Strengthening Sustainable Investment through International Investment Agreements

1. Context, purpose, and rationale for the research

Abstract

This chapter provides an overview of the context underlying the research. It focuses, in particular, on recent developments concerning efforts to align international investment agreements (IIAs) with sustainable development, including through the introduction of treaty provisions on investment facilitation. It also briefly examines recent efforts to introduce new provisions in IIAs that seek to facilitate or harness “sustainable investment”, as a new category of commitments aligned with the FDI Qualities Recommendation. It then sets out the objectives and structure of the research.

1.1. Context

Foreign Direct Investment (FDI) can play a crucial role in achieving the Sustainable Development Goals (SDGs). Through the establishment of long-lasting economic links, foreign investors – including foreign multinational enterprises (MNEs) – can contribute to advancing decarbonisation, enhancing productivity and innovation, creating quality jobs and human capital development, and raising standards of living. (OECD, 2022[1]). Such positive effects can occur both directly and indirectly, through spillover effects, in particular for small and medium enterprises (SMEs). However, FDI’s contribution to sustainable development is not automatic. Not only there can be trade-offs among different sustainability objectives, but benefits may also accrue unevenly between and within countries, with some segments of the population being left behind.

Despite the positive role FDI can have to achieve the SDGs and the Paris agreement on climate change, the flows of investment are slowing. Global FDI flows have been suffering a period of stagnation or decline since the Global Financial Crisis of 2008-2009, further dropping by 24% in 2022 (OECD, 2023[2]). Furthermore, multiple compounded crises brought about by the COVID-19 pandemic, growing global geopolitical and trade tensions, and Russia’s war of aggression against Ukraine, have all contributed to further shrinking global FDI flows (OECD, 2022[3]). The recent tensions in the Middle East could also likely have a negative impact on global FDI flows.

The materialisation of the contribution that FDI can make to the SDGs rests upon the adoption and implementation of conducive policies at the international and domestic level. The OECD is supporting governments in their efforts to maximise FDI’s contribution to sustainable development (Box ‎1.1). The OECD FDI Qualities Recommendation (OECD, 2022[4]) sets out five key high-level policy principles to which Adherents commit to with a view to strengthening sustainable investment. Building on such principles, the FDI Qualities Policy Toolkit (OECD, 2022[1]), together with the FDI Qualities Indicators (OECD, 2019[5]), aims to support governments in enhancing the impacts of FDI on inclusive and sustainable development (OECD, 2023[6]). It complements the OECD Policy Framework for Investment, 2015 Edition (PFI) (OECD, 2015[7]) by focusing specifically on international investment and providing governments with detailed guidance on how to influence and improve its qualities, beyond investment climate reform.

The FDI Qualities Recommendation recognises that states have a wide variety of policy tools at their disposal to harness sustainable investment, including notably international investment agreements (IIAs). The current report focuses on the role that IIAs can play in harnessing FDI for sustainable development, in particular looking at specific areas related to decarbonisation, gender equality, productivity and innovation, and quality jobs. More specifically, it analyses new treaty provisions that seek to facilitate sustainable investment in the host state, while at the same time addressing broader challenges linked to their implementation at the domestic level and the rationale supporting their inclusion the specific policy instrument represented by IIAs.

Box ‎1.1. Harnessing sustainable investment through domestic policies

Ensuring alignment between FDI and sustainable development also rests on the adoption of conducive policies at the domestic level. To help decision makers on how to leverage FDI to promote national development, in 2015 the OECD adopted the updated version of its Policy Framework for Investment (PFI). The PFI provides guidance in 12 policy areas for investment climate reforms that range from the domestic and international legal framework for investment, competition and taxation to green growth and Responsible Business Conduct (RBC) (OECD, 2015[7]). By doing so, it supports the objective of mobilising private investment that supports steady economic growth and sustainable development. In 2022, the OECD also adopted of the OECD (2022[8]) Council Recommendation on the Role of Government in Promoting Responsible Business Conduct, setting out principles and policy recommendations to assist governments, other public authorities, and relevant stakeholders in their efforts to design and implement policies that enable and promote responsible business conduct.

