Strengthening Sustainable Investment through International Investment Agreements

3. Domestic practices fostering sustainable investment

Abstract

This chapter reviews domestic practices from selected jurisdictions that can contribute to fostering sustainable investment, in alignment with the principles of the FDI Qualities Recommendation. Section 1 describes the methodology guiding the review of domestic practices. Section 2 provides an overview of the identified practices, reflecting on how they can be considered as possible approaches to implement international investment agreements (IIAs) at the domestic level. Section 3 draws conclusions on how the identified practices can influence the drafting of future IIAs.

3.1. Rationale and methodology

This chapter provides an overview of domestic practices from selected jurisdictions that can contribute to sustainable investment, in alignment with the principles of the FDI Qualities Recommendation (FDIQR). Relevant jurisdictions have been chosen to ensure an adequate balance between OECD and non-OECD countries. Regional experience and practices are also considered, looking specifically at the European Union (EU), the Southern African Development Community (SADC), the East Africa Community (EAC), and the Association of Southeast Asian Nations (ASEAN). The full list of jurisdictions from which examples of domestic practices have been selected is set out under Table ‎3.1.

The consideration of what states are doing domestically to harness sustainable investment has direct relevance for international investment agreements (IIAs). It can provide guidance on the policy tools and instruments that states have at their disposal to domestically implement IIAs commitments, in line with the principles of the FDIQR. To some extent, the analysis of domestic practices can also offer indications as to how IIA treaty-making practice could evolve in the future, to the extent that parties wish to integrate in IIAs additional sustainable investment elements, in line with the principles of the FDIQR.

The analysis of domestic practices is not meant to be exhaustive. The purpose of this Chapter is not to carry out a comprehensive mapping of all domestic practices that may contribute to sustainable investment, but rather to provide some examples of what states are already doing to achieve this objective. To this end, the Chapter will focus on domestic practices that provide opportunities for the consideration of additional sustainable investment elements in alignment with the FDIQR principles, as identified at the conclusion of the stocktaking exercise under Chapter 2. These consist of:

• FDIQR principle 1.d: Assessment and periodic review of FDI’s impacts on sustainable development.

• FDIQR principle 2.b: Domestic alignment between investment and gender objectives.

• FDIQR principle 4.a: Awareness raising on the role that stakeholders can play in supporting sustainable investment.

• FDIQR principle 4.b: Investment promotion for sustainable development.

• FDIQR principle 4.c: Investment facilitation for sustainable development.

• FDIQR principle 4.e: Consideration of sustainability factors in investment decision making.

While there might be other policy tools and practices contributing to the domestic implementation of IIA commitments, these are not included in the scope of the current overview. Additional research may contribute to providing insights into other instruments available to states in the domestic implementation of IIA commitments, in addition to those discussed in this Chapter.

The methodology adopted in the identification of domestic practices relies on desk-based analysis of both primary and secondary sources. The former category includes domestic policies, laws, and regulations contributing to sustainable investment. It also includes the review of national practices and programmes that states have implemented to achieve sustainable investment objectives. Secondary sources cover contributions from academic literature and country reviews performed by international organisations, other than the OECD (e.g. UNCTAD, World Bank Group). Specific attention is also provided to OECD publications such as (i) Investment Policy Reviews; (ii) FDI Qualities Reviews; (iii) Sustainable Investment Perspectives; and (iv) FDI-SME Linkages reviews.

Table ‎3.1. Overview of selected jurisdictions

OECD members	Non-OECD members
Chile	Botswana
Colombia	Brazil
Costa Rica	Bulgaria
Czechia	Cambodia
Finland	China (People’s Republic of)
France	Egypt
Greece	Fiji
Hungary	India
Iceland	Indonesia
Ireland	Jordan
Japan	Kenya
Korea	Lao People’s Democratic Republic
Latvia	Madagascar
Luxembourg	Malaysia
Mexico	Morocco
Poland	Philippines
Portugal	Rwanda
Slovak Republic	Saudi Arabia
Spain	Senegal
Sweden	Singapore
Türkiye	South Africa
United States	Tunisia
	Viet Nam

Note: List of countries considered in the review and analysis of domestic practices conducive to sustainable investment.

Source: OECD data.

3.2. Domestic practices contributing to sustainable investment

States have relied on different policy tools and mechanisms to harness sustainable investment, in alignment with the principles of the FDIQR. Annex E, Supporting Documents (DAF/INV(2024)26/ADD) provides a high-level list of the domestic practices identified in the current research, including indication of the jurisdictions from which the practices discussed below are drawn, as well as additional examples of domestic practices conducive to sustainable investment.

3.2.1. Assessment of the impacts of FDI on sustainable development

The FDIQR and related Policy Toolkit stress the importance of assessing the impacts of major investment projects and policies on sustainable development, to identify bottlenecks in implementation. Impact assessment processes are structured, analytical and participatory approaches that allow obtaining and evaluating relevant information before making decisions concerning the implementation of investment projects or the adoption of policies, strategies and plans (OECD, 2022[1]). These processes entail the assessment of how an investment project, or a specific policy, will affect environmental, social and other sustainable development-related concerns and the identification of the steps and measures necessary to manage possible adverse impacts. Some assessments are also done after decisions are made, to determine how much foreign direct investment (FDI) has contributed to sustainable development objectives.

Assessment processes can take different forms. States are increasingly engaging in the assessment of the positive contribution and negative impacts of FDI as a whole on sustainable development, including with respect to specific sustainability areas such as productivity and innovation, employment, decarbonisation and gender equality.

Many assessments processes are focused on the environmental and social impacts of a specific project or policy. Environmental Impact Assessments (EIA) are implemented in connection with investment projects that are likely to entail significant adverse impacts on the environment. Often, the assessment under the EIA process expands beyond the consideration of environmental issues to include an analysis of the social impacts and risks arising from the project, thus entailing a full Environmental and Social Impact Assessment (ESIA). Strategic Environmental Assessments (SEA), instead, are used for the evaluation of environmental risks posed by policies, plans and programmes adopted at the national level.

Domestic practices on FDI impact assessment

States are becoming increasingly aware of the importance of both assessing the overall impacts of FDI on sustainable development and reflecting on the characteristics of the FDI that they attract. The main challenges faced by states in this context are mostly linked to the availability of comparable data on investment and the ability to meaningfully analyse them. To this end, states are increasingly relying on tools and instruments developed by international organisations such as the OECD. Among others, in 2020 the OECD supported IDA Ireland (Ireland’s investment promotion agency) in assessing the impacts of FDI on national productivity and innovation (Box ‎3.1).

In 2022, the OECD also further updated its the FDI Qualities Indicators, as a tool to support governments in measuring overall impact and outcomes of FDI across the sustainable development goals, looking specifically at productivity and innovation, employment, decarbonisation, and gender equality (OECD, 2022[2]). The FDI Qualities Indicators provided the basis to carry out further FDI impact assessments analysis in Chile, Jordan and Tunisia, under the FDI Qualities Reviews process. An additional assessment is ongoing in Egypt. This exercise can ultimately support the identification of weaknesses and strengths of existing policy and governance frameworks, further guiding policy reform efforts at the domestic level.

Domestic practices on project- and policy-level impact assessment processes.

At the project and policy level, the implementation of EIA/ESIA and SEA is regulated at the domestic level – and, in the European Union (EU) context (Box ‎3.2) – at the regional level. National processes are often standardised, building on standards and best practices developed by international organisations, industry associations and foreign investors themselves. Both EIA/ESIA and SEA entail a set of pre-determined steps, which can include an initial screening to determine whether an impact assessment is required, the preparation of a report describing the impacts of the project or policy on the environment and the measures needed to address them, the implementation of consultations with affected communities, the review and approval of the project or policy by competent authorities, and monitoring over the remaining impacts (Ahmed and Sanchez-Triana, 2008[3]).

