Reforming Investment Treaties For Sustainable Development: Challenges And Opportunities

Khurana and Khurana


K&K is among leading IP and Commercial Law Practices in India with rankings and recommendations from Legal500, IAM, Chambers & Partners, AsiaIP, Acquisition-INTL, Corp-INTL, and Managing IP. K&K represents numerous entities through its 9 offices across India and over 160 professionals for varied IP, Corporate, Commercial, and Media/Entertainment Matters.
To change the existing global investment governance regime to be more development-oriented, the IIA system must be reformatted, as IIAs constitute a primary source of legal norms for this regime.
India Government, Public Sector
To print this article, all you need is to be registered or login on


To change the existing global investment governance regime to be more development-oriented, the IIA system must be reformatted, as IIAs constitute a primary source of legal norms for this regime. This is a difficult task. Because IIAs are primarily intended to safeguard foreign investors and assets against discriminatory and arbitrary behaviour by host states,1 it is questionable if they are an appropriate approach to address sustainable development challenges. Furthermore, the fragmentation of international law makes it more difficult for IIAs to respond to the needs of sustainable development. For example, it has been claimed that rather than IIAs, issues about sustainable development should be addressed through specialised treaties such as international environmental treaties (IETs) and international human rights treaties.2

Not all global regulations and organisations governing foreign investment have been developed and conceived with a focus on sustainable development in mind.3 Many IIAs, particularly early ones, fail to address issues of sustainable development. For example, ICSID case law implies that, under the ICSID Convention, protected foreign investments are expected to contribute to the host country's growth.4 However, when it came to interpreting this role, the drafters of the ICSID Convention appeared to have prioritised economic development over sustainable development.5

The lack of a sustainable development perspective in IIA-making may make the creation of sustainable development-oriented IIAs problematic. Despite these difficulties, there is a growing need for IIAs to be more useful in assisting states to achieve sustainable development. The need to address IIAs' "sustainability deficit" is becoming more serious. To begin, since many nations face rising sustainability issues in global investment governance, there is an urgent need for these states to ensure that foreign investment does not undermine their legitimate rights to seek sustainable development. Second, because many IIAs provide for investor-state arbitration (ISA), foreign investors commonly use international arbitration to challenge the host countries' regulatory measures. Some high-profile ISA cases, such as Vattenfall et al. v. Germany,6 and Philip Morris v. Australia,7 clearly demonstrate how ISA's "regulatory chill" effects can stymie states' efforts to pursue sustainable development. Third, many specialised treaties and their implementation regimes, such as international human rights treaties and IELs, look weak and ineffectual in addressing sustainable development challenges linked with transnational investment operations.8

Making sustainable development-oriented IIAs is crucial in light of this situation. This effectively means that IIAs should be allowed to "deviate" from its conventional goal of investment protection to address issues of environmental and social sustainability. In recent years, several states, particularly wealthy states, have begun to place a greater emphasis on sustainable development in IIA negotiations. The model BITs of these jurisdictions, such as the US Model BIT of 2012 and the Dutch Model BIT of 2018, demonstrate this. Prominent international organisations have also developed model IIAs to meet the objectives of sustainable development. For example, the International Institute for Sustainable Development (IISD) proposed a Model International Investment Agreement for the Promotion of Sustainable Development in 2004 to serve as a framework for states considering IIAs.9 In addition, UNCTAD published the Investment Policy Framework for Sustainable Development in 2012,10 which was modified in 2015 in response to the advent of "new generation" investment policies.11 The UNCTAD Policy Framework offers strategic guidelines as well as concrete recommendations for making IIAs and policies more compatible with sustainable development at the international, regional, and national levels. Such achievements demonstrate that there is a growing global agreement to make national investment plans and IIAs more focused on sustainable development. Against this backdrop, Asia-Pacific LDCs and LLDCs should not ignore this rising trend, but should instead seek appropriate ways to enter into IIAs focused on sustainable development based on their national circumstances and requirements.