In an effort to further promote the linkages between investment and the SDGs, in 2022 the OECD adopted the OECD FDI Qualities Policy Toolkit. The instrument complements the PFI by providing more detailed and tailored guidance on priorities for policy and institutional reforms to enhance the positive impacts of investment. It focuses, in particular, in four areas of the SDGs, namely: (i) productivity and innovation; (ii) job quality and skills; (iii) gender equality; and (iv) decarbonisation (OECD, 2022[1]). Both the PFI and the FDI Qualities Policy Toolkit are not prescriptive, but rather provide broad policy guidance to improve the impact of FDI on sustainable development. Both documents are based on the assumption that national governments have different priorities, resources, and options at their disposal to harness FDI for sustainable development. As such, they seek to foster a flexible approach that takes into account each country’s needs and stage of development.

In 2022, the OECD Council adopted OECD (2022[4]) Council Recommendation on Foreign Direct Investment Qualities for Sustainable Development, based on the PFI and the OECD FDI Qualities Policy Toolkit, and complementing the Recommendation on the Role of Government in Promoting RBC, also adopted in the same year. The FDI Qualities Recommendation is the first multilateral instrument designed to support governments in maximising FDI’s contribution to sustainable development. Adherents to the Recommendation commit to a set of five key high-level policy principles in view of attracting sustainable investment:

• Policy Coherence: Provide coherent strategic direction on fostering investment in support of sustainable development, and foster policy continuity and effective implementation of such policies.

• Domestic policies: Take steps to ensure that domestic policy and legal frameworks support positive impacts of investment on sustainable development.

• Financial and technical support: Prioritise sustainable development objectives when providing financial and technical support to stimulate investment.

• Information and facilitation services: Facilitate and promote investment for sustainable development opportunities by addressing information failures and administrative barriers.

• Development co-operation: Strengthen the role of development co-operation for mobilising FDI and enhancing its positive impact in developing countries.

For each high-level policy principle, the FDI Qualities Recommendation provides more specific guidance to support effective implementation. The detailed set of recommendations, including specific implementation guidance, can be found in Annex A, Supporting Documents (DAF/INV(2024)26/ADD).

1.1.1. How international investment agreements incorporated sustainable investment considerations over time

The term “international investment agreements” (IIAs) refers to a wide range of bilateral, regional and multilateral treaties related to foreign investment, as well as the relationship between the host state and the foreign investor, in particular for what concerns the substantive protections afforded to the latter (Wittich, 2017[9]). It includes bilateral investment treaties (BITs), investment chapters of free trade agreements (FTAs), and other treaties with investment provisions, including on investment facilitation.

Despite the general acknowledgement that FDI can contribute to sustainable development, investment treaty practice has only recently started to address sustainable development-related concerns. A 2014 OECD survey of over 2100 IIAs and 1 000 treaty arbitration cases showed that most treaties signed between 2008 and 2013 included references to sustainable development and related issues, such as environmental protection, labour rights, human rights, and anti-corruption. However, such treaties represented only a small part of the reviewed sample (Gordon, Pohl and Bouchard, 2014[10]).

Current investment treaty practice is moving towards the adoption of “new generation” IIAs, which incorporate a wide range of sustainable development-related provisions. A first category considers sustainable development in the context of traditional IIAs provisions. The new language developed can introduce references to sustainable development in the treaty preamble, and the general recognition of the role that FDI can play in its achievement (e.g. Preamble, Morocco-Nigeria BIT; Preamble, Brazil-UAE Cooperation and Facilitation Investment Agreement (CFIA)). It can also seek to safeguard the host state’s policy and regulatory space to protect public interests. This can be achieved by introducing “right to regulate” provisions, where states reaffirm their power to adopt measures for the protection of the environment, human and labour rights (e.g. Article 13, Morocco-Nigeria BIT; Article 9, Rwanda-UAE BIT; Articles 8.9 and Article 24, Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States (CETA); Article 24.3, Agreement between the United States of America, the United Mexican States, and Canada (USMCA)). New language may also include specific carve-outs, exceptions, or clarifications to traditional IIAs provisions, directly reforming “old generation” IIA language. Carve-outs can address, for example, the scope of treaty protection against indirect expropriation (e.g. Article 6.4 Brazil-India CFIA) or the definition of fair and equitable treatment (e.g. Article 5.4, Argentina-UAE BIT).