In general, ESIA and SEA laws consistently require an assessment of all direct and indirect environmental and social risks associated with the proposed project or policy. Domestic practice in certain jurisdictions may add additional conditions, calling for the evaluation of risks affecting specific areas or values. Domestic EIA/ESIA and SEA laws and regulations can sometimes provide for the mandatory assessment of the impacts of the proposed project or policy on climate change. This explicit requirement is especially important. While both EIA/ESIA and SEA broadly cover project or policy impacts on the environment – which arguably also includes climate-related impacts – providing autonomous consideration to climate risk is essential to ensure that the project or policy are fully aligned with climate mitigation and adaptation objectives. Colombia, Costa Rica, Lao PDR, Viet Nam, and the European Union are jurisdictions, among many others, that explicitly require the consideration of climate change impacts in EIA/ESIA and SEA processes.

Box ‎3.1. Assessing the quality of FDI in Ireland

IDA Ireland requested the OECD support in assessing the contribution of FDI to the Irish economy between 2006 and 2016, looking in particular at direct and indirect effects on productivity, innovation and employment. On this basis, in 2020, the OECD published a report focused, specifically, on the analysis of the role of FDI in Ireland’s trade and global value chain integration, as well as on productivity and labour market outcomes. It also analysed foreign MNE’s productivity dynamics and profiled the factors driving spillovers from FDI in Ireland. The report recommended that IDA Ireland continue to diversify its investor base, focusing on attracting technology- and R&D-intensive investments in different sectors, and to encourage expansions and reinvestments by existing investors.

The report informed the drafting of IDA Ireland’s new investment promotion strategy. In line with the OECD’s recommendations, IDA Ireland’s 2021-2024 strategy expressly set out the agency’s objective to support clients in increasing their productivity, resilience, and innovative capacity, including by strengthening their employment base through training and upskilling. The strategy also provided for commitments to identify R&D opportunities across technology-intensive sectors, such as robotic process automation, AI and digitalisation.

Source: (OECD, 2020[4]; IDA Ireland, 2020[5]).

Domestic practice also includes examples of EIA/ESIA laws and regulations requiring the project proponent to describe the positive impacts of the project on the environment in its assessment report. Highlighting the positive contribution of a project to sustainable development can facilitate buy-in from communities and stakeholders (UNEP, 2002[6]). It also ensures that projects not only avoid harmful practices for the environment but also benefit process related to environmental objectives. In addition to the European Union, the need to consider positive impacts appears in the EIA laws of Botswana, Colombia, and South Africa, among others.

Certain domestic jurisdictions require that EIA/ESIA or SEA analyse not only potential alternatives but, more radically, the option of a no-action alternative, assessing the environmental consequences in the absence of the proposed policy or project. The consideration of alternatives, including no-action, has two main benefits. First, the comparison allows for improvements in the design of the project or policy, providing an additional opportunity for risk minimisation and mitigation. Second, it strengthens the decision-making process, fostering a better assessment of potential risks and encouraging public authorities and project proponents to reflect on whether the proposed action is the most appropriate to achieve the desired objectives (Craik, 2008[7]). Botswana, Poland, and the Slovak Republic are some examples of jurisdictions that require proponents to consider no-action alternatives in their impact assessment processes.

Monitoring and evaluation (M&E) is another area where domestic practices can foster alignment with the FDIQR principles. Monitoring activities are especially important to ensure that any environmental impact caused by the project or policy is promptly addressed. It also allows for adjustments in case the mitigation measures and contingency plans envisaged in the context of the EIA process are not sufficiently effective (IISD, 2024[8]). Domestic practices vary considerably in how states address ongoing monitoring of investment projects and policies. Certain jurisdictions, like Colombia or the Slovak Republic, only provide for a general obligation to implement M&E activities. Others, like Costa Rica or Kenya, also identify specific tools that public authorities may use for M&E purposes, such as audits and on-site inspections. In other cases (e.g. Botswana, Lao PDR), project proponents must develop a detailed monitoring and follow up plan, including identification of M&E activities to be performed, allocation of resources and personnel, and timelines for implementation.

Box ‎3.2. Impact assessment of investment projects and policies, plans and programmes in the European Union

In the European Union, the EIA process is regulated under Directive 2011/92/EU as amended by Directive 2014/52/EU (EIA Directive), which sets out a harmonised regime applicable in all Member States. The Directive provides for the project developer’s obligation to undertake an EIA procedure and seek authorisation prior the implementation of an investment project that is likely to have significant impacts on the environment.

Over time, the European Commission (EC) has published extensive guidance documents, to assist project developers in fulfilling their obligations under the EIA Directive. A first guidance addresses the preparation of the EIA report, providing additional details on the scope of the environmental factors to be considered in the assessment (European Commission, 2017[9]). The guidance clarifies that climate change impacts extend to both mitigation, which looks at the impacts that the project will have on climate, primarily under the profile of GHG emissions, as well as to adaptation, thus analysing the vulnerability of the project to future changes in the climate. Concerning climate change mitigation, the guidance clarifies that the EIA report must address both the direct impact of the project’s construction and operations on GHG emissions, as well as indirect impacts linked to activities ancillary to the project, such as transport infrastructure and commercial development. To further assist project proponents, the EC also issued more specific guidelines on the integration of climate change and biodiversity concerns into the EIA process (European Commission, 2013[10]).

The EC’s guidance also clarifies the scope of alternatives to be considered in the EIA process. The developer is required to describe the “reasonable alternatives”, as well as the motivation justifying the selection of the chosen project option based on its environmental impacts. The guidance specifies that an alternative may be considered unreasonable if there are technological, budgetary, regulatory, or stakeholder-related obstacles to its implementation. Notably, the regulatory framework set out under the EIA Directive does not provide for the consideration of no-action alternative, although this requirement can be found under the national laws of specific EU Member States (e.g. Poland, Slovak Republic).

Furthermore, the EU Directive 2001/42/EC sets out the assessment of environmental impacts of policies, plans and programmes. The Directive similarly requires proponents to assess the impacts of the proposed measures on climate. Also in this case, the EC has issued specific guidance to assist policymakers in meeting the relevant obligation (European Commission, 2013[11]). The guidance jointly considers the issue of climate change impact assessment and the consideration of alternatives, clarifying that the consideration of reasonable alternatives improves the planning process by encouraging policymakers to look for better ways to meet human needs without contributing to climate change.

Source: Directive 2014/52/EU of the European Parliament and of the Council of 16 April 2014 amending Directive 2011/92/EU on the assessment of the effects of certain public and private projects on the environment; Directive 2001/42/EC of the European Parliament and of the Council of 27 June 2001 on the assessment of the effects of certain plans and programmes on the environment.

Implications for the implementation and future development of IIAs

When considered in the context of IIAs, domestic EIA and SEA practices offer indications on the implementation of treaty commitments. For example, Article 13.8, para 2 of the EU-New Zealand FTA provides that, for EIA processes implemented in connection with activities related to the production of energy goods and raw materials, domestic legislation should provide for the identification and assessment of “the significant effects of a project on ... (iii) ... climate”. The effect of this type of provision is to ensure that domestic legislation in each treaty party provides for the assessment of climate impacts in an EIA context. In the European Union, climate impacts are already included among the elements that must be assessed. In case domestic law does not include the consideration of climate impacts, however, compliance with relevant treaty commitments would require an amendment of national legislation.

Depending on the state parties’ priorities and objectives, provisions like Article 13.8 of the EU-New Zealand FTA could play a role in supporting the harmonisation of EIA and SEA legislation across jurisdictions, by providing for a common set of requirements that they would need to incorporate at the domestic level. While there appears to be already a certain degree of consistency concerning the assessment of climate risk, additional elements emerging from domestic practices – like the consideration of no action alternatives or the assessment of the project or policy’s positive impacts – could be further streamlined into IIAs and contribute to align domestic practices among countries. This integration, however, would need to be carefully assessed in the context of the broader IIA, and in particular whether the IIA includes investment protection standards. There are several examples of instances where the suspension of the investment project following the implementation of an EIA process exposed the host state to liability under relevant investment protection provisions (see, among others and more recently, Cortec Mining v Kenya, ICSID Case No. ARB/15/29; Rockhopper v Italy, ICSID Case No. ARB/17/14). In this case, it is essential to ensure that treaties include the relevant clarifications (for instance, on the right to regulate for environmental purposes) so that additional EIA requirements do not expose the state to liability.