Major SDP Types

While investment protection remains a primary goal of IIAs, it is widely recognised that IIAs may and should be designed to meet the objectives of sustainable development. This might be accomplished by utilising the SDPs in IIAs. The current study relies primarily on the "subject matter" criteria to identify SDPs, which states that an IIA provision is considered an SDP if its subject matter reflects or incorporates one or more principles of sustainable development. Because sustainable development is a broad concept with a wide range of elements, such as natural resources, environmental protection, poverty eradication, gender equality, climate change, public interest, labour and human rights, and the rule of law and good governance, to name a few, SDPs are classified accordingly. The types of SDPs identify the type of sustainable development concerns that the SDPs would address.

The first type is known as "general sustainable development provisions" (GENs). Such provisions are frequently seen in the preambles of IIAs. It may also take the shape of a separate IIA clause termed "sustainable development." GENs seek to address broad sustainable development challenges rather than focusing on a specific sustainable development feature, such as environmental preservation.

Anti-corruption provisions (ATCs) are the second category. At both the international and national levels, anti-corruption is commonly seen as an important component of public policy and a key component of effective governance. ATCs can assist avoid and combat corruption related with transnational investment activities, and they can also help provide equal access to justice and establish effective, responsible, and inclusive institutions, as outlined in the SDGs.

Environmental provisions (ENVs) are the third type. ENVs are the traditional and most commonly encountered type of SDP in modern IIAs. They have also been the focus of extensive research in recent years. The term "environment" should be interpreted widely in this study to include not just the natural environment and resources, but also human, animal, and plant life, as well as public health and safety. ENVs are intended to address concerns about environmental protection in general. They obviously reflect the environmental dimension of sustainable development as well as certain parts of the social dimension.

The fourth category is labour and human rights provisions (LHRs).12 LHRs are primarily concerned with the protection of labour and human rights in connection with international investment activity. Depending on the specific IIAs, the scope of labour or human rights could be interpreted widely or narrowly. LHRs, in general, cover not only basic labour rights, such as those recognised by the International Labour Organisation (ILO), but also a broader range of social rights related to human rights, such as gender equality, poverty eradication, education, and employment. LHRs vividly reflect the many facets of sustainable development's social dimension.


1 IISD Model BIT, at iii.

2 e, e.g., Schneiderman, D., 2011. Legitimacy and Reflexivity in International Investment Arbitration: A New Self-Restraint, Journal of International Dispute Settlement 2(2), 471–476.

3 IISD, Without Investment, Sustainable Development is Impossible, available at topic/investment.

4 See, e.g., Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco (ICSID Case No. ARB/00/4), Decision on Jurisdiction, available at pdf.

5 See Chi, M., 2017. Integrating Sustainable Development in International Investment Law: Normative Incompatibility, Systematic Integration and Governance Implications (London & New York, Routledge), pp.17-18.

6 Vattenfall AB and others v. Federal Republic of Germany (ICSID Case No. ARB/12/12), available at http://investmentpolicyhub.

7 Philip Morris Asia Limited v. The Commonwealth of Australia (PCA Case No. 2012-12), available at http://investmentpolicyhub.

8 Chi, M., 2017. Integrating Sustainable Development in International Investment Law: Normative Incompatibility, Systematic Integration and Governance Implications (London & New York, Routledge), pp.156-157.

9 IISD, 2004. A Model International Investment Agreement for the Promotion of Sustainable Development, available at

10 See UNCTAD, 2012. Investment Policy Framework for Sustainable Development, available at

11 See UNCTAD, 2015. Investment Policy Framework for Sustainable Development, available at

12 Strictly speaking, labour rights and human rights are different, each has a different regulatory focus and approach. Human rights are rights inherent to all human beings that are universal and inalienable, while labour rights refer to entitlements that relate specifically to the role of being a worker. Some labour rights are recognized in human rights conventions and can be protected as human rights. For the purpose of the present study, the two terms are used interchangeably. See, e.g., Khalfan, A., International Investment Law and Human Rights, in Segger, M. C., Gehring, M. W. and Newcombe, A., eds., 2011. Sustainable Development in World Investment Law (Alphen aan den Rijn, Kluwer Law International), p.53.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More