A second category of provisions introduces new tools and approaches to actively support sustainable investment. Certain IIAs, for example, limit the scope of application of the IIA itself by acting on the definition of “protected investment”. They can do so, for example, by clarifying that, to receive protection, an investment must contribute to the sustainable development of the host state (see Article 1, Morocco-Nigeria BIT). More recently, “new generation” IIAs have introduced innovative mechanisms in support of sustainable investment, for example with respect to the upholding of labour standards (e.g. Rapid Response Mechanism under the USMCA). Both categories of sustainable development-related provisions are the main topic of discussion in the OECD’s Future of Investment Treaties work, which explores new ways to reform IIAs to align them more closely with sustainable development (Box ‎1.2).

As to the third category of provisions, an increasing number of treaties seeks to promote sustainable development by incorporating Corporate Social Responsibility (CSR) or Responsible Business Conduct (RBC). This may occur simply through treaty references to existing CSR and RBC standards, including mention of specific instruments such as the OECD Guidelines for MNEs or the United Nations Guiding Principles on Business and Human Rights (e.g. Article 14.17, USMCA; Article 5.2, PACER Plus Agreement; Article 17, Argentina-UAE BIT). In other instances, IIAs set out the conduct that the investor is expected to adopt in the implementation of its investment activities. For example, Brazil’s CFIAs include a comprehensive list of investor behaviours addressing human rights compliance, anti-corruption, good governance, and labour and environmental protection (e.g. Article 12, Brazil-India CFIA).

FTAs and Economic Partnership Agreements (EPAs), particularly those involving the European Union (EU), adopt yet another approach to reconcile sustainable development and investment concerns. Starting from 2011, most EU FTAs and EPAs – with the exception of those negotiated with partners in the African, Caribbean and Pacific group of states, which do not currently cover investment – include a specific “Trade and Sustainable Development” Chapter. The Chapter also includes horizontal provisions addressing investment in the host state, including in the form of right to regulate provisions or provisions setting out obligations on states not to lower the level of protection provided in their respective environmental and labour laws and regulations for the purpose of encouraging and attracting trade or investment (e.g. Article 16.2, EU-Japan EPA; Article 19.2, EU-New Zealand FTA). It also sets out provisions that, while not specifically addressing trade or investment, ensure alignment between economic activities and sustainable development, for example by reaffirming obligations deriving from a state’s membership to the International Labour Organisation and commitments to effectively implement multilateral environmental agreements to which it is a party (e.g. Articles 16.3 and 16.4, EU-Japan EPA; Articles 19.3 and 19.5, EU-New Zealand FTA), and providing for public consultations and access to information (e.g. Article 22 CETA; Article 16.10, EU-Japan EPA; Article 19.14, EU-New Zealand FTA).

IIAs are not the only international instrument available to align investment and sustainable development objectives. International practice is moving towards the development of new forms of international economic co-operation where sustainable development objectives are put front and centre of the parties’ agendas. International Green Economy Collaborations (IGECs) are one example of such “new approaches” to sustainable investment. IGECs can be broadly defined as “international collaborations aimed at achieving mutual environmental and industrial benefits through supporting structural changes in shared value chains” (Aisbett et al., 2023[11]). Contrary to IIAs, where investment represents the parties’ main focus, agreements in the form of IGECs seek to foster both economic and sustainability gains at the same time. More specifically, IGECs are focused on actions that generate mutual benefits for both parties, such as the undertaking of joint research projects or co-ordination of climate finance to third parties. One example is the Singapore-Australia Green Economy Agreement (GEA), concluded in 2022. This non-binding agreement sets out a broad collaboration framework between the partners to support economic growth, create jobs in green sectors, promote decarbonisation and mainstream sustainability in national policies and plans. Notably, co-operation in the investment area is only one of the many areas for partners’ co-operation, which also include information sharing mechanisms, regulatory co-operation and support for research and development (R&D).