Persisting challenges in M&E continue to affect the effectiveness of EIA/ESIA and SEA regimes. The approaches adopted vary widely across jurisdictions, with some providing only for a general monitoring obligation and others intervening more directly on the matter by requiring the development of detailed M&E plans. Yet, the lack of capacity of governmental authorities at national and subnational levels – whether ministries or other dedicated environmental agencies – to monitor and audit implementation of investments and policies may ultimately hinder the effectiveness of the M&E process (OECD, 2020[12]). Building capacity at the national and subnational levels to review and monitor EIAs can, therefore, significantly improve the environmental impacts of foreign investment. It is unclear whether and to what extent IIAs could support further developments in this area.

3.2.2. Alignment between investment and gender equality objectives

The FDIQR and Policy Toolkit stress that, to achieve sustainable investment objectives, domestic policies addressing investment must be closely aligned with sustainable development objectives relating to gender equality. Maximising the impacts of FDI on gender equality requires coherence between policy objectives, strategies, and actions at the intersection of investment and gender. The Policy Toolkit, in particular, recognises that policies that influence the impact of FDI on gender equality pertain to different areas, from narrow investment-level documents to broader policies addressing labour markets, SMEs, entrepreneurship and human resource development.

Domestic practices on the integration of investment and gender equality objectives

The methodologies for achieving policy coherence between gender equality and investment-related objectives vary considerably depending on each country’s institutional and policy framework. A common approach consists of the integration of gender concerns into economic policies and strategies. How such integration is achieved depends on the specific context. In certain instances, country-level policies include the promotion of gender equality and inclusive economic development among the objectives pursued through their investment policies, without specifying the actions to be undertaken for this purpose. It is the case of the National Investment Policy of Rwanda, which only generally states that investments should support inclusive development by promoting gender equality and creating equal opportunities for all. While the policy focuses mainly on public investments, it also recognises that the same considerations apply to private investments (Ministry of Finance and Economic Planning of Rwanda, 2023[13]). In other instances, investment and economic policies go a step further and identify the specific actions required to integrate investment and gender concerns. It is the case of Jordan where relevant policies identify the specific actions that might lead to increased women’s economic empowerment (Box ‎3.3).

Integration can also occur when gender-related policies and strategies incorporate objectives on women’s economic inclusion and access to investment opportunities. Thus, for example, Costa Rica’s National Policy for Effective Equality between Women and Men clarifies that the objective of ensuring women’s economic independence must be achieved by supporting the internationalisation of women-owned businesses and developing women’s technical skills, in particular through trainings on science, technology, engineering and maths (STEM) for women and girls (INAMU, 2023[14]). Egypt’s National Strategy for the Empowerment of Egyptian Women similarly identifies a series of policies that can support women’s economic empowerment, including prioritising investments in industries that can create increased job opportunities for women, establishing gender-responsive one-stop-shops, enforcing laws that protect the rights of working women, in particular with regards to working hours, maternity leave and equal wages, and applying flexible working arrangements to encourage women’s participation in the workforce (Government of Egypt, 2017[15]).

In addition to streamlining gender equality across investment-related policies and objectives, governments may also implement concrete programmes and initiatives supporting women economic empowerment, either as standalone initiatives or in the implementation of broader action plans. Such initiatives may entail, among others, the organisation of trainings and skills development initiatives for women-led SMEs or the development of new financing instruments that allows leveraging private sector’s capital to support the delivery of trainings and capacity building initiatives for women and girls. It is the case, for example, of the Skill India Impact Bond developed by the National Skill Development Corporation of India, which aims to support 50 000 beneficiaries – of which 60% are women and girls – through training and access to wage employment in COVID-19 recovery sectors, including retail, apparel and logistics (National Skills Development Corporation, 2024[16]). In Tunisia, instead, the ‘InnovAgroWoMed’ programme offers entrepreneurial training programmes for women in the agri-food sector (OECD, 2023[17]).

Box ‎3.3. Supporting women’s economic participation in Jordan

The promotion of women’s economic participation is high on Jordan’s political agenda and well reflected in the country’s strategic planning documents. The national development plan, “Jordan 2025: A National Vision and Strategy”, sets out the integrated economic and social framework of the country (Government of Jordan, 2020[18]). The document identifies the promotion of equal opportunities as one of its basic principles and acknowledges women employment as one of the main challenges to be addressed. It identifies sectors with high growth potential, including for women employment (e.g. health care, educational services), and sets out actions to support the achievement of the identified objectives, including: (i) facilitating access to information on job opportunities through mobile phone job search services and female job counselling programmes; (ii) supporting entrepreneurial initiatives to provide role models and examples of activities suitable for primary school aged girls; and (iii) promoting female participation in vocational and technical training and education by designating programmes that meet the labor market needs.

The ambitions of the 2025 Vision also shape Jordan’s investment promotion strategy (Jordan Investment Commission, 2016[19]). While the strategy does not contain explicit references to gender equality or women’s empowerment, it emphasises the importance of attracting foreign investment that creates quality jobs. The strategy identifies a list of target sectors for investment promotion, including major employers of women such as chemicals, consumer products (e.g. cosmetics), garments and health care. Companies investing in these sectors are eligible to receive incentives and other benefits, which can support gender equality and women’s empowerment through the creation of job opportunities for women.

The importance of women’s economic empowerment is also streamlined across the main policy documents addressing women’s rights. The National Strategy for Women, prepared by the Jordanian National Commission for Women (JNCW), aims to create decent jobs for women and to promote female entrepreneurship, leadership opportunities for women, education for girls and the provision of gender-sensitive infrastructure (Jordan National Commission for Women, 2020[20]). Another important policy document is the Women’s Economic Empowerment Action Plan 2019-24 developed by the Mashreq Gender Facility under the responsibility of the JNCW, which emphasises the need to strengthen the government’s capacity to address challenges to women’s economic participation (World Bank, 2019[21]).

Source: OECD (2022[22]), FDI Qualities Review of Jordan: Strengthening Sustainable Investment, OECD Publishing, Paris, https://doi.org/10.1787/736c77d2-en.

Implications for the implementation and future development of IIAs

Analysed through the lenses of IIAs, domestic practices on the integration between investment and gender concerns offer an indication on how it could be possible to implement treaty provisions calling for the promotion of a “gender perspective” into the parties’ investment relationship. Article 35, EU-Angola SIFA, for example, states that the parties “underline their intention to implement [the treaty] in a manner that promotes and enhances gender equality”. The adoption and implementation of gender policies that promote women’s access to investment opportunities or investment policies that expressly consider the impacts of FDI on women would be a sign of the parties’ “intention” to reconcile gender and investment objectives under the treaty. Beyond that, the adoption of such policies and the development of relevant gender-specific programmes and initiatives could represent a concrete way to implement treaty commitments of this kind.

At the same time, the adoption of such policies represents only the first step. They will also have to be implemented domestically, through the development and delivery of programmes and initiatives that effectively support women’s access to FDI-related opportunities. The co-operation of treaty parties in this area, for example through the establishment of joint programmes and initiatives in support of women’s economic empowerment, could advance both the implementation of commitments emerging in IIAs and the achievement of national policy objectives. Co-operation could also extend to the exchange of information among parties on gender-related initiatives undertaken in the implementation of treaty commitments, which could lead to the dissemination of best practices and lessons learned in the area.

3.2.3. Awareness raising on the contribution of investment on sustainable development

The FDIQR and Policy Toolkit recognise the importance of raising the awareness of the general public on the impacts of their choices, whether related to their investment decisions, their consumption habits or beyond. The goal of awareness raising is to foster behavioural changes, encouraging stakeholders to make decisions more closely aligned with sustainability objectives. The importance of such a goal relate to any area of sustainable development. This section analyses it through the lens of two specific areas: gender equality and decarbonisation.

Domestic practices on awareness raising for decarbonisation

Acting on broader societal behaviours to foster more sustainable choices is key also in the decarbonisation area. Consumers contribute to GHG emissions both directly – through energy use in their homes and burning of transportation fuels – and indirectly through their consumption choices. “Embedded” emissions along supply chains – e.g. linked to the purchase of goods and items – account for approximately 60-70% of carbon footprints in Western households (Druckman and Jackson, 2016[23]). It is not surprising that governments have implemented several initiatives aimed at raising public awareness and understanding of carbon performance.

