Signalling Virtue: Claimant’s use of sustainable development in ISDS

Introduction

The relationship between international investment law and sustainable development is complex. Some authors argue that IIAs do not constitute a structural impediment to sustainable development, while maintaining that more could be achieved to actively promote sustainability.[1] Kate Miles even suggests that the emergence of sustainable development bears “the potential to transform international investment law [IIL] in fundamental ways.”[2] It is in this context that several authors examine how IIAs have evolved to take this concept into consideration.[3] With respect to ISDS, studies primarily focus on tribunals’ responsiveness—or lack thereof—to sustainable development issues. Among other endeavours,[4] the OECD published a fact-finding survey in which it highlighted the use of sustainable development-sensitive keywords by tribunals.[5]

In this piece, we shift focus from treaties and tribunals to examine how foreign investors engage with the notions of “sustainable development” and “sustainability” in their submissions. From Dupont and Shultz, we know that IIL constitutes an interactive political system driven by the input and output dynamics that different participants generate through their interactions.[6] Dupont and Schultz explain that, with respect to investors’ claims, “[t]their input […] revolves around the claims they file or threaten to file, for instance under what conditions they do so, against which states, which procedural rules or institution they use, what they seek to obtain in doing so, how they frame their claims, and so on.”[7] Accordingly, the framing of the claims and the investors’ engagement with sustainability matter, especially given the persisting calls to reform the system.

Accordingly, in this study, we inquire: “How do claimants use the concepts of sustainable development and sustainability in ISDS?” A full-text search of the content of dispute documents reveals that claimants have extensively referred to these concepts. Using the Investor-State LawGuide database, we identified 353 dispute documents with at least one reference to “sustainable development” and 293 others referring to “sustainability.” For present purposes, we limited our focus to documents submitted by claimants. These documents include notices of intent, notices of arbitration, claimants’ memorials, claimants’ rejoinders, claimants’ counter memorials, claimants’ applications for provisional measures, claimants’ comments on non-disputing party submissions, hearing transcripts, and claimants’ post-hearing briefs. A total of 134 documents were considered for this analysis.

Our preliminary findings suggest that claimants primarily instrumentalize the concepts of sustainable development and sustainability to signal virtue in legal proceedings and to legitimize their reliance on ISDS. Beyond some unintended allusions to the concepts, the overwhelming majority of references seek to present claimants as contributing to sustainable development through their economic activities. We also identify few, but existing, instances where references to sustainable development and sustainability have been made in the context of the merits of the claim, primarily with a view to prioritizing investment protection.

1. Unintended allusions to sustainable development

An analysis of the documents submitted by claimants demonstrates that the consideration of sustainable development and sustainability can be limited to coincidental allusions to these terms. For example, references to sustainable development and sustainability are sometimes limited to the name of an organization (e.g., the International Institute for Sustainable Development),[8] to the position of an individual (e.g., Commissioner of the Environment and Sustainable Development),[9] or to the title of a document.[10] Other documents include references to sustainability that do not relate to the concept of sustainable development in any way. Examples of this practice vary extensively, including discussions on the “legal sustainability” of a claim,[11] the “sustainability and profitability of the Claimant’s investment,”[12] or the “fiscal sustainability” of the respondent state.[13] These instances do not include any form of engagement by the claimants with the meaning of the concepts, as they do not demonstrate an actual attempt by the foreign investor to articulate any arguments by relying on sustainable development or sustainability.

2. Claiming a contribution to sustainable development

Foreign investors are not oblivious to the notions of sustainability and sustainable development. However, as our preliminary findings show, the investors predominantly reference the concepts of sustainability and sustainable development to bring to the fore their status as good corporate citizens. In this context, the investors attempt to demonstrate their commitment and contributions to sustainability without directly engaging with the treaty provisions. In their submissions, the investors’ practice focuses on selective disclosure for a commercial gain in the context of legal proceedings.