Box ‎1.2. Ongoing Treaty Reform Efforts at the OECD

The OECD plays an active role in global efforts to reform IIAs to ensure a greater alignment with sustainable development objectives. Investment treaties are an important component of the framework governing the conditions for foreign investment in many countries. About 2500 such treaties are in force today, including investment provisions of trade agreements. Many of them were designed decades ago with a different global economy and concerns in mind.

The OECD-hosted work programme on the Future of Investment Treaties, launched in March 2021, explores how the investment treaties of tomorrow could help address these challenges and how to deal with existing agreements in a pragmatic way.

The programme comprises two tracks:

• In Track 1, government and non-government participants have initiated the first major sustained multilateral effort to explore how investment treaties factor into climate action. Work under Track 1 focuses on how investment treaties can be drafted and implemented consistent with robust climate action, the Paris Agreement and net zero goals.

• Track 2 considers merits and means to transition substantive clauses of older treaties with designs that are no longer used or are no longer considered satisfactory to newer designs where governments would wish to do so.

1.1.2. Emerging focus on facilitating sustainable investment in IIAs

In parallel with efforts to align IIAs more closely with sustainable development objectives, a limited number of “new generation” IIAs is also starting to incorporate provisions addressing the issue of “investment facilitation for sustainable development”. Broadly speaking, investment facilitation can be defined as a “combination of tools, policies and processes that foster a transparent, predictable and efficient regulatory and administrative framework for investment that maximises the benefits to the host economy” (OECD, 2018[12]).

Investment facilitation is distinct from investment promotion, despite their close relationship. The latter concerns, more specifically, the promotion of “a country or a region as an investment destination”, while the former is about making it easy for investors to establish or expand their existing investments (OECD, 2015[7]). The two also target different beneficiaries. Investment promotion is primarily directed towards new investors that have yet to make their investment decision, while facilitation mostly addresses investors that have already made their investment choices and are moving into the establishment phase.

Investment facilitation is an ongoing activity that takes place throughout the life of the investment project, from establishment to operation. Notably, investment facilitation can consist of:

• Supporting investors in navigating the policy and regulatory framework applicable to the investment (e.g. through one-stop-shops, information portals for foreign investors, business registration portals etc.).

• Adopting and implementing policies to improve transparency, predictability, and effectiveness in the investment environment (e.g. through streamlining administrative procedures, ensuring that the regulatory framework is clear and transparent, establishing good governance mechanisms).

• Implementing relevant institutional processes in an impactful manner (e.g. by relying on inter-agency co-ordination, public-private dialogues, and capacity building for public officials).

Many of the tools, policies and processes that fall under the umbrella of investment facilitation are already considered as key components of the PFI and FDI Qualities Initiatives that allow states to harness sustainable investment at the domestic level.

In recent years, the consideration of the role that investment facilitation can play in achieving sustainable development has moved from the domestic to the international level, resulting in the inclusion of relevant provisions in IIAs. Such a change is occurring even though investment facilitation remains firmly rooted in measures undertaken at the domestic level, thus raising profiles from the perspective of implementation of relevant treaty commitments. The trend concerning the incorporation of investment facilitation provisions in IIAs has also undergone a shift over time. Initially, IIAs mostly focused on investment facilitation per se, without any express linkage with sustainable investment. In this context, they mostly addressed matters ranging from transparency, exchange of information and streamlining administrative process to the establishment of national focal points to support foreign investors, or general provisions on the improvement of the business environment in the host state.