The primary example is that of sustainability certifications and ecolabelling schemes for household appliances, which can drive consumers towards the purchase of more energy-efficient products. In turn, higher demand for energy-efficient appliances may lead towards increased investments in low carbon technologies. The adoption of such certifications and schemes is often paired with the implementation of information and education campaigns, including through social media. Campaigns are often targeted towards the most different recipients, from the general public to narrower groups such as students, government institutions, industry representatives, and non-governmental organisations. Examples of such initiatives can be found, among others, in the SADC member states and in Morocco (Box ‎3.4).

Box ‎3.4. Awareness raising on climate-efficient behaviours

Awareness raising initiatives in the Southern Africa Development Community (SADC)

The SADC Centre for Renewable Energy and Energy Efficiency (SACREEE) is responsible for implementing the Energy Efficient Lighting and Appliances (EELA) project in Southern Africa, to raise awareness about the benefits of energy efficient technologies. Implemented over the course of five years, the EELA project involves activities on energy efficient lighting and appliances in four areas across 21 member countries. These include, among others, the organisation of public information campaigns using TV, radio, social channels and outreach events to promote the multiple benefits of switching towards energy efficient lights and appliances.

Awareness raising initiatives in Morocco

The Agence Marocaine pour l’Efficacité Énergétique (AMEE) implements several communication and awareness raising initiatives on energy efficiency for the benefit of different stakeholders. These include: (i) promotional and awareness-raising events for the general public, professionals, and specialised entities operating in the energy sector; and (ii) dissemination and publishing of technical and promotional information on awareness-raising and communication. AMEE also runs a range of awareness campaigns on energy efficiency in everyday life, aimed at the general public. These campaigns include advice spots on TV and radio, games on the radio, web games and a digital presence, to raise collective awareness of the stakes and benefits of energy efficiency.

Source: OECD based on https://www.eacreee.org/project/energy-efficient-lighting-and-appliances-eela-project-southern-and-eastern-africa; https://www.amee.ma/fr/communication-et-sensibilisation.

Domestic practices on awareness raising for gender equality

Traditional gender stereotypes may prevent women from accessing employment opportunities generated through FDI. Recent data shows that women represent less than 30% of employees in STEM, while at the same time making up almost half of total occupation across non-STEM sectors (World Economic Forum, 2023[24]). Women working in STEM are also heavily underrepresented in leadership roles, especially VP and C-suite positions. The STEM gender gap affects not only women’s professional careers, but also girls in school, which achieve a lower graduation rate in the field compared to men (Mostafa, 2019[25]). Factors contributing to the STEM gender gap include persistent stereotypes that associate STEM professions with qualities that are perceived as traditionally more “masculine”, the lack of role models and mentors, and unconscious biases in hiring, promotion, and grant funding practices (MIT, 2023[26]).

Transforming social norms becomes key to increasing women’s labour force participation and maximising FDI’s positive impacts on women employment, especially in high-value sectors such as STEM. States have, for example, implemented educational campaigns targeting teenage girls, with a view to sensitising them to the opportunities offered in STEM and encouraging access and involvement at the professional and higher-education level. The practice of IDA Ireland is one of such examples (Box ‎3.5). Other countries are seeking to foster positive social changes by relying on reward mechanisms. Japan’s Gender Equality Week includes the assignation of several awards to individuals and organisations that have contributed to gender equality objectives (Gender Equality Bureau Cabinet Office, 2024[27]).

Information sharing and awareness raising on gender-related issues are sometimes considered as public policy objectives to be pursued through regulatory measures or the implementation of specific programmes. In Ireland, the Gender Pay Gap Information Act requires all employers with more than 250 employees – whether in the public or in the private sector – to disclose the hourly pay gap between male and female employees and to publish a report explaining the reasons for any differences in pay and the measures proposed to eliminate or reduce them (Government of Ireland, 2022[28]). By introducing a legal reporting requirement, the act can help foster positive social changes aimed at reducing gender disparities between men and women in the workforce. Costa Rica’s “Equality Seal Programme” seeks to close the gender gap in private and public organisations through training and awareness cycles and the development of teaching guides, to achieve a 50/50 employment between men and women (INAMU, 2023[14]).

Box ‎3.5. Encouraging high school girls’ access to STEM fields in Ireland

IDA Ireland supports the “I Wish” initiative, a volunteer-led programme launched in 2014 to showcase the power of STEM to teenage girls. The initiative is implemented in partnership with private sector enterprises, including multinational enterprises (MNEs) operating in Ireland, universities, educational institutes, and governmental partners. The programme includes the organisation of outreach activities, mentorship programmes, TechForGood laptop donations, twinning programmes, entrepreneurship programmes, further education programmes and showcase events.

Among others, the initiative entails the organisation of “campus weeks”, in co-operation with higher education institutes in Ireland. During the course of five days, girls at the end of their high school studies have the opportunity to attend leading universities in Ireland and gain first-hand experience on the broad application of STEM. The initiative also established an “Alumnae Circle”, to provide for networking and mentorship opportunities for women and girls to facilitate their professional advancement in STEM. In 2023, it also launched an Entrepreneurship programme, where teams of girls are invited to present their STEM-related business ideas to a panel of judges and benefit from the mentorship provided by private sector partners.

Source: OECD based on https://www.iwish.ie/.

Implications for the implementation and future development of IIAs

Only a few treaties with provisions related to stakeholder awareness were identified. Concerning gender, treaty commitments mostly relate to raising awareness of gender equality laws and regulations, as provided for example under Article 19.4, para 4, EU-New Zealand FTA or Article Nbis-01, para 7, Chile-Canada FTA. Activities linked to the dissemination and sensitisation on laws such as Ireland’s Gender Pay Gap Information Act would contribute to the domestic implementation of such obligations. IIA provisions addressing awareness raising on decarbonisation are even more scarce. A reference only appears in paragraph 9.g.v, Singapore-Australia GEA, which refers to the need to co-operate in the establishment of partnerships with ecolabelling organisations “to help drive demand for low carbon, sustainable and resource-efficient solutions”. In this case, however, awareness raising on low-carbon solutions is only a secondary effect of the co-operation between the parties.

The analysis of domestic practices may offer guidance as to how future IIAs could support awareness raising initiatives in stronger alignment with the FDIQR principles. A first approach could be to expand the scope of awareness raising activities beyond sensitisation on current laws and regulations to address stakeholders’ behaviour in specific areas. Looking at gender equality, IIAs could be harnessed to promote awareness on the investment opportunities that the agreement generates for women, especially in high-value sectors with relevance for FDI (e.g. STEM). In the decarbonisation area, awareness raising could support the dissemination and uptake of ecolabelling schemes and other virtuous practices conducive to a low-carbon transition. Additional research is, however, required to determine what is the best approach that IIAs could follow to achieve these objectives effectively.

3.2.4. Investment promotion for sustainable development

IPAs play a fundamental role in ensuring that FDI is channelled towards sustainable development objectives in the host state, through the performance of both promotion and facilitation activities. In most countries, IPAs are major players in the implementation of four core functions (OECD, 2018[29]):

• Image building activities, which foster the positive image of the host country and brand it as a profitable investment destination.

• Investment generation activities, which consist of direct marketing techniques targeting specific industries, activities, companies and markets.

• Investment facilitation and retention activities, designed to assist the investor in project definition and during the establishment phase, provide additional assistance once the project is implemented and encourage expansions and reinvestments through aftercare.

• Policy and advocacy activities, which are instead “horizontal” in nature and whose purpose is to contribute to the creation of an enabling national investment policy framework based on investors’ feedback (OECD, 2018[30]).

While the latter two functions deal with investment facilitation (see next section), the first two functions relate to investment promotion. Investment promotion is meant to attract potential investors that have not yet selected an investment destination and is composed of activities that include marketing a country or a region as an investment destination and reaching out to investors to generate leads and win new investments (OECD, 2015[31]).

Domestic practices on image building and investment generation activities

Investment generation is one of the most important functions of IPAs. In OECD countries alone, 87% of IPAs conduct activities falling under this category and allocate to the same almost 50% of their entire financial resources (OECD, 2018[30]). Looking at non-OECD countries, investment generation is equally important in Eurasia and in the Latin America and Pacific region, with IPAs allocating to the same 40% of their resources (OECD, 2020[32]).

