 49
3.2.2 Environmental Impact Assessment
Like the Precautionary Principle, the status of EIA as customary international law is not established. While it may be argued that it is custom in a transboundary context, given the number of treaties and tribunal decisions which stress its importance,Footnote 50 it is not referred to in a transnational context to the treaties discussed in this chapter. Rather, the reference to EIA will be within the domestic context. Still, it has been observed that human rights law has greatly expanded through the adoption of wide-ranging international conventions, even with the typical difficulty in establishing a practice based customary law.Footnote 51 Since many of these conventions have been ratified by almost all States, it is argued that the norms embodied in those conventions are binding on non-parties, leading to a customary law of human rights.Footnote 52 It might be argued that even though an EIA has been recognised as customary in a transboundary context, it has developed as a customary norm of international environmental law, where the rule of conducting an impact assessment is customary rather than the context in which it is undertaken.
It is evident that while the customary status of the precautionary principle as rule per se is debated, courts and tribunals appear to treat the precautionary approach as customary. What is the significance of this approach for BITs? It could be argued that by placing the onus of applying the precautionary principle in the context of an EIA on the investor and the host State, a BIT is trying to adopt a precautionary approach, giving credence to what may be termed a customary approach instead of customary rule. The significance of this inclusion cannot be underestimated. BITs, which have traditionally only obligated host States to protect the investment, could now require environmental cooperation between the investor and host State. The inclusion of these CIL rules in BITs also promotes the host State’s right to regulate the investment, though of course, domestic frameworks or standards would have to be adopted to give effect to these rules creating investor obligations.Footnote 53
While these treaties try to ensure that the host State regulates the investment in accordance with its international legal obligations and places affirmative obligations of conduct on the investor, it remains to be seen whether and how investor-State dispute settlement tribunals may interpret these clauses and agree with the objectives of such inclusion. This question is discussed in the following section.
4 The Interpretation of Environmental Obligations by Investor-State Arbitration Tribunals
While the precautionary principle and EIA clauses in the treaties discussed above have not yet been interpreted by any investor-State arbitration tribunal, they have implications for investors and host States alike. This section examines the jurisprudence of investor-State arbitration tribunals, which discuss the host State’s environmental obligations towards foreign investors – both substantive and procedural. Subsequently, it will discuss the approach of tribunals towards the environmental obligations of foreign investors.
4.1 Procedural Implications for Host States
Foreign investors have often challenged the procedures used by the host State to apply the precautionary principle to the investment or to challenge the EIA methodology employed by the host State to assess the investment.Footnote 54 Consequently, tribunals have adjudicated on the legitimacy of application of these procedural rules. Investors have also argued that host State’s neglect of the environment has led to a diminishment of value of the investment. These decisions are discussed below.
The BilconFootnote 55 decision concerned the denial of a permit to conduct mining activities in Nova Scotia following the recommendation of an environmental joint review panel (JRP). On the grounds of procedural fairness, the majority of the tribunal concluded that the review panel had acted in breach of Canadian environmental law, which amounted to a breach of the international minimum standard of treatment. The Tribunal held that it was a serious breach of the law on procedural fairness that Bilcon was denied reasonable notice of the ‘community core values’ standard of the environmental JRP as well as a chance to seek clarification and respond to it.Footnote 56 The Tribunal emphasised that while legislatures could adopt rigorous and comprehensive environmental regulations, including assessments, those regulations had to be actually implemented and carried out.Footnote 57
The Bilcon award highlights the importance of an effective and transparent impact assessment procedure prior to the establishment of the investment and could work as a call to host States to incorporate such clauses into BITs, in order to ensure stability and transparency of investment projects.Footnote 58 Such impact assessment mechanisms, along with adopting a precautionary approach, could include public participation in the form of information sharing and consultation which would increase the likelihood of potential impacts, the disclosure of all alternatives and the reasons for rejection of certain alternatives based on a measure of accountability.Footnote 59
In Allard v Barbados, the claimant claimed that the host State failed to take the necessary environmental protection measures and contributed to the contamination of the claimant’s eco-tourism site.Footnote 60 These actions violated the FET and expropriation standards of the investment.Footnote 61 While the Tribunal noted that the host State was not responsible for the contamination of the eco-tourism site, and therefore, the terms of the BIT were not violated,Footnote 62 it did note that the claimant bought the land for economic development even before submitting an environmental management plan or conducting an EIA, against the warnings of State officials.Footnote 63
The decisions in these awards may be relevant to scenarios where both the investor and the host State have the responsibility of ensuring the environmental viability of a project. The Nigeria–Morocco BIT and the African model treaties, which create such a scenario, do not explain what they mean by these clauses. Nonetheless, some educated guesses can be made as to potential interpretative implications that may arise with respect to these clauses.