One example of this approach may be found in Brazil’s CFIAs. The Brazilian approach represents a decisive shift in paradigm in investment negotiation. Rather than being solely focused on traditional investment protection provisions, the CFIAs focused on attracting and retaining investment through activities of co-operation and facilitation (Skartvedt Guven, 2020[13]). In particular, Brazilian CFIAs often include some of the following obligations:

• Encourage investments through co-operation and facilitation activities (e.g. Article 3.2, Brazil-India CFIA).

• Develop a common investment co-operation and facilitation agenda through the Joint Committee established under the agreement (e.g. Articles 13.4 and 25, Brazil-India CFIA; Articles 18.4 and 26, Brazil-Ecuador CFIA; Articles 18.4 and 26, Brazil-Guyana CFIA; Articles 18.4 and 26, Brazil-Suriname CFIA; Articles 17.4 and 25, Brazil-Ethiopia CFIA). Such an agenda often includes topics such as the freedom of movement of key personnel linked to the establishment and the operation of the investment, the streamlining of administrative processes, and the implementation of technical exchange and co-operation activities (e.g. Annex I, Brazil-Malawi CFIA).

• Ensure the transparency and dissemination of information relevant for the investors of the other party, including on the regulatory environment and business opportunities in the host state (e.g. Article 17, Brazil-India CFIA; Article 9, Brazil-Ethiopia CFIA).

• Establish or appoint of national focal points to support investors of the other party in their activities in the host state (e.g. Article 14, Brazil-India CFIA; Article 18, Brazil-Ethiopia CFIA; Article 19, Brazil-Ecuador CFIA).

• Apply regulatory measures affecting the investment in a reasonable, objective, and impartial manner (e.g. Article 10. Brazil-Chile CFIA).

Notably, the investment facilitation measures envisaged in Brazilian CFIAs have a rather general nature, without being specifically linked to sustainable development outcomes.

More recently, new IIAs have started to stress the importance of investment facilitation for the achievement of sustainable development outcomes. Exemplary in this sense is the negotiation of the World Trade Organization (WTO) Investment Facilitation for Development (IFD) Agreement. The negotiation process concluded in July 2023, and resulted in a comprehensive text agreement addressing traditional issues on investment facilitation, such as transparency of investment measures, streamlining of administrative processes relating to investment activities, domestic regulatory coherence, and international co-operation between home and host states (World Trade Organization, 2023[14]). The WTO IFD Agreement also includes a specific chapter on “Sustainable Investment”, addressing RBC and anti-corruption. The agreement is notable as it is the first WTO treaty that includes an express reference to RBC and the OECD Guidelines for Multinational Enterprises.

The adoption of the WTO IFD Agreement is the culmination of an ongoing process that sees the incorporation of investment facilitation provisions in an increasing number of IIAs, including investment chapters of FTAs and regional investment agreements. At the regional level, investment facilitation provisions appear in the recently adopted Investment Protocol to the African Continental Free Trade Agreement (AfCFTA). The Protocol also addresses traditional issues linked to transparency, streamlining of administrative processes, and provision of aftercare services. However, it also includes provisions directly tackling facilitation of sustainable investment, especially in connection with the granting of incentives to foreign investors (see Articles 7-10, Investment Protocol to the AfCFTA). Similar provisions also slowly making an appearance in other “new generation” IIAs (e.g. Article 9.20, PACER Plus; Articles 8, 18 and 22, Intra-MERCOSUR Investment Cooperation and Facilitation Protocol; Article 10.17, Regional Comprehensive Economic Partnership Agreement).