A first important component of investment generation is intelligence gathering, which contributes to defining the IPA’s investment priorities. IPAs may encourage priority investments through the preparation of market studies and the analysis of raw investment-related data (e.g. analysis of press articles, proprietary data, and company data). IPAs consider sustainability as one of the key elements guiding their investment generation activities. OECD IPAs are shown to prioritise investments that contribute to employment generation (SDG 10), support industrialisation and innovation (SDG 9), and ensure access to affordable and clean energy (SDG 7) (Sztajerowska and Volpe Martincus, 2021[33]). The results of intelligence gathering and prioritisation initiatives inform the implementation of other investment generation initiatives. These include, among others, the organisation of sector-specific events, such as fairs and exhibitions, not only to market the host state as a preferred investment destination, but also to connect with potential foreign investors operating in key priority sectors. Such broader events can be paired with proactive engagement initiatives, such as the organisation of one-to-one meetings with investors and of sector- or investor-specific missions.

Image building is another of the IPAs’ key investment promotion functions, after investment generation. Recent surveys show that image building efforts are performed in over 80% of IPAs in OECD countries (OECD, 2018[30]), in the Latin America and Pacific region (Volpe Martincus and Sztajerowska, 2019[34]), and in Eurasia (OECD, 2020[32]). In the MENA region, the percentage of IPAs performing image building activities increases even further, with over 90% of surveyed institutions undertaking action in this area (OECD, 2019[35]). Image building activities can be performed through different tools and activities. IPAs may develop dedicated websites or publish promotional materials, such as brochures and investment guides, targeting potential foreign investors. They can also rely on innovative tools such as blog pieces, podcasts, and videos on investment-related news. Between 2022 and 2023, Invest India published a series of podcasts where its personnel and private sector partners discussed topics with relevance for foreign investors operating in India, issues of national security, deep tech, and technology transfer (Invest India, 2022[36]). IPAs can also build the image of the host state as an investment destination through the organisation of, or participation in, public relations (PR) events, both domestically and abroad (e.g. general business fora, exhibitions, roadshows and fairs, high-level missions involving government officials).

Image building and investment generation activities can be implemented both individually and jointly, in the context of the same initiative (Box ‎3.6). Domestic practice offers plenty of examples of programmes and initiatives that pursue both objectives simultaneously. IPAs organise PR events seeking to showcase the host state’s potential as an investment destination in priority sectors (e.g. innovation and decarbonisation) while at the same time offering investment generation services, such as one-to-one meetings or intelligence gathering. In some instances, investment facilitation services, such as the provision of support in the establishment of the investment, and the creation of connections with local partners and government authorities, are also provided.

Implications for the implementation and future development of IIAs

Existing IIA commitments on investment promotion are drafted in broad and high-level terms, only setting out the parties’ obligation to promote investment in identified priority sectors or regions. For example, Article 6 of the Investment Protocol to the AfCFTA provides that state parties “shall endeavour to promote and increase awareness of Africa as the preferred investment destination” and includes a non-exhaustive examples of what investment promotion activities may entail. Such an approach is understandable, as it allows parties to select the measures and policy tools that are most adequate in consideration of the specific country-context in which they are operating. The analysis of domestic practices may be useful to highlight additional policy tools that, depending on the context, could contribute to the domestic implementation of IIA commitments on investment promotion.

The consideration of domestic practices could also influence future IIAs, in alignment with the FDIQR. Treaty parties could explore the possibility of co-operating in the implementation of joint investment promotion activities, at the same time also fulfilling their treaty obligations. More broadly, the identification of good practices and opportunities for co-operation on investment promotion across jurisdictions may have an interpretative effect and contribute to clarifying the meaning of “investment promotion activities” envisaged under the relevant IIA.

Box ‎3.6. Investment promotion initiatives for image building and sustainable investment generation

Apex Brazil and AbvCap, in co-operation with partner IPAs, is implementing the “Scale-Up in Brazil” programme. The initiative provides support to international startup companies from partner countries to penetrate the Brazilian market in a more efficient way, targeting specific sector with high innovation and productivity potential (e.g. IT, agri-food, clean energy, and AI). In addition to investment promotion, the initiative includes also specific investment facilitation support. Apex Brazil supports beneficiary companies in the initial phases of their investment, including by helping them setting-up business, gaining a better understanding of the local legal, fiscal, and banking systems, and advising on the branding and marketing their products or services.

In its efforts to promote investments in the local quantum ecosystem, Business Finland launched the Quantum Computing campaign, which seeks to attract investments and talent into the national quantum computing industry. The programme provides targeted services to companies operating in the quantum computing sector, such as the provision of targeted financial support, participation in major Finnish exhibitions, policy and advocacy support at the EU level, the organisation of workshops, webinars, and peer-to-peer learning sessions, and matchmaking initiatives with research organisations operating in the sector.

Invest Korea seeks to attract and promote investments in high-tech industries through, among others, the organisation of dedicated PR events, including the Invest Korea Summit. The Summit is designed to connect foreign participants with high-level government officials responsible for Korea’s investment policies, including through the provision of one-on-one business partnering services. Matchmaking services are also available, with foreign investors being able to organise meetings directly with leading Korean companies in the high-tech industry.

In line with the national strategy of promoting quality FDI, the Investment Office of the Presidency of the Republic of Türkiye launched a new scoring mechanism, which prioritises investment projects based on five pillars: investment size, direct contributions, potential contributions, investor prestige and SDG compliance. For the last pillar, the IPA developed a survey made up of a series of simple questions on whether investors comply with specific SDGs through their investment project. Based on the results of the questionnaire, the Investment Office then categorises investment projects, with higher priority given to those that score higher on sustainability vis-à-vis the other pillars. To ensure effective prioritisation and that the investment project aligns with sustainability objectives, the scoring mechanism is used for both ex ante and ex post analysis. The agency scores the investment project before the investor makes its location decision (potential investments), once the location has been decided (attracted investments) and after the project has been established (realised investments). As such, the scoring mechanism is also used as an impact assessment tool, supporting the Investment Office’s monitoring and evaluation efforts.

Source: OECD based on https://investkoreasummit.kotra.biz/fairContents.do?FAIRMENU_IDX=13817&hl=ENG; https://www.businessfinland.fi/en/for-finnish-customers/services/programs/quantum-computing; https://www.scaleupinbrazil.com/; Presentation delivered by the Investment Office of the Presidency of the Republic of Türkiye.

3.2.5. Investment facilitation for sustainable development

In addition to investment promotion, IPAs are one important actor in implementing investment facilitation and policy & advocacy support in the host state. Activities pertaining to investment facilitation and retention are the most heterogeneous, due to the variety of measures and tools that IPAs can use and the different objectives to which they are linked. Facilitation services are aimed at supporting project implementation by new investors, while retention (or aftercare) services assist established investors in developing and expanding their activities.

Domestic practices on investment facilitation and aftercare services

Facilitation services include measures such as the provision of assistance with project definition (e.g. information on local suppliers and clients, working meetings, site visits) and assistance of administrative procedures (e.g. visa procedures, work permits, tax registration, licences and approvals), as well as sometimes support in securing the necessary financing to implement the project. The analysis of domestic practice offers examples of how traditional facilitation services have been tailored to the achievement of sustainable development objectives.

IPAs – or other relevant state agency, depending on the specific host country context – can enhance the investment’s contribution to sustainable development through the provision of dedicated sustainability advisory services, addressing issues such as environmental protection, labour creation, innovation and gender equality. For example, LuxInnovation, the national innovation agency of Luxembourg fulfilling investment promotion and facilitation responsibilities, has established a dedicated Sustainability Innovation Hub to support companies in increasing their sustainability. As part of these efforts, the “Fit 4 Sustainability” programme helps companies assessing and reducing their environmental impacts to decrease costs, improve their reputation, and gain new clients that also embrace sustainability values. The programme provides consulting services – through accredited independent consultants – to eligible companies for the preparation of environmental studies on one or more sustainability issues (e.g. carbon emissions, energy, water, life cycle analysis). Assistance also covers the development of an action plan setting out recommendations on how to meet sustainability objectives, providing guidance on how to receive financial support, and identifying measures to implement relevant recommendations (LuxInnovation, 2024[37]).