First, procedurally speaking, the host State will be bound to be transparent with the investor about environmental screening procedures. Moreover, if a host State alleges that an investor is responsible for environmental degradation, the host State cannot evade responsibility if proper procedures have not been followed or if a project has been approved even without environmental sanction. Therefore, the host State may share liability with a foreign investor for environmental degradation.
Second, an investor cannot argue that environmental procedures were not informed or that the host State did not follow due procedures and that action of the host State led to a diminishment in the economic value of the investment. A joint reading of the obligations in the Nigeria–Morocco BIT, the ECOWAS treaty, and the SADC Model and to some extent, the PAIC, emphasise that the obligation to conduct an EIA employing the precautionary approach is on the investor, in conjunction with the host State and that there is a certain duty of responsibility.Footnote 64
4.2 Investor-State Arbitration and Investor Obligations
BITs do not expressly impose environmental obligations of conduct on foreign investors, whether in accordance with domestic law or international law. Consequently, tribunals have rarely had a chance to expound upon investor obligations from a general international law perspective. The limited jurisprudence on investor obligations usually involves counterclaims. However, even these instances have been marked by a reluctance on the part of tribunals to expressly recognise investor obligations unless they are treaty obligations or a general principle of international law.Footnote 65 In general, tribunals have also been reluctant to recognise human rights defences raised by host states.Footnote 66
Both the Nigeria–Morocco BIT and the SADC Model Treaty recognise the domestic and international environmental obligations of foreign investors. However, international environmental treaties do not impose any obligations on non-State actors and, while domestic law may place a precautionary burden of proof on a private actor, the onus to apply the principle and decide is on a State party.Footnote 67 Therefore, to what extent would clauses that mandate that foreign investor conduct an EIA and apply the precautionary principle, in accordance with the international legal obligations of the host State, have credence before an investor-State arbitration tribunal? Further, would such tribunals be willing to hold foreign investors liable in accordance with international law? The following analysis discusses the jurisprudence on investor obligations to answer this question.
In Aven v Costa Rica, the respondent claimed that the suspension of the claimant’s real estate project was in pursuit of legitimate environmental interests protected under the Central America-Dominican Republic Free Trade Agreement (DR-CAFTA)Footnote 68 and in accordance with Costa Rica’s domestic and international environmental obligations.Footnote 69 The respondent also argued that sound and efficient measures to protect the environment is key to the implementation of the treaty.Footnote 70 Chapter 17 of the DR-CAFTA expressly reserved space for environmental issues.Footnote 71 While making these arguments, the respondent maintained that neither the treaty nor the customary international law exonerates the claimants from complying with Costa Rica’s framework for the protection of the environment.Footnote 72 However, the respondent did not emphasise which rule of customary international law applied to the claimants.Footnote 73
One of the respondent’s key contentions was that the burden of proof was reversed on the party allegedly causing the risk of harm, that is, the claimant had the burden of disclosing to the host State, the existence of protected wetlands and forests on the construction site.Footnote 74 The respondent tied this obligation to the precautionary principle, recognised in its domestic biodiversity law which provided that ‘the burden of proof … shall correspond to whom requests the approval, the permit, or the access to biodiversity, or who is accused of having caused environmental harm’.Footnote 75 The respondent linked these obligations in its domestic law to its international obligations under the Ramsar and Biodiversity Conventions.Footnote 76
The Tribunal sided with the respondent and found that the claimant had a duty to advise the environmental authorities in matters that affect any impact to the environment, and to evidence that no adverse impact was to occur as a result of the development, and that this duty arose under domestic law.Footnote 77 Therefore, the burden of proof was with the claimant when applying for a permit to demonstrate the absence of non-permitted pollution, degradation or affectation.Footnote 78 A pertinent question arises from this ruling, relevant to our central analysis.