Investment facilitation, specifically directed towards harnessing sustainable investment, is also a key priority in EU’s investment policy agenda. In 2019, the EU’s amended negotiating directives for EPAs with partner countries in the Africa, the Caribbean and the Pacific region mentioned establishing a framework that will “facilitate, enhance and stimulate mutually beneficial sustainable investment” between the parties, taking into account multilateral initiatives on investment facilitation. In October 2019, the EU started negotiations with five Eastern and Southern Africa partners (so-called ESA-5: Comoros, Madagascar, Mauritius, Seychelles and Zimbabwe) to deepen the existing Economic Partnership Agreement (European Union, 2020[15]), and provisions on investment facilitation largely inspired by the WTO IFD Agreement are being negotiated as a part of this deepened EPA. More recently, in its Trade Policy Review of 2021, the European Commission (EC) announced that it would pursue new generation “sustainable investment agreements” with interested partner countries in Africa and the Southern Neighbourhood, once again with specific focus on investment facilitation (European Commission, 2021[16]).

Such efforts led to the conclusion, in November 2023, of the EU’s first Sustainable Investment Facilitation Agreement (SIFA), negotiated with Angola (European Commission, 2023[17]). The EU-Angola SIFA adopts an ambitious approach to investment facilitation and sustainable development. The agreement addresses traditional areas generally pertaining to investment facilitation, such as transparency and predictability, focal points, and streamlining of authorisations procedures. It also includes a specific chapter dedicated explicitly to “investment and sustainable development”. Here, it addresses the general alignment between investment activities with labour and environmental concerns and sets out specific obligations for the parties to facilitate investment in a way that contributes to sustainable development objectives, including gender equality and decarbonisation. In this sense, the EU-Angola SIFA represents another concrete attempt at the international level to align investment facilitation and sustainable development and to pursue sustainable investment (see Box ‎1.3 for an assessment of the OECD’s work on the EU-Angola SIFA in selected Southern Neighbourhood countries).

1.2. Implications and rationale of IIA provisions on sustainable investment

Provisions such as those included in the WTO IFD Agreement, the Investment Protocol to the AfCFTA and the EU-Angola SIFA are notable in that they are – explicitly or implicitly – aimed at fostering sustainable investment in the host state. They are distinct from traditional “sustainable development” provisions in IIAs, as they require the host state to take active measures aimed at improving the domestic investment climate for the specific purpose of harnessing sustainable investment. They are also broader than traditional “investment facilitation” provisions, as investment facilitation is only one component of the broader set of measures that the host state has at its disposal to improve domestic investment climate.

The introduction of such new category of “provisions on sustainable investment” within the IIA system represents a recent development, whose implications have not yet been fully analysed. Their inclusion in IIAs rests on the assumption that they have the potential to support sustainable FDI. However, it is essential to identify the conditions under which their positive effects could materialise. In turn, this requires addressing different, but related issues.

First, it is necessary to determine what “provisions on sustainable investment” means in the context of IIAs. The brief analysis carried out above has shown that the concept has been expanding over time, moving beyond the narrow boundaries of traditional IIA provision on “investment facilitation”. Ongoing discussions in international fora, including the OECD, have highlighted how investment facilitation is only one – admittedly important – step in harnessing sustainable investment. Other elements, such as policy coherence, investment incentives, and conducive legal frameworks, are all equally critical and necessary. In this sense, the OECD Recommendation on Foreign Investment Qualities for Sustainable Development offers a comprehensive list of policy tools that states can use to strengthen their domestic climate for sustainable investment. Notably, the FDI Qualities Recommendation also recognises the key role that IIAs can play in this respect and highlights the importance of aligning such instruments with sustainable investment objectives.

Second, it is important to stress that the modalities – i.e. the policy tools and approaches – that states can use to support sustainable investment vary considerably and have all a pre-eminently domestic dimension. In fact, the implementation of treaty commitments on sustainable investment will necessarily require the implementation of relevant measures at the domestic level. Conversely, what states are already doing domestically to support sustainable investment may also influence treaty design at the domestic level. As such, the analysis of IIA provisions on sustainable investment cannot be separated from the analysis of relevant domestic practices.