IPAs are also increasingly providing targeted support to investors with the completion of administrative procedures for the implementation of green investment projects. This can be done through the establishment of one-stop-shops dedicated to investments in specific priority sectors, in particular energy, or the establishment of “green carpets”, seeking to fast track the approval of investment projects in areas contributing to decarbonisation. Iceland, Latvia, the Philippines and South Africa are only some examples of states that have implemented measures of this kind (Box ‎3.7).

As for aftercare services, these are aimed at resolving issues encountered by foreign investors in the operation of their project and supporting its expansion, including by fostering linkages with the local economy, troubleshooting issues that investors may face and providing support in the mitigation of potential conflicts, including in an ombudsman function. Concerning this latter function, Korea Invest has established foreign investment ombudsman, which investigates and handles complaints of foreign investors and foreign-invested companies. The foreign investment ombudsman can also develop improvement measures for foreign investment system and deliver proposals to related administrative or public organisations (Invest Korea, 2024[38]).

Looking specifically at linkages initiatives, these may entail the establishment of domestic supplier databases, online tools that allow foreign investors to find information on domestic companies able to provide domestically manufactured goods and services. Domestic supplier databases mostly focus only on those firms that meet certain requirements, in particular concerning sustainability performance, or operate in certain sectors. Among others, the Council for the Development of Cambodia, with the support of the World Economic Forum, developed a Suppliers Database with Sustainability Dimensions (SD2) to improve linkages between foreign firms and domestic suppliers. These can register their companies on the database, which highlights their sustainability characteristics across six sustainability dimensions: (i) gender and inclusion; (ii) environmental sustainability; (iii) employee capacity building; (iv) employee care; (v) responsible supply chains; and (vi) quality standards and certifications (Council for the Development of Cambodia, 2024[39]).

Linkages can also be fostered through the provision of matchmaking services, and the organisation of business-to-business (B2B) meetings, connecting domestic and foreign firms. These initiatives allow representatives of foreign and domestic firms to meet and discuss potential local sourcing and business partnership opportunities (OECD, 2023[40]). The provision of matchmaking services can be targeted to investors operating in key sectors contributing to sustainable development objectives. In the Slovak Republic, the national IPA, SARIO, supports several matchmaking programmes targeting foreign firms and their affiliates, including the flagship “Business Link” events and the Slovak Matchmaking Fairs (OECD, 2022[41]). The latter is the largest international B2B event in the country, focusing on facilitating bilateral talks between domestic and foreign companies and the presentation of partnership offers, tenders, available production capacities, joint ventures creation demands and opportunities for co-operation. The event targets specific priority sectors, including energy, engineering industry, automotive, chemical, wood, IT, electro engineering, smart industry, and future mobility and electromobility (SARIO, 2024[42]).

Investment facilitation and aftercare services can also be paired with other types of support seeking to promote supply chain development and strengthening SMEs’ absorptive capacities. One example is that of supplier development programmes, initiatives designed to increase the capacity of local firms and domestic suppliers to meet the needs of foreign investors. The Suppliers Clubs programme in Portugal is a flagship initiative of the national IPA to integrate domestic companies into global value chains. The programme delivers a package of support services that help local SMEs collaborate with foreign investors. These include matchmaking services to assist in the identification of collaboration opportunities; business consulting and training opportunities provided by foreign investors to their suppliers; and targeted financial support to help SMEs upgrade their technological capabilities. Through this comprehensive approach to supply chain development, Portuguese SMEs can increase their opportunities of becoming partners and suppliers of foreign firms (OECD, 2022[43]).

Box ‎3.7. Streamlining administrative processes for investments in the renewable energy sector

The Investment and Development Agency of Latvia, established under the Ministry of Economics, offers a “Green Corridor” for investments in certain priority sectors, including ICT, bioeconomy, smart materials, biomedicine, smart energy and mobility, constructions and logistics. The green corridor shortens the time for administrative procedures by half for territorial planning, residence permits and foreign workforce attraction. Investment projects are eligible for access to the green corridor if they satisfy specific requirements concerning the amount of the investment, the amount of expected exports, the creation of new jobs, and the amount of investment in R&D. Eligible investment projects must create a minimum of 50-75 new jobs with salaries in line with the monthly average for Latvia. Furthermore, eligible companies must also commit to dedicate a minimum of EUR 250.000 to R&D activities over three years.

Business Iceland, the national agency responsible for, among others, facilitating foreign investment in the Icelandic economy, has established a “green carpet” for sustainable investment projects, in line with the government’s goal of prioritising sustainability. Investment projects that support the government’s climate goals are entitled to benefit from a special one-stop-shop and facilitation support services. Business Iceland handles requests for meetings with the relevant ministries/institutions and applications on behalf of projects to become part of the “green carpet”. Sustainable economic activities eligible to receive facilitation services are those that fulfil the criteria set out under the EU Taxonomy Regulation. To oversee the operationalisation of the “green carpet”, the Ministry of Environment, Energy and Climate appointed a high-level co-ordinating body with representatives from key ministries and agencies, thus ensuring institutional co-ordination.

To facilitate investments in renewable energies, in 2019 the Government of the Philippines established a dedicated Energy Virtual One-Stop-Shop (EVOSS). This is a web-based filing and monitoring system for energy related applications, which also includes a repository of information and permits issued for energy projects. The system is shared by all entities involved in the approval process. The EVOSS promotes transparency and accountability among agencies and allows regulators and stakeholders to work together by enhancing ease of doing business in the energy sector. The EVOSS ensures the co-ordinated submission and synchronous processing of all required data and information. It also provides a single decision-making portal for actions on applications for permits or certifications related to new power generation, distribution or transmission projects.

In 2023, InvestSA, South Africa’s IPA, launched Energy One-Stop-Shop, which offers a single point of entry for all energy projects. The one-stop-shop co-ordinates all approval procedures across the government, resulting in a streamlined and effective energy application process. The service also provides centralised information on various energy projects to facilitate new investments into South Africa's energy sector. The Energy One-Stop-Shop results in increased transparency in the energy sector, as it allows for the monitoring of progress in the approval process, better communication with developers and strengthened co-ordination among interested entities.

Source: OECD based on https://www.evoss.ph/Home/About; http://energyoss.gov.za/; https://www.invest.is/the-green-carpet; and https://investinlatvia.org/en/useful-information/why-invest/green-channel.

IPAs can also contribute to reducing labour mismatches and shortages in FDI sectors through the implementation of skill development programmes aimed at increasing the capacity of local labour force to anticipate and meet the needs of foreign investors. IPAs can become responsible for the co-ordination and funding of training opportunities for actual and prospective employees, also through the establishment of partnerships with interested private sector members. The establishment of vocational education and training (VET) programmes – which combine school-based education and on-the-job training – can help bridge the labour gap by establishing a linkage between foreign companies and highly skilled young employees (Box ‎3.8).

Box ‎3.8. Skills development in support of the FDI labour market

The Rwanda Development Board (RDB), Rwanda’s IPA, provides key services targeting skills development to improve the employability of Rwandans workers. To better align skills development with labour market demands, in 2018 the RDB established the Chief Skills Office. Its objectives include: (i) promoting and co-ordinating sector skills and capacity development strategies and actions to respond to the needs of the private sector; and (ii) facilitating labour market integration through strategic partnerships. The RDB works with chambers of commerce in priority sectors – and in particular tourism, ICT and manufacturing – to support member companies in addressing constraints that hamper their growths. It also establishes partnerships with companies to provide strategic investment projects with personnel with necessary skills and qualifications.

Since 1997, AICEP, the Portuguese IPA, has been managing INOV Contacto, an international professional internship programme that places highly qualified graduates in foreign MNEs and Portuguese firms with offices abroad for a period of 6-9 months. The programme aims to support the internationalisation of Portuguese firms through the integration of highly skilled employees in the workforce and foster links between local firms and foreign MNEs through labour mobility. The programme is structured in three distinct parts: (i) a startup one-week course on international management; (ii) a short-term internship in a Portuguese company; and (iii) a long-term internship in an MNE abroad. The programme allows young professionals to sharpen their skills in an international environment while contributing to the transfer of knowledge and skills to the Portuguese labour market.