Picturing the investment as contributing to sustainable development

Our preliminary findings show that in their ISDS submissions, foreign investors adopt at least three different approaches in framing their contributions to sustainable development and sustainability. The first approach focuses on claiming the sustainability of a particular investment project in dispute. Some investors highlight that their investment projects directly contributed to sustainable development in the host state. For example, in the AbitibiBowater v Canada case, the investor submits that “[t]his massive investment by AbitibiBowater, which was merely the opening step in an ongoing investment process […] was instrumental in the economic, social, and sustainable development of the region.”[14] In Spence International Investments v Costa Rica, the investor adopts similar rhetoric in its memorial. Specifically, it submits that “[a]t all times, the Claimants were committed to developing their land in a manner that was not only sustainable but was protective of one of Guanacaste’s most famous seasonal visitors: nesting Leatherback turtles.”[15] Similarly in Gabriel Resources v Romania, the investor extensively follows this approach in at least seven of its submissions. In the Claimant’s Memorial the investor thus argues that, the Project reflected an integrated and well-funded plan that would have provided economic returns to the State, jobs for the local community, remediated historical pollution at Roşia Montană (which was the State’s obligation under the Roşia Montană License), preserved and promoted cultural and architectural heritage, and created or enhanced the area’s infrastructure, all of which would have laid the foundation for the long-term sustainable economic development of Roşia Montană and its environs and thereby leave the community far better off than before.[16]

Accordingly, under the first approach, the investors reference sustainability in the context of the specific investment project in dispute.

Picturing the investor as contributing to sustainable development

The second approach involves broader references to the socially responsible activities that contribute to sustainability in the host state. Such activities, however, are not necessarily tied to a particular investment project. For example, in Odyssey v Mexico, the investor submits that it “applies principles of environmental stewardship and sustainability in all of its work.[17] Similarly, in the Ballantine v Dominican Republic case, the investor suggests that, [i]n addition to developing Jamaica de Dios [a particular investment project], the Investors have continued with their missionary work by funding numerous social development and environmental sustainability programs, including community water filtration projects, healthcare programs, housing projects, and reforestation programs in the Dominican Republic.[18]

Notably, the counsel’s turn of phrase here is poor. At a minimum, the wording “missionary work” used in the 21st century echoes colonialist undertones.[19] The non-project-specific references are evident in the investors’ submissions before the infamous Bear Creek v Peru tribunal. According to the investor, Bear Creek has been active in Peru for more than a decade and has always been proud to be part of its vibrant mining community. An important objective of the Company’s corporate social responsibility (“CSR”) and sustainable development strategy is to build positive working relationships with communities near its active projects and thereby gain a “social license” to operate.[20]

In this case, the investor launched a mining project in Peru that resulted in major social unrest. According to Phillipe Sands, a dissenting arbitrator in this case, the unrest materialized in part because of a failure of investors to address the persisting concerns raised by the local Indigenous communities.[21] As a result, the Peruvian Government had to suspend investor’s operations in the area. This decision by the government prompted the investor to launch an investment dispute.[22] The majority and dissent disagreed (among other issues) on the quantum and the assessment of the contributory fault of the investor to the social unrest.[23] Notably, despite the investor’s claims that it obtained the social licence to operate, Sands found that the investor failed to secure it in the context of the Santa Ana investment project.[24]

Sustainable development as part of the investor’s business model

Under the third approach, the investors claim that sustainability is a constitutive element of their business model. For example, in the oral hearings for the Merrill & Ring v Canada case, the counsel for the investor made the following statement: “[w]e do have a guiding philosophy. As a family business that has been in existence for over 120 years in both British Columbia and the state of Washington, sustainability is right on the top of that list, if you will, of our guiding philosophies.”[25] In Westmoreland v Canada, the investor decided to display most of its achievements on the issues of sustainability by referencing its many designations, such as, “Silver level PAR (Progressive Aboriginal Relations) designation.”[26] In William Ralph Clayton et al v Canada, the investors state that “[t]he Clayton Companies have been recognized as outstanding corporate citizens, for leadership in corporate social responsibility.”[27] Such statements illustrate that some investors frame their submissions to the ISDS tribunals by highlighting their commitment to sustainability.

Beyond these three approaches to demonstrate the claimants’ contribution to sustainable development, the fact that several references are included in notices of intent or notices of arbitration is worth noting. To a certain extent, it suggests that claimants seek to legitimize their reliance on ISDS. In some disputes, the only references to sustainable development among all the documents submitted by the claimant in the entire dispute are found in these notices.[28] There thus appears to be an attempt at pre-empting opposition to the investment claim from the very beginning—that is, without further engaging with the concept.