Third, the issue of the overall rationale for inclusion in IIAs of provisions on sustainable investment will need to be clarified. It should be first noted that the inclusion of sustainable investment provisions in IIAs will not necessarily lead to increased sustainable investment. In fact, the overall potential of IIAs to generate benefits for both home states and host states alike has never been established with full certainty (Pohl, 2018[18]). The added value of IIA provisions on sustainable investment must then be found elsewhere. A first possible answer might lie in the “signalling value” of such provisions, insofar as they outline the priorities, objectives, and actions that the treaty parties are willing to pursue in harnessing sustainable investment. Alternatively, or in addition, IIA provisions on sustainable investment also serve to formalise parties’ co-operation on sustainable investment in selected areas. In this sense, they provide a framework for the establishment of co-operation initiatives, exchanges of best practices, capacity building and technical assistance on sustainable investment.

In both cases, the possibility for such “added value” to materialise is subject to a key condition. Any positive effect that could potentially arise from IIAs with respect to the achievement of sustainable investment is strictly dependent on the effective implementation of treaty commitments at the domestic level. In the absence of effective implementation, IIAs commitment on sustainable investment will be ultimately meaningless. Hence, any analysis concerning the scope and rationale of new IIA provisions on sustainable investment will necessarily involve a discussion on the practical modalities to implement such provisions at the domestic level.

1.3. Purpose of the report

Against this background, the research will seek to clarify the rationale for the inclusion in IIAs of provisions on sustainable investment. It will also determine how recent IIAs incorporating such type of provisions align with international standards on sustainable investment, identifying areas where a stronger alignment could be pursued. In this exercise, the research will rely on the principles of the FDI Qualities Recommendation and related instruments, which provide an ambitious framework supporting governments seeking to maximise FDI’s contribution to sustainable investment. Such an approach allows looking beyond a narrowly understood concept of investment facilitation and expand the analysis to other areas – such as the suitability of institutional mechanisms surrounding the investment, the existence of conducive legal and policy frameworks, the availability of technical and financial support, and co-operation with the broader stakeholder community – that can contribute to establishing an investment climate conducive to sustainable investment.

The research will also analyse domestic practices in selected areas in line with sustainable investment objectives that can contribute to the domestic implementation of international commitments, as well as tools and mechanisms that can support effective domestic implementation. It will also assess how sustainable investment principles as enshrined in the FDI Qualities Recommendation and current domestic practices on sustainable investment may influence the negotiation of future IIAs, with a view to ensuring a stronger alignment between investment and sustainable development objectives.

Box ‎1.3. Towards more sustainable investment frameworks

The OECD in co-operation with the EC assessed the extent to which the legal, regulatory and institutional frameworks for investment in selected Southern Neighbourhood countries – namely, Algeria, Egypt, Jordan, Morocco and Tunisia – are aligned with the objectives, requirements and key investment facilitation standards enshrined in the EU-Angola SIFA. By providing a gap analysis of investment facilitation shortcomings in the selected Southern Neighbourhood, the project aims at guiding the EC and the Southern Neighbourhood partners on potential future SIFA negotiations.

A new OECD report provides a stocktaking of the current investment climates of the selected Southern Neighbourhood countries, benchmarked against investment facilitation standards reflected in the EU-Angola SIFA. In particular, the report reviews the state of readiness of each of the selected Southern Neighbourhood countries in light of the SIFA’s key facilitation standards, based on an assessment of their respective domestic legal and regulatory frameworks and institutional arrangements for investment. More specifically, the report outlines and describes the key facilitation standards enshrined in the EU-Angola SIFA, relating specifically to the transparency and predictability of domestic regulatory frameworks and the streamlining of investment authorisation procedures, and how these standards are reflected in each of the selected countries, by way of legal, regulatory and institutional channels.

The report identifies potential room for improvement in the selected Southern Neighbourhood countries and underlines the extent to which each of their domestic frameworks align with the EU-Angola SIFA’s key facilitation standards, with a view to guide the EC and interested partners in the region on potential future SIFA negotiations. Strengthening Southern Neighbourhood’s investment facilitation frameworks could help countries not only attract more FDI, but also harness its potential positive benefits.

Source: (OECD, 2024[19])

A few additional remarks are necessary at this stage before proceeding further.