Source: OECD based on https://rdb.rw/skills/#about; https://www.portugalglobal.pt/pt/academia-aicep/inov-contacto/.

Investment facilitation and retention services can be provided not only in a standalone form but also jointly, as part of broader initiatives attracting investments in specific economic sectors with relevance for sustainable development. The EU’s GET.Invest programme seeks to facilitate investments in renewable energy by linking developers and companies in Sub-Saharan Africa, the Caribbean and the Pacific with EU investors. The facility provides a wide range of services that include: (i) market and funding information, in the form of insights about countries, markets, and financing opportunities; (ii) events and matchmaking initiatives to facilitate new business contacts between operational investors and financiers; (iii) advisory support, including through targeted coaching and business advisory; and (iv) one-stop-shop services allowing energy companies to obtain information on available financing instruments, and financial investors to create visibility on the financial instruments they offer (Team Europe, 2024[44]).

Domestic practices on policy & advocacy activities

Lastly, IPAs carry out an important policy advocacy role. By gathering information on the challenges and expectations of foreign investors, they are in a unique position to deliver key feedback to governmental authorities in charge of investment policymaking, contributing to improve the investment climate in the host state. Recent OECD surveys show how almost all IPAs in OECD countries provide formal and informal feedback to the government on how to improve the investment climate (OECD, 2018[30]). Institutions in non-OECD countries are also actively considering investors’ feedback in the implementation of their activities (Box ‎3.9).

Box ‎3.9. IPA’s policy and advocacy role in OECD and non-OECD countries

Every year, Business France sends a confidential report to the French government presenting about 20 proposals to improve the country’s attractiveness. These measures result from a careful listening of foreign companies supported by the agency in their investment or expansion projects in France. The Ministry of Economy’s overseas services enrich the analysis with data on attractiveness policies and key reforms carried out abroad. Proposals are prioritised by investors themselves: a panel of CEOs of foreign affiliates is jointly consulted with a private law firm to gather their views on the level of priority to be given to the various recommendations.

The National Competitiveness Centre of Saudi Arabia has developed a dedicated Private Sector Feedback Platform, an online tool to gather feedback on the challenges that investors face in connection with the local business environment, and in particular with the application and implementation of investment-related laws, regulations and decisions. The feedback is then channelled to the responsible government agency for the identification of potential solutions.

ICEX-Invest in Spain produces an annual report on the “Barometer of the Business Climate in Spain from the Perspective of Foreign Investors”, based on responses from over 500 companies to a survey on their experience as foreign firms in Spain and on their future prospects. Survey responses allow the IPA to identify both strengths and weaknesses in the Spanish investment climate. The report aims to reflect the positive aspects highlighted by surveyed companies but also to stress the efforts that are needed to improve its weaknesses. ICEX also performs some firm-level analysis to understand better the characteristics and specific needs of foreign firms, depending on their sectors and countries of origin.

Source: (de Crombrugghe, 2019[45]; Saudi Arabia National Competitiveness Center, 2024[46]); OECD based on https://www.investinspain.org/content/icex-invest/en/publicaciones/barometro-clima-negocios-2023.html.

Implications for the implementation and future development of IIAs

IIA commitments on investment facilitation are drafted in similar terms to those on investment promotion and are often addressed jointly with them. For example, Article 33, para 1, EU-Angola SIFA broadly states that “the Parties shall facilitate and encourage investment in sustainable production and consumption, in environmental goods and services, and investment of relevance for climate change mitigation and adaptation”. Also in this case, the provision is broad in nature and leaves flexibility to the parties on choice of tools and measures that are appropriate based on the context. The analysis of domestic practices can provide useful guidance as to what such tools and measures might be, supporting the implementation of international commitments. Similarly, domestic practices may play a role in shaping the drafting of future IIAs, both by guiding parties’ co-operation in the joint implementation of treaty commitments or through their potential interpretative effect.

3.2.6. Promoting the consideration of ESG criteria

Sustainable finance is generally defined as the process of considering environmental, social and governance (ESG) factors when making investment decisions, leading to increased longer-term investments into sustainable economic activities and projects (Boffo and Patalano, 2020[47]). In recent years, the consideration of ESG factors in the investment decisions has received increased attention from corporations, financial institutions, and governmental authorities alike. This is due, on the one hand, to the industry’s acknowledgement that ESG investing has the potential to improve risk management and lead to returns that are not inferior to those from traditional financial investments. On the other hand, increased societal pressure, arising from environmental and social concerns including climate change, are pushing financial and non-financial investors to actively consider ESG factors in their activities.

Domestic practices on the development of ESG frameworks

The push towards increased ESG considerations has led to several developments at the domestic and international level. A key one has been the proliferation, over time, of voluntary ESG frameworks, meaning principles and standards that guide investors in the disclosure of their non-financial impacts (Box ‎3.10). These frameworks provide valuable information on the ESG elements that should be subject to disclosure. However, several challenges hinder their effectiveness. Inconsistencies in the construction of ESG ratings across providers, the multitude of different metrics, and the insufficient quality of forward-looking metrics prevent the development of consistent and comparable information on transition risks and opportunities across firms and jurisdictions (OECD, 2023[48]).

Box ‎3.10. Examples of ESG frameworks and metrics

The Global Reporting Initiative (GRI), a multi-stakeholder initiative whose mission is to improve the quality, rigor, and utility of sustainability reporting, launched the GRI Standards, as the global best practice for reporting on ESG impacts. The Standards are structured as a set of interrelated modules designed to assist companies in meeting their sustainability reporting requirements. They include universal standards that apply to all organisations, sector specific-standards (e.g. energy, mining, agriculture), and topic-specific standards, addressing specific ESG issues such as biodiversity, carbon emissions, and labour rights, among others.

The International Financial Reporting Standards (IFRS) Foundation created the International Sustainability Standards Board (ISSB) in 2021, to address the fragmentation of the landscape of voluntary sustainability standards. In 2023, the ISSB developed the IFRS Sustainability Disclosure Standards as a comprehensive global baseline of sustainability reporting standards. To date, the IFRS Sustainability Disclosure Standards include two sustainability reporting standards: the General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1), which is the core framework for the disclosure of material information about sustainability-related risks; and the Climate-related Disclosures (IFRS S2), a first thematic standard setting out requirements for the disclosure of climate-related risks and opportunities.

At the thematic level, framework providers specific to climate risks used to include the Taskforce on Climate-related Financial Disclosures (TCFD). The related TCFD recommendations, designed to solicit decision-useful, forward-looking information related to climate impacts of investors, were structured around four thematic areas: governance, strategy, risk management, and metrics and targets. In 2023, the TCFD was disbanded and the monitoring on climate-related disclosures was transferred under the umbrella of the IFRS Foundation. The TCFD recommendations, however, remain a key ESG framework and provided the basis that the ISSB used to develop the IFRS S2 on Climate.

Source: OECD based on https://www.globalreporting.org/how-to-use-the-gri-standards/gri-standards-english-language/; https://www.ifrs.org/issued-standards/ifrs-sustainability-standards-navigator/; https://www.fsb-tcfd.org/recommendations/.

In parallel with the development of voluntary ESG frameworks, national legislators have launched initiatives to “harden” ESG requirements through the adoption of mandatory non-financial disclosure laws. These address mostly financial institutions and large listed companies, requiring them to disclose the ESG impacts linked to their operations. In the European Union, the matter was first regulated under the 2014 EU Directive on non-financial disclosure. The Directive required listed “large” companies and groups with more than 500 employees to disclose group-level information on environmental protection, human rights, social and employment issues, and anti-corruption. The European Union intervened again on the matter in December 2022, with the adoption of the Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 as regards to Corporate Sustainability Reporting (CSRD). The CSRD broadens the scope of companies subject to non-financial disclosure to include also listed SMEs and introduces a “double materiality” requirement, whereby investors will have to report not only on how sustainability issues affect their company but also on how its activities affect sustainability issues.