3. Limiting the relevance of the concepts

In addition to unintended allusions to the concepts and attempts at demonstrating their contribution toward sustainability, our analysis highlights some instances where claimants have relied on sustainable development and sustainability in the context of the merits of the case. These references remain relatively sparse, but they are relevant to demonstrate how foreign investors engage with the concepts and seek to render them meaningless to adjudicate the disputes.

Some claimants have alluded to sustainable development with a view to stressing that efforts by the respondent states to promote sustainability should not affect the protection of foreign investment. For example, in the Claimants’ Reply Memorial in Mobil and Murphy v Canada, the claimants provided a response to the respondent state’s treatment of certain facts and ultimately argued that they were “irrelevant to the Tribunal’s decision, but which should nevertheless be corrected.”[29] According to the claimants:

The fact is, however, that policy considerations such as the ‘sustainable development’ of the Province are not determinative of the issues in dispute in this case, nor is the notion of ‘sustainable development’ even aptly invoked in this instance. The concept of sustainable development reflects the ‘need to reconcile economic development with protection of the environment.’ The Guidelines, on their face and in practice, have nothing to do with protecting the environment. They are instead exclusively directed toward promoting economic development. The doctrine of sustainable development, therefore, is not properly engaged.[30]

In other words, the claimants sought to impede the reliance on the concept of sustainable development, arguing that the promotion of economic development was the primary focus of the measures at play.

The prioritization of economic development over environmental protection is even more vivid in Spence International Investment et al. v Costa Rica. In the Claimant’s Post-Hearing Brief, the claimant relies on the reference to sustainable development in the preamble of the applicable Dominican Republic-Central America Free Trade Agreement (CAFTA):

Unlike the Parties’ proposed interpretation of Articles 17.1 and 17.2, Article 17.9 is consistent with the relevant language of the CAFTA preamble (viz. “[to] ENSURE a predictable commercial framework for business planning and investment”). It signals the Parties’ original understanding and intention, that the promotion and protection of investment could be accomplished in a manner consistent with protection of the environment and sustainable development. The Claimants have not challenged Costa Rica’s right to protect its natural environment as it sees fit, just as so long as, in so doing, it also honours the obligations it explicitly undertook in CAFTA Chapter 10, to attract and maintain foreign investments, and which it owes under customary international law, in any event.[31]

Concretely, such a reliance on sustainable development considerably limits its relevance in a context of adjudicating an investment dispute. Rather than engaging with the meaning of the concept, it swiftly evacuates it and effectively prioritizes investment protection over the promotion of sustainable development and sustainability.

Conclusion

As our findings show, the claimants do not avoid the concepts of sustainable development and sustainability in their submissions. Leaving aside instances in which dispute documents include unintended reference to these concepts, it is clear that claimants have embraced and relied on sustainable development and sustainability extensively. However, upon a closer look, these references show that the claimants largely engage in virtue signalling. When foreign investors utilize these concepts substantively, it is to further limit their relevance in resolving the claims. Accordingly, claimants primarily seek to demonstrate their positive contribution to the sustainable development of the community in which they operate. In other words, references to sustainable development and sustainability constitute efforts to legitimize the use of arbitration to resolve the investment dispute.

We intend to continue the examination of the terms on which the investors engage with the concepts of sustainable development and sustainability. These preliminary findings are nevertheless relevant, especially in the context of the (re)negotiation of IIAs. With treaties that increasingly include references to sustainable development, one wonders whether the inclusion of this concept will bring a meaningful change in the practice of claimants. In fact, several documents analyzed above are part of disputes relating to IIAs that are silent on sustainable development and sustainability. Yet, this has not prevented investors to seek to legitimize their claims by bringing to the fore their own contribution toward sustainable development and sustainability. This provides a strong argument to expect tribunals to effectively engage and demonstrate responsiveness to sustainable development issues, even if states have not expressly included the concept in the applicable IIA.

Moreover, in light of the asymmetrical nature of the ISDS regime, efforts by foreign investors to claim a contribution toward the sustainability of the community in which they operate should be taken into consideration to balance the rights and obligations of states and foreign investors. When a claimant argues that it brings a positive contribution to the community, this should be considered by the tribunal to assess the broader claim and to take into consideration the foreign investor’s (mis)conduct. Whether a measure adopted by the respondent state to limit the negative impact of the investment on the community violates international investment obligations should be assessed in light of such an argument.


