Better understanding the negative impacts of international investment law for human rights and the environment

By Elisa Morgera and Thierry Berger

The UN Special Rapporteur on Human Rights and the Environment, and the UN Working Group on Business and Human Rights have raised the alarm about the negative impacts on the environment and on human rights of foreign investment in offshore energy projects, deep-seabed mining and other blue economy initiatives, relying on evidence provided by the One Ocean Hub and partner International Institute for Environment and Development (IIED) on the basis of earlier research on international investment law and blue economies.

Human rights concerns in relation to foreign investment in blue economies and offshore energy

The UN Special Rapporteur on Human Rights and the Environment, Prof David Boyd, published his latest report “Paying polluters: the catastrophic consequences of investor-State dispute settlement for climate and environment action and human rights” (UN Doc A/78/168) to underscore “compelling evidence that a secretive international arbitration process called investor-State dispute settlement (ISDS) has become a major obstacle to the urgent actions needed to address the planetary environmental and human rights crises.” Boyd indicated that “foreign investors use the dispute settlement process to seek exorbitant compensation from States that strengthen environmental protection, with the fossil fuel and mining industries already winning over $100 billion in awards.”

Boyd cited the submission from the One Ocean Hub and IIED to underscore the need for attention to this phenomenon also in the context of blue economies:

Boyd also mentioned other points which were raised in that submission, namely that many investment projects fail to respect the rights of Indigenous peoples to free, prior informed consent, consult with other affected communities and to comply with environmental impact assessment laws (para 58). He referred to environmental human rights defenders who mobilise against large-scale investment projects because of the adverse impacts they have on the environment, livelihoods and culture (ibid). He also noted that the “exclusive focus of ISDS claims on investors and States routinely results in public participation, community concerns and human rights being ignored at all stages of the process.” (para 25)

Boyd referred to fossil fuel companies that use ISDS to stop climate action (para 45). This is deeply concerning since “[…] more than 10,000 fossil fuel assets worldwide are covered by ISDS provisions, including three quarters of foreign-owned coal-fired power plants, raising the spectre that States may be reluctant to phase out coal in a timely manner.” (ibid)

ISDS therefore “exacerbates inequality”, “the disproportionate harms suffered by vulnerable and marginalized populations” (para 7) and “climate emergency” (para 48), which are key concerns already underscored by IIED.

In addition, Boyd reported on two cases regarding offshore oil developments:

  • In 2017, the Government of Italy banned oil drilling within 12 miles of its shoreline, but the British oil company Rockhopper launched an ISDS claim because the prohibition stopped its planned offshore oil drilling project. Italy lost the case and was ordered to pay $290 million to Rockhopper as compensation, which is approximately six times more than Rockhopper invested. Rockhopper announced it would use this payment to finance oil exploration activities off the coast of the Falkland Islands (para 39);
  • In 2018, New Zealand banned new offshore oil exploration but did not cancel existing offshore oil permits and left the door open to new onshore oil development. New Zealand chose not to go further because of the danger of costly ISDS claims (para 50).

On similar lines, in the 2023 report of the UN Working Group on Human Rights and Transnational Corporations and other Business Enterprises on “Extractive sector, just transition and human rights” (UN Doc A/78/155), it was underscored that “it is important to consider the human rights and environmental impacts of the blue economy, including offshore energy and seabed mining projects” (para 44), as emphasized in the Hub submitted evidence to the UN Working Group.

The need for radical reforms of international law on foreign investment

The UN Special Rapporteur identified a series of specific actions that States must take to avoid future claims under the ISDS process and fulfil their human rights obligations, based on the conclusion that the ISDS system, “with its roots in colonialism and extractivism, is not fit for purpose in the twenty-first century because it prioritizes the interests of foreign investors over the rights of States, human rights and the environment” (para 73).

Boyd also stressed that ISDS has the effect of “deterring, delaying and watering down States’ climate and environmental policy decisions” due to the “astronomical costs” associated with ISDS arbitration. This in turn has negative impacts on participatory rights, as well as the rights to life, health, food and water, cultural rights and the right to a healthy environment (para 74). He made it clear that the “rights to life, health, food and water, cultural rights and the right to a clean, healthy and sustainable environment are being violated and will continue to be violated, and the rule of law will continue to be undermined, unless the ISDS system is eliminated” (para 74).

Boyd recommended a series of recommendations for all States to (para 75):

  • Eliminate exposure to future ISDS claims, for example through the removal of ISDS mechanisms from all existing treaties and the termination of survival clauses, and the termination of treaties that include ISDS, including the Energy Charter Treaty;
  • Refuse to include ISDS in new investment treaties; and
  • Negotiate, with full transparency and inclusive public participation, new treaties that protect human rights and the environment.

With regard to a new generation of investment treaties, the Special Rapporteur called for:

  • Safeguarding States’ ability to take ambitious and effective climate and environmental actions;
  • Guaranteeing States’ ability to take actions intended to fulfil their human rights obligations;
  • Incorporating clear definitions of terms, including expropriation, fair and equitable treatment and legitimate expectations;
  • Designating domestic courts as the appropriate forum for resolving investor-State disputes and where necessary strengthening the independence, tenure and expertise of judges;
  • Precluding compensation claims in domestic courts by foreign investors that violate domestic legislation, commit human rights abuses or otherwise fail to comply with national, regional and international standards;
  • Precluding compensation claims in domestic courts by mailbox corporations established primarily for taking advantage of IIAs;
  • Capping any compensation at the amount the foreign investor can prove it has invested in a project and not recouped;
  • Ensuring timely and affordable access to justice with effective remedies for communities and individuals whose human rights are threatened or affected by foreign investors; and
  • Promoting the values of transparency, accountability, equality, non-discrimination, prevention and sustainable development.

With regard to the conduct of foreign investors, the UN Special Rapporteur recommended:

  • imposing enforceable human rights responsibilities on foreign investors, including mandatory human rights and environmental due diligence; in that connection, see also the recommendations made by the One Ocean Hub specifically on foreign investment in the blue economy;
  • Conduct, in line with the Guiding Principles on Business and Human Rights, impact assessments of trade and investment agreements, ex ante and ex post impact assessments of IIAs on human rights and the environment and implement all recommendations; and
  • support negotiations towards the proposed international treaty on transnational corporations and human rights, and swiftly ratify it once an agreement is reached.

The One Ocean Hub has been invited to make a presentation on business and human rights in the context of the blue economy to 14th Biennial Conference of the Network of African National Human Rights Institutions (18-20 October, Accra, Ghana) and prepare a chapter on this topic for the Research Handbook on Sustainability and Corporate Accountability, which will be published by Edward Elgar in 2024. IIED just released a new article on the need to place climate at the centre of investment treaty reform. It is also participating in global reform processes including at the United Nations Commission on International Trade Law (UNCITRAL) and the United Nations Conference on Trade and Development (UNCTAD).

Main photo: Elisa Morgera

Related SDGs:

  • Gender equality
  • Climate action
  • Life below water