{"id":8669,"date":"2021-12-20T19:54:40","date_gmt":"2021-12-20T18:54:40","guid":{"rendered":"https:\/\/cf.iisd.net\/itn\/?p=8669"},"modified":"2024-08-09T18:32:08","modified_gmt":"2024-08-09T16:32:08","slug":"icsid-tribunals-fail-to-address-the-imbalance-between-sustainable-development-principles-and-investment-protections","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2021\/12\/20\/icsid-tribunals-fail-to-address-the-imbalance-between-sustainable-development-principles-and-investment-protections\/","title":{"rendered":"ICSID tribunals fail to address the imbalance between sustainable development principles and investment protections"},"content":{"rendered":"

The importance of linking sustainable development and FDI<\/span> has garnered increasing attention in recent years. Sustainable development as a global paradigm has been endorsed by international bodies and stamped onto global political initiatives; organizations such as the OECD<\/span> have developed action plans to leverage public funding tools for infrastructure projects in developing countries in support of the United Nations\u2019 Sustainable Development Goals (SDGs).\u00a0 Additionally, the importance of reconciling investment treaties with the SDGs was raised at UNCTAD<\/span>\u2019s 2020 IIA<\/span> Conference, where delegates recognized five sustainable development principles that should guide the content and application of IIAs. This paradigm shift resulted in sustainable development\u2019s core conceptual components appearing in many international treaties; recent UNCTAD statistics reveal that 71 treaties cite sustainable development criteria to qualify as an investment, although many of these provisions have yet to be tested via an arbitration case.[1]<\/sup><\/a> <\/span> Nevertheless, the growing call to prioritize non-commercial interests in IIAs raises the question, contemplated in this article, of whether the existing practice of ISDS<\/span>, modified slightly by IIAs containing reference to sustainable development, provides an appropriate forum for integrating sustainable development concerns into foreign investment practices.\u00a0<\/span><\/p>\n

The article first highlights <\/span>why<\/span><\/i> ISDS mechanisms under ICSID Convention<\/span> Rules do not include standards for measuring sustainability that can be applied universally by tribunals. It will then explain why tribunals have struggled to apply and interpret sustainable development criteria that have been incorporated within the definition of \u201cinvestment\u201d by the drafters of IIAs. Then, it underscores the ongoing struggles of ICSID<\/span> tribunals in engaging with progressive components of the definition of investment that seek to reconcile investment\u2019s normative framework with the sustainable development paradigm.\u00a0 Finally, it proposes ways that the drafters of BITs could address ICSID tribunals\u2019 potential disregard of sustainable development standards.<\/span><\/p>\n

The ambiguity surrounding the notion of investment<\/h1>\n

The definition of investment takes on a crucial role in the context of ISDS, determining whether tribunals have jurisdiction over a claim. As a new qualifying criterion, sustainable development may limit both the jurisdiction of ICSID and the scope of application of IIAs.\u00a0<\/span><\/p>\n

Despite the pivotal role that the definition of investment plays, there is no uniformity across BITs and the ICSID Convention. Traditionally, the definition of investment in BITs was non-exhaustive and asset based. For example, the German model BIT<\/span> definition rests on a broad range of assets with an illustrative list of examples.[2]<\/sup><\/a><\/span> Those definitions did not specify any qualitative criteria for investment, providing significant leeway for tribunals to determine the scope of investment. For its part, the ICSID Convention does not provide a definition of investment, but, in Article 25, merely limits ICSID\u2019s jurisdiction to disputes arising \u201cdirectly out of an investment.\u201d[3]<\/sup><\/a><\/span> In the absence of clear guidance with respect to the definition of investment in the Convention, tribunals have adopted two divergent approaches. The first approach assumes that the deliberate absence of the definition of investment was a strategic decision on the part of drafters, authorizing the parties when negotiating a BIT to decide on relevant criteria themselves. The second approach theorizes that the lacuna created by drafters is an unintended omission that must be rectified with reference to an autonomous definition of investment completely separate from the underlying treaties or the instrument of consent.\u00a0 This article argues that neither approach promotes the accommodation of sustainable development as a qualifying characteristic of investment.\u00a0<\/span><\/p>\n

Conceptualist approach versus consensual approach: A tale of two diverging positions<\/h1>\n

The consensual approach<\/h3>\n

This approach considers consent to be the bedrock of the ICSID Convention, prompting some tribunals to draw references from the underlying treaty when interpreting the notion of investment[4]<\/sup><\/a><\/span> and requires that tribunals consider the intention of the contracting parties when determining what qualifies as an investment.\u00a0<\/span><\/p>\n

It is important to note that this approach provides a robust foundation for the full realization of the concept of sustainable development, as the parties enjoy wide discretion to determine what counts as an investment in their treaties.\u00a0\u00a0<\/span><\/p>\n

However, this approach has failed to garner the endorsement necessary by tribunals. Opponents of this approach considered that the overreliance on Article 25 would give rise to the tide of inconsistency across ICSID jurisprudence. Leading commentators also remarked that the flexibility allowed by this approach would eventually lead to a piecemeal and inconsistent approach.[5]<\/sup><\/a><\/span>\u00a0\u00a0<\/span><\/p>\n

The conceptual approach<\/h3>\n

Growing resistance toward the consensual approach led to the emergence of another school of thought that treats the definition of investment as inalterable by contracts or treaties.\u00a0 This approach is exemplified in <\/span>Salini et al. v. Morocco<\/span><\/i>, which<\/span> laid out a four-prong test identifying the intrinsic characteristics of an \u201cinvestment.\u201d[6]<\/sup><\/a><\/span> The <\/span>Salini<\/span><\/i> test proposes the following features as the main constitutive elements of investment:\u00a0<\/span><\/p>\n