Authors

Ksenia Polonskaya, Assistant Professor, Department of Law and Legal Studies, Carleton University. Jean-Michel Marcoux, Assistant Professor, Department of Law and Legal Studies, Carleton University.


Notes

[1] See, for example, Newcombe, A. (2007). Sustainable development and investment treaty law. The Journal of World Investment & Trade, 8(3), 357–407.

[2] See Miles, K. (2013). The origins of international investment law: Empire, environment, and the safeguarding of capital. Cambridge University Press, at 370.

[3] See, for example, Gehring, M. W. & Kent, A. (2012). International investment agreements and sustainable development: Future pathways. In E. J. Techera (Ed.), Routledge handbook of international environmental law. Routledge, at 561; Gehring, M. W. & Kent, A. (2013). Sustainable development and IIAs: From objective to practice. In A. de Mestral & C. Lévesque (Eds.), Improving international investment agreements. Routledge, at 284;  Mayeda, G., VanDuzer, J. A., & Simons, P. (2013). Integrating sustainable development into international investment agreements: A guide for developing country negotiators. Commonwealth Secretariat.

[4] See, for example, Brown, C. (2011). Bringing sustainable development issues before investment treaty tribunals. In M.-C. Cordonier Segger, M. W. Gehring, & A. Newcombe (Eds.), Sustainable development in world investment law. Kluwers Law International, 175; Henckels, C. (2014). Balancing investment protection and sustainable development in investor-state arbitration: The role of deference. In A. K. Bjorklund (Ed.), Yearbook on international investment law & policy 2012-2013. Oxford University Press, 305; Berner, K. (2016). Reconciling investment protection and sustainable development. In S. Hindelang & M. Krajewski (Eds.), Shifting paradigms in international investment law: More balanced, less isolated, increasingly diversified. Oxford University Press, 178; Acconci, P. (2018). Sustainable development and investment: Trends in law-making and arbitration. In A. Gattini, A. Tanzi, & F. Fontanelli (Eds.), General principles of law and international investment arbitration. Brill, 290.

[5] See Gordon, K., Pohl, J., & Bouchard, M. (2014). Investment treaty law, sustainable development and responsible business conduct: A fact-finding survey (OECD working papers on international investment 2014/01).

[6] Dupont, C. & Schultz, T. (2016). Towards a new heuristic model: Investment arbitration as a political system. Journal of International Dispute Settlement, 7(1), at 5.

[7] Ibid at 7 [emphasis added].

[8] See, for example, Amec Foster Wheeler USA Corporation (USA) et al v Republic of Colombia, ICSID Case No. ARB/19/34, Reply on Preliminary Objections (13 December 2021), para 294; Canfor Corporation et al v United States of America, UNCITRAL, Post-hearing Submission of Canfor Corporation and Terminal Forest Products Ltd. (22 July 2005), fn 18; William Ralph Clayton et al v Government of Canada, PCA Case No. 2009-04, Reply Memorial of the Investors (21 December 2011), para 125; Methanex Corporation v United States of America, UNCITRAL, Submissions of the Claimant Respecting Petition of the International Institute of Sustainable Development (31 August 2000), para 1.

[9] See, for example, BSG Resources Limited v Republic of Guinea, ICSID Case No. ARB/14/22, Claimant’s Rejoinder to the Republic of Guinea’s Request under Article 28(1) and 39(1) of the ICSID Arbitration Rules (19 June 2015), para 76; Chemtura Corporation v Government of Canada, UNCITRAL, Reply of the Claimant/Investor (28 June 2008), para 63.

[10] See, for example, Bear Creek Mining Corporation v Republic of Peru, ICSID Case No. ARB/14/21, Claimant Rejoinder on Jurisdiction (26 May 2016), para 163; Legacy Vulcan LLC  v United Mexican States, ICSID Case No. ARB/19/1, Claimant’s Post-Hearing Reply (16 December 2021), para 10; Lone Pine Resources Inc v Government of Canada, UNCITRAL, Claimant’s Comment on an Application for Leave to File Amicus Curiae Submissions (30 August 2017), para 21.

[11] See, for example,  Amec Foster Wheeler USA Corporation (USA) et al v Republic of Colombia, ICSID Case No. ARB/19/34, Memorial on Preliminary Objections (1 July 2021), fn 351.