First, it is acknowledged that IIAs are not the only instrument that governments are using to foster sustainable investment. Such a consideration also emerges from the FDI Qualities Recommendation, which recognises that states have a wide range of policy options and tools at their disposal from which they can chose in their efforts to align investment and sustainable development priorities. States retain both the power to prioritise among the policy tools and instruments available as well as among the sustainable development objectives to be achieved. At the same time, the increasing attention that new-generation IIAs have themselves placed on sustainable investment underscores how the alignment between investment and sustainable development is becoming a key priority in investment treaty-making practice. The current research, therefore, builds on this trend, reflecting how one specific policy instrument – that is IIA – can be harnessed for sustainable investment.

Second, even when considering IIAs as a specific policy tool, it is important to recall that this is by no mean a unitary category. IIAs are heterogeneous and can take the form of “traditional” protection-focused BITs, FTAs with a wide variety of chapters – including investment, environment, labour, and sustainable development – and broader treaties with investment-related provisions, notably investment facilitation agreements such as the EU-Angola SIFA and the WTO IFD Agreement. Investment-related provisions can also be included in new types of international arrangements, such as IGECs with non-binding nature. All these instruments have different structures and objectives, which will inevitably influence the type of provisions that they include and the extent to which they align with sustainable investment objectives.

Lastly, it is important to stress that efforts to clarify the scope and rationale of sustainable investment provisions in IIAs are complementary to ongoing reform processes to more closely align IIAs with sustainable development. Issues concerning how to align investment treaties with the Paris Agreement and net zero goals or how to redesign substantive clauses of older treaties in a way that is conducive to the achievement of the negotiating parties’ objectives are, however, the specific topic of discussion in existing international fora. As such, they will not be specifically discussed in the current research.

1.4. Structure of the report

The current report is structured as follows:

• Chapter 2 reviews selected provisions of a small sample of IIAs and multilateral initiatives on sustainable investment to assess their alignment with the principles of the FDI Qualities Recommendation and identify areas that could offer opportunities for a stronger alignment of future IIAs with sustainable investment objectives.

• Chapter 3 identifies examples of domestic practices in selected countries or regions that are conducive to the FDI Qualities Recommendation. The consideration of such domestic practices is important, as IIAs provisions will ultimately need to be implemented at the domestic level. Domestic review may offer additional insights on potential commitments that could be transposed at the international level to inform future practice.

• Chapter 4 examines the issue of the domestic implementation of international commitments, developing a novel “Implementation Framework” seeking to guide the actions of state parties to the IIA at the domestic level.

• Chapter 5 analyses two examples of approaches on which states rely to address sustainable investment objectives in the context of the IIAs negotiation. Such approaches neither prescriptive nor exhaustive. They are only meant to provide an opportunity of reflection to better integrate sustainable investment objectives in IIAs.

References

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[8] OECD (2022), “Recommendation of the Council on the Role of Government in Promoting Responsible Business Conduct”, OECD Legal Instruments, OECD/LEGAL/0486, OECD, Paris, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0486.

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[18] Pohl, J. (2018), “Societal benefits and costs of International Investment Agreements : A critical review of aspects and available empirical evidence”, OECD Working Papers on International Investment, No. 2018/1, OECD Publishing, Paris, https://doi.org/10.1787/e5f85c3d-en.

[13] Skartvedt Guven, B. (2020), Briefing Note: Investment Promotion and Facilitation for Sustainable Development, Columbia Center on Sustainable Investment, https://ccsi.columbia.edu/sites/default/files/content/docs/publications/Briefing-Note-Investment-Promotion-and-Facilitation-for-Sustainable-Development-FINAL.pdf.

[9] Wittich, S. (2017), “International Investment Law”, in The Practice of Shared Responsibility in International Law, Cambridge University Press, https://doi.org/10.1017/9781316227480.033.

[14] World Trade Organization (2023), WTO Structured Discussion on Investment Facilitation for Development - Statement by the Co-Ordinators, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/INF/IFD/W51.pdf&Open=True.