First, the Tribunal did not hold the claimant responsible in accordance with international law or the precautionary principle, per se, but rather in accordance with domestic law which incorporated the precautionary approach. The claimant had a duty under the domestic biodiversity law to advise the competent authority in matters that affect any impact to the environment and to evidence that no adverse impact was to occur as a result of the development.Footnote 79
Therefore, even if a BIT does say that a foreign investor must apply the precautionary principle and conduct an EIA, the tribunal will be bound to decide in accordance with the domestic law of that State, rather than an absolute rule, even if that rule is embodied in the treaty. This approach again gives rise to the rule vs standard dialectic. Even if the BIT states that the investor must operate the investment in accordance with the host State’s international obligations and apply the precautionary principle, the application of such rule will happen in accordance with domestic law, even if the host state has ratified environmental treaties which imbibe the precautionary approach.Footnote 80 It is, therefore, difficult to gauge the efficacy of the investor obligations in the Nigeria–Morocco BIT and draft PAIC from a purely international law perspective, even more so since these BITs are not in force.
Tribunals have also been reluctant to import investor obligations into investment treaties unless the treaty expressly mentions obligations.Footnote 81 In the Aven dispute, the host State also filed a counterclaim alleging that the claimant was responsible for environmental damage. Though the Tribunal recognised that the claimant was bound by the environmental measures taken by the host State under the DR-CAFTA, it observed that the treaty did not place any direct affirmative obligation on foreign investors.Footnote 82 Of course, an arbitral tribunal’s ruling may differ regarding a treaty which expressly places obligations on the investor. In such cases, as the model treaties discussed in this chapter suggest, in the absence of a domestic legal framework the question of being held liable in accordance with international law would arise.Footnote 83
The Urbaser v Argentina dispute is more relevant in the context of discussing the relationship between human rights treaties and the international investment law regime. However, the reasoning employed by the Tribunal is of some significance to understanding how the rules of international environmental law within investment treaties may apply to foreign investors.
In their counterclaim, Argentina argued that they suffered damage since the claimant failed to make the necessary level of investment, which would have guaranteed the human right to water and sanitation.Footnote 84 Their position was that under the concession contract and applicable regulatory framework, the claimants assumed investment obligations, which gave rise to bonafide expectations that the investment would be made and guarantee the human rights to water and sanitation. By failing to make these investments, the claimants violated the principles of good faith and pacta sunt servanda recognised by both Argentina and international law.Footnote 85 The claimant, on the other hand, argued that it was Argentina’s regulatory actions which prevented them from making the investment and that the Argentine Republic should be the true guarantor of human rights, and not a private party.Footnote 86 The investor also argued that the treaty did not place any express obligations on the investor and, therefore, the counterclaim of the host State faced the insurmountable challenge of being presented in the context of a BIT which did not create obligations for the investor or subject the investor to the rules of Argentine or international law.Footnote 87 While Argentina agreed that the responsibility of the investor originated under international law per se, through the concession framework, it argued that the Universal Declaration on Human Rights placed obligations on private parties and had achieved the status of customary international law.Footnote 88
In making its decision whether the investor had any positive obligation to guarantee human rights, the Tribunal referred to the dispute resolution clause of the Spain–Argentina BIT, which stated that disputes had to be decided in accordance with the general principles of international law. Using this clause as a steppingstone to further its arguments, the Tribunal ruled that a BIT cannot be an isolated, asymmetric set of rules, which only focuses on investment protection.Footnote 89 However, this is where the Tribunal showed a reluctance to read and express human rights obligation upon the investor within the treaty. The guarantee of human rights should be borne solely by the State, and the investor had a duty to ensure that its operations did not obstruct the host State from fulfilling its human rights obligations.Footnote 90 For such an obligation to exist, it should be part of another treaty or represent a principle of general international law.Footnote 91
The precautionary principle and EIA are not substantive rights. Rather within the international and transnational context, they are procedurally binding on State parties in terms of application and implementation. If the reasoning of the Urbaser Tribunal were to be followed, there is no international treaty obligation, or any general principal of international law independent of the investment treaty, which obligates private investors to implement these obligations. Therefore, it seems unlikely that tribunals would budge from their narrow stance on the international law-based obligations of investors. This reluctance stems not only from the ambiguity surrounding the international environmental obligations of non-State actors but also whether arbitrators will accept the validity of a treaty which directly imposes international obligations on investors. Irrespective of their status in general international law, most treaties only mandate that investors act in accordance with domestic law and even these obligations rarely extent to obligations of conduct.Footnote 92
The question of whether international obligations can be imposed on non-State actors or not remains unanswered. The next section explores this question from the wider perspective of those frameworks which try to impose environmental and human rights obligations on multinational corporations. It situates this discussion within the unique conception of international investment law, a regime which gives international rights to foreign investors but does not impose liabilities upon them.