[12] See, for example,  B-Mex LLC et al v United Mexican States, ICSID Case No. ARB(AF)/16/3, Reply on the Merits (6 December 2021), para 554.

[13] See, for example,  Gramercy Funds Management LLC and Gramercy Peru Holdings Inc v Republic of Peru, ICSID Case No. UNCT/18/2, Claimants’ Post-Hearing Brief on Jurisdiction (31 August 2020), para 62; Gramercy Funds Management LLC and Gramercy Peru Holdings Inc v Republic of Peru, ICSID Case No. UNCT/18/2, Claimants’ Post-Hearing Brief on Merits and Remedies (1 July 2020), para 67.

[14] AbitibiBowater Inc v Government of Canada, ICSID Case No. UNCT/10/1, Notice of Intent to Submit a Claim to Arbitration (23 April 2009), para 21 [emphasis added].

[15] Spence International Investments LLC et al  v Costa Rica, ICSID Case No. UNCT/13/2, Claimant’s Memorial on the Merits (26 April 2014), para 3.

[16] Gabriel Resources Ltd and Gabriel Resources (Jersey) Ltd v Romania, ICSID Case NO. ARB/15/31,           Claimants’ Memorial (30 June 2017), para 11 [emphasis added].

[17] Odyssey Marine Exploration Inc v United Mexican States, ICSID Case No. UNCT/20/1, Notice of Intent to Submit a Claim to Arbitration (4 January 2019), para 21 [emphasis added].

[18] Michael Ballantine et al v Dominican Republic, PCA Case No. 2016-17, Notice of Intent to Submit a Claim to Arbitration (12 June 2014), para 19 [emphasis added].

[19] Davidson, C. (2022). An evangelical occupation: The racial and imperial politics of US protestant missions in the Dominican Republic. In T. Wenger & S. A. Johnson (Eds.), Religion and US empire: Critical new histories. NYU Press.

[20] Bear Creek Mining Corporation v Republic of Peru, ICSID Case No. ARB/14/21, Claimant’s Memorial on Merits (29 May 2015), para 57 [emphasis added].

[21] Paine, J. (2018). Case comment: Bear Creek Mining Corporation v Republic of Peru: Judging the social license of foreign investments and applying new style investment treaties. ICSID Review, 33(12), at 341.

[22] Ibid.

[23] Bear Creek Mining Corporation v Republic of Peru, ICSID Case No. ARB/14/21, Partial Dissenting Opinion by Professor Phillip Sands (12 September 2017), paras 3, 37; Bear Creek Mining Corporation v Republic of Peru, ICSID Case No. ARB/14/21, Award (30 November 2017), para 412.

[24] Bear Creek v Peru, Partial Dissenting Opinion, supra note 23, para 3.

[25] Merrill & Ring Forestry LP  v Government of Canada, UNCITRAL, Hearing on Jurisdiction and the Merits (18 May 2009) at 92 [emphasis added].

[26] Westmoreland Coal Company v Government of Canada, ICSID Case No. UNCT/20/3, Notice of Arbitration and Statement of Claim (19 November 2018) at 5.

[27] William Ralph Clayton et al v Government of Canada, PCA Case No. 2009-04, Memorial of the Investors (25 June 2011), para 33.

[28] See, for example, Peter A. Allard v Government of Barbados, PCA Case No. 2021-06,Notice of Dispute (8 September 2009), para 6; Michael Ballantine et al v Dominican Republic, supra note 18, para 19; Freeport-McMoRan Inc v Republic of Peru, ICSID Case No. ARB/20/8, Notice of Intent to Submit Claims to Arbitration (26 November 2019), para 32; Freeport-McMoRan Inc v Republic of Peru, ICSID Case No. ARB/20/8, Claimant’s Notice of Arbitration (28 February 2020), para 27; Infinito Gold Ltd v Republic of Costa Rica, ICSID Case No. ARB/14/5,Notice of Breach of the Agreement (4 April 2013) at 1.

[29] Mobil Investments Canada Inc and Murphy Oil Corporation v Government of Canada, ICSID Case No. ARB(AF)/07/04, Claimants’ Reply Memorial, Annex A, para 2.

[30] Ibid, paras 3 and 4 [emphasis added].

[31] Spence International Investments LLC et al v Costa Rica, ICSID Case No. UNCT/13/2, Claimants’ Post-hearing Brief (26 May 2015), paras 23-24 [emphasis added].