Six Reasons for Emphasizing Responsible Business Conduct in the Nascent WTO Agreement on Investment Facilitation for Development

Karl P. Sauvant
October 13, 2022

Enterprises are increasingly expected to observe environmental, social and governance (ESG) indicators and report about them. In the context of foreign direct investment (FDI), it is becoming more and more common to require foreign investors to engage in responsible business conduct as prescribed in national, bilateral, regional, and multilateral instruments (laws, treaties) dealing with FDI. It is a concept that is replacing corporate social responsibility as the dominant concept, as responsible business conduct refers not only to social issues, but also to development issues (as reflected, for instance, in the OECD Guidelines for Multinational Enterprises).

This trend is important, as it is of immediate relevance to the ongoing WTO negotiations on an Investment Facilitation for Development Agreement, scheduled to be concluded by the end of this year.

The bulk of this Agreement focusses on specific measures that make it easier for enterprises to invest abroad. These measures - most of which have been agreed - focus on improving the investment framework in individual WTO Members by making it more transparent, predictable and streamlined and enhancing international cooperation on FDI matters. These improvements (assuming the economic FDI determinants are favorable) should lead to increased FDI flows that, in turn, make a contribution to sustainable development.

But the Agreement also foresees measures that directly contribute to development by, in particular, encouraging international investors to engage in responsible business conduct (RBC), an important aspect of sustainable FDI. More specifically, WTO Members are being enjoined to voluntarily incorporate into their business practices and internal policies internationally recognized RBC principles, standards and guidelines. These principles, standards and guidelines address such areas as labor issues, the environment, gender equality, human rights, community relations, and the rights of Indigenous peoples. The draft Agreement also enjoins Members to engage in dialogue with Indigenous peoples, traditional communities and local communities; implement due diligence to identify and address adverse impacts (e.g., on the environment and labor conditions) in their operations and their supply chains and other business relationships; and to exchange information and best practices in the (to be established) WTO Committee on Investment Facilitation, including on possible ways to facilitate the uptake of RBC by international investors.

However, full consensus has not yet been reached on a provision along these lines in the Agreement. This is deplorable because having a strong RBC provision in the Agreement would directly contribute to the Agreement’s objective, namely that it seeks investment facilitation for development

In finalizing the text of the Investment Facilitation for Development Agreement, it may be helpful to WTO delegates to be aware of some of the principal characteristics of the trend regarding RBC efforts at the national, bilateral, regional, and multilateral levels dealing with foreign direct investment:

  • First and foremost, including RBC in international investment agreements (IIAs) is a clear and pervasive trend. To put it differently: virtually all modern investment agreements contain provisions on RBC (or CSR). However, they are seldom mandatory in nature, i.e., the implementation of these provisions is typically voluntary. Hence, governments need to strengthen their approach to protecting, respecting and remedying RBC standards.
  • Second, what one could call key procedural elements of RBC are increasingly getting attention (though to different degrees), be it at the national, bilateral, regional, or multilateral levels. These elements include supply-chain due diligence, stakeholder consultations, references to international standards, and the exchange of information on best practices.
  • Third, it is now becoming common place (though to different degrees) to refer specifically to what one could call key substantive elements of RBC on which international investors need to focus. These include labor, environment, gender equality, human rights, community relations, and Indigenous communities.
  • Sixth and last but not least, since virtually every important country in which most big multinational enterprises are headquartered has endorsed the international instruments just mentioned and expect their firms to engage in RBC conduct, an important implication is that countries in which these enterprises invest - including developing countries - do not have to be afraid to require international investors to observe RBC standards when seeking to attract and facilitate incoming FDI: they know that the home countries of these investors expect the same thing.

What does all of this mean for the WTO negotiations of an Investment Facilitation for Development Agreement? It means that there is a strong case - in fact a compelling case - to include a strong provision on RBC in the WTO Agreement. And such a provision should specifically refer to the procedural and substantive elements of RBC that were mentioned earlier in this blog. It is important that international investors observe RBC standards, as this helps to increase the development impact of FDI - which is, after all, the objective of the WTO Agreement and a broad approach toward promoting ESG objectives.

About the Author:

Karl P. Sauvant is Senior Fellow, Columbia Center on Sustainable Investment, a joint center of Columbia Law School and the Earth Institute, Columbia University. He is also Senior International Adviser to the International Trade Centre (ITC) and the German Institute of Development and Sustainability (IDOS) on a project on Investment Facilitation for Development. This text benefitted from discussions during a public webinar on “Key elements of responsible business conduct in a WTO Investment Facilitation for Development Agreement” organized by ITC and IDOS in September 2022.