To further strengthen ESG reporting, in 2020 the European Union also introduced a Taxonomy Regulation establishing a framework to facilitate sustainable investment (Box ‎3.11). Following the EU’s initiative, other countries and regional groupings have started to develop their own taxonomies. Notable is the example of the ASEAN Taxonomy on Sustainable Finance, which seeks to contribute to the harmonisation of sustainable finance practices across ASEAN countries (Box ‎3.12).

Box ‎3.11. The EU Taxonomy Regulation on sustainable investment

The EU Taxonomy is a regulatory classification system that helps investors and companies define which economic activities are environmentally sustainable. To qualify as environmentally sustainable, the activity must substantially contribute to at least one of six environmental objectives (i.e. Climate Change Mitigation, Climate Change Adaptation, Sustainable Use and Protection of Water and Marine Resources, Transition to a Circular Economy, Pollution Prevention and Control, and the Protection and Restoration of Biodiversity and Ecosystems), while at the same time not significantly harming any of these objectives and meeting minimum social safeguards. The activities must also comply with technical screening criteria established from time to time.

The Regulation is a transparency tool that will introduce mandatory disclosure obligations on some companies and investors, requiring them to disclose their share of Taxonomy-aligned activities. Reporting under the Taxonomy will be a mandatory requirement for three key users, already subject to the application of the CSRD: (1) financial market participants and issuers offering financial products within the European Union; (2) large EU companies (with over 500 employees) and listed EU SMEs; and (3) EU and Member States when setting public measures, standards or labels for green financial products or green bonds.

The EU Taxonomy is not a mandatory list of economic activities for investors to invest in. Nor does it set mandatory requirements on environmental performance for companies or for financial products. Companies are free to choose what to invest in. Companies with products and services that are not sustainable will have to state that their investments do not consider the regulation. However, the mandatory disclosure of the proportion of Taxonomy-aligned activities will allow for the comparison of companies and investment portfolios and can guide market participants in their investment decisions.

Source: (European Union, 2020[49]).

Non-financial disclosure laws and taxonomy classifications suffer some of the shortcomings that already affect ESG frameworks and metrics. The proliferation of taxonomies, each with its own criteria and categories of classification, can create challenges for investors. The implementation of taxonomies requires a degree of data standardisation to allow for aggregation and assessment of compliance in a way that is consistent and comparable (OECD, 2020[50]). The application of ESG frameworks, non-financial disclosure laws, and taxonomies classifications may be especially difficult for smaller investors, due to the burden of having to apply different types of metrics and classification systems depending on the jurisdiction.

Box ‎3.12. The ASEAN Taxonomy on Sustainable Finance

The ASEAN Taxonomy serves as a science-based, inclusive method of categorising activities based on their environmental impact in the region. The ASEAN Taxonomy has diverse potential users, including member states, regulators, banking institutions, users of capital, and rating agencies. Financial instruments may adopt similar procedures to those described in the ASEAN Green Bond Standards, and future versions of the ASEAN Taxonomy will also offer a system for classifying entities and portfolios based on an aggregation of activities.

It revolves around four main Environmental Objectives (EOs): Climate Change Mitigation, Climate Change Adaptation, Protection of Healthy Ecosystems and Biodiversity, and Resource Resilience and the Transition to a Circular Economy. To qualify under the ASEAN Taxonomy, an activity must demonstrate its contribution to at least one of these EOs and avoid any adverse effects on others. Each EO has a specific focus:

• EO1 deals with decarbonisation pathways, aligning activities with the goals of the Paris Agreement.

• EO2 aims to mitigate the negative effects of climate change and enhance resilience.

• EO3 focuses on preserving natural ecosystems, biodiversity, and sustainable resource usage.

• EO4 promotes resource resilience and the shift to a circular economy through strategies like minimising resource use and effective waste management.

Version two of the ASEAN Taxonomy, developed in November 2023, focuses on classifying activities. An activity involves the combination of resources to produce goods or services and differs from the facilities used for such activities. Technical Screening Criteria categorise activities based on their contributions to EOs using quantitative, qualitative, or nature-of-activity-based criteria.

Future versions of the ASEAN Taxonomy will expand coverage to a broader range of activities across all focus sectors identified in Version 1. Subsequent versions will incorporate qualitative process and/or practice-based criteria.

Source: ASEAN Taxonomy for Sustainable Finance, https://asean.org/wpcontent/uploads/2021/11/ASEAN-Taxonomy.pdf; ASEAN Taxonomy Version 2 for Sustainable Finance, https://asean.org/wpcontent/uploads/2021/11/ASEAN-Taxonomy.pdf.

Implications for the implementation and future development of IIAs

ESG concerns rarely appear in IIAs. When they do so, it is only in the context of new-generation treaties that follow innovative approaches to sustainable investment, rather than in the context of more traditional BITs or FTAs. Paragraph 9.c.viii, Singapore-Australia GEA, for example, broadly provides that the partners “will co-operate on mutual interests to strengthen the environmental, social and governance ecosystems in their respective countries, including data sharing and FinTech solutions, to improve decision making by businesses and investors”. Provisions of such kind do not necessarily raise issues of domestic implementation in the same way of other IIA commitments. The variety in domestic practices on ESG metrics and frameworks, non-financial disclosure and taxonomy laws also makes it difficult to identify concrete avenues to influence the negotiation of future IIAs. At best, future treaties could leverage the parties’ co-operation to address some of the issues that currently affect the ESG ecosystem, along the lines of what is provided under the Singapore-Australia GEA. IIAs could therefore foster the parties’ co-operation for the development of uniform ESG metrics and clear, comparable, and proportionate ESG frameworks, the facilitation of ESG uptake by SMEs and the exchange of best practices in the implementation of non-financial disclosure and taxonomy regulations.

3.3. Conclusions

The analysis of domestic practices can provide insights on the future development and implementation of IIA commitments on sustainable investment to strengthen its alignment with FDIQR principles. The impact that they can have, however, is different depending on the type of domestic implementation and IIAs provision, and the current level of alignment between IIAs and the FDIQR.

The ways in which domestic practices can contribute to shed light on IIA implementation varies depending on the type of commitment considered. High-level, general commitments provide more flexibility to the parties to decide what type of action or initiative could be undertaken at the domestic level to implement the relevant IIA. It is the case, for example, of IIA commitments calling for the parties’ co-operation in certain areas (e.g. ESG, awareness raising on decarbonisation), requiring the parties to undertake action in certain areas (e.g. investment promotion and facilitation), or asking that implementation be carried out to promote certain values (e.g. on gender equality). In all these cases, the analysis of domestic practices will have a stronger weight in the determination of what implementation entails.

The contribution of the analysis of domestic practices will be more limited in case of “narrow” IIA commitments requiring the parties to act in a specific way. It is the case, for example, of treaty commitments setting out the parties’ obligations to disseminate certain gender-related laws or to adopt domestic legislation on impact assessment in accordance with specific treaty-based requirements.

In terms of alignment, in IIAs where commitments are already consistent with the principles of the FDIQR, domestic practices can offer insights on what the implementation of treaty provisions may entail in practice. They may also play an interpretative role in clarifying the scope of certain high-level, broadly drafted treaty commitments, and offer indications as to the areas where further co-operation between the parties may be pursued for the achievement of treaty objectives. It is the case, for example, of IIA provisions on EIA and SEA, in particular concerning the identification of the impacts that need to be addressed in the relevant assessment report. It is also the case of the treaty commitments calling for the alignment between investment and gender policies, as well as obligations on investment promotion and facilitation.

Where IIA provisions addressing a specific FDIQR principle are not present or where the alignment between the two is only limited, the analysis of domestic practices can offer suggestions as to additional sustainable investment elements that parties may address through their IIAs – depending, of course, on the type of IIA to be negotiated, their objectives, and priorities. It is the case, for example, of M&E activities for the assessment of impacts of FDI on sustainable investment, awareness raising activities on decarbonisation and gender equality, and consideration of ESG concerns. In all these areas, domestic practices may point at additional areas that may lead to a stronger incorporation of sustainable investment concerns in IIAs, whether through the inclusion of new treaty language or by harnessing the parties’ co-operation under the framework of the treaty.

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