5 The Environmental Liability of Foreign Investors as Non-State Actors – An International Law Perspective
The tribunals in the Urbaser and Aven counterclaims made similar observations that ‘it can no longer be admitted that companies operating internationally are immune from becoming subjects of international law’.Footnote 93 This observation was because several international instruments encouraged non-State actors to observe human rights and environmental obligations and investment treaties themselves expected investors to abide by host State measures to protect the environment. However, this is where the buck stopped, and the tribunals were unable to express themselves any further on the issue of the environmental liability of foreign investors. This limitation arose because general principles of international law do not recognise the international environmental liabilities of non-State actors. Indeed, while there are several soft law efforts to draft human rights codes for transnational multinational corporations like the ‘UN Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights’, the ‘Guiding Principles on Business and Human Rights’ and the ‘Third Draft of the Open Ended Intergovernmental Working Group (OEIGWG)’, these instruments place the onus of regulation and enforcement on State parties and do not consider, in-depth, environmental obligations.Footnote 94
There are historic and economic factors which have given investors, as private non-State actors, certain rights in international law to have their investments protected and file claims against States for a decrease in the value of the investment,Footnote 95 but they have not been imposed with reciprocal obligations. While a discussion on this dichotomy remains beyond the scope of this chapter, it is important to try and understand what the nature of environmental obligations imposed on foreign investors by the Nigeria–Morocco BIT and the PAIC are.
To that extent, do these BITs try to equate foreign investors and State parties with the same obligations? Or is there a greater burden on State parties to ensure the compliance of these norms along with cooperation and participation of the investor? The answer is, perhaps, the latter. The obligation to conduct an EIA applying the precautionary principle, and to follow the international environmental obligations of the host State, would be in conjunction with the independent obligation of the host State to ensure that its investment is in accordance with its domestic and international legal obligations. It is difficult to imagine a scenario where these obligations could be construed as being imposed solely on investors.
It will be useful to take inspiration from Alvarez’ idea that international lawyers should spend their time addressing which rules may apply to corporations, rather than thinking about whether corporations are subjects of international law or not.Footnote 96 While acknowledging that corporations do have international responsibilities, he cautions that these responsibilities cannot be the same as those of State parties simply because corporations are not the equivalent of States or natural persons.Footnote 97 Therefore, a tribunal will not agree that an investor has the responsibility of ensuring the human right to water, but can agree that the investor has the responsibility of ensuring that the precautionary approach is followed while conducting an EIA, provided there are binding legal frameworks which provide for such obligations. International law does not directly hold multinational corporations responsible for human rights violations and, therefore, the drafters of investment treaties must align the obligations of conduct they place on foreign investors with their domestic legal frameworks, ensuring that their international legal obligations have been assimilated into those domestic legislations applicable to foreign investors.
6 Conclusion
Many of the treaties discussed in this chapter have not yet come into force and, in fact, the PAIC has been relegated to the status of a policy document.Footnote 98 However, the unique aspect of these treaties is that they adopt a precautionary approach and mandate both investor and host State to assess the environmental impact of an investment with caution. In fact, the customary status of the precautionary approach is further legitimised with its integration in investment treaties. Though these environment CIL rules may bind only State parties, their inclusion in non-environmental treaties could be a step towards ensuring that State parties clearly delineate procedures for their implementation.
The reader may possibly think that this chapter started on an optimistic note, with its highlighting of the integration of customary international environmental law in investment treaties and its exploration of the possibilities of crafting investor obligations. However, it ends on a slightly pessimistic note, concluding that the efficacy of these obligations would primarily depend on domestic law mechanisms and by simply including these obligations in a treaty, even if they are CIL, is not enough. However, it is hoped that these treaties, and this chapter, mark the beginning of trying to find a solution to a problem that has plagued the study of international investment law for the past few years.
Open access