Strengthening Sustainable Investment through International Investment Agreements

5. Options for the incorporation of commitments on sustainable investment in the negotiation of international investment agreements

Abstract

This chapter analyses how future international investment agreements (IIAs) can further align with selected principles of the FDI Qualities Recommendation (FDIQR). It introduces two options for the introduction of new provisions on sustainable investment in the context of IIA negotiation: one based on the introduction of treaty language that builds on existing treaty provisions already in line with the FDIQR, and one that relies on parties’ co-operation in the implementation of relevant IIAs provisions.

5.1. Possible options for the inclusion of new provisions on sustainable investment in the negotiation of international investment agreements

This chapter explores potential options to introduce new provisions on sustainable investment in the context of IIA negotiation, to strengthen alignment between IIAs and sustainable investment objectives in the above identified FDI Qualities areas. The negotiation process allows the parties to reflect and agree on a shared set of values to which they commit, and to identify the most appropriate tools and approaches that can be used in the achievement of their common objectives. Since IIA commitments will have to be implemented domestically – with potential consequences associated with non-compliance – the negotiation will have to strike a balance between the commitments themselves and the ability of states to deliver on them.

There are two practices emerging from the analysis of the IIA sample that appear to advance the incorporation of sustainable investment-related elements in IIAs. The first relies on the incorporation of substantive provisions on sustainable investment. The second, instead, relies on institutional co-operation mechanisms formulated in IIAs. Both approaches will be considered in the analysis of how the FDIQR principles identified above can be better integrated in future IIAs.

Concerning the first practice, the analysis of substantive language will be based on existing IIA provisions already aligned with the FDIQR, as identified in the stocktaking exercise under Chapter 2. Suggestions on potential amendments or edits to existing language will be, instead, based on the review of domestic practices carried out in Chapter 3. It is important to highlight that the analysis of potential substantive language is neither prescriptive nor exhaustive. It only provides an opportunity of reflection on how to better reconcile investment and sustainable development objectives.

In addition, there might be also additional substantive language – other than those emerging from the sample of reviewed IIAs or domestic practices – that can contribute to the strengthening of sustainable investment considerations in IIAs. In general, how treaty language on sustainable investment is drafted in practice will depend on the negotiating parties’ choices. There are several elements that will influence the decision, including the type of treaty to be negotiated (e.g. a BIT versus an FTA versus a SIFA-like agreement), the specific objectives and priorities of the negotiating parties, the negotiating context and the parties’ own negotiation practices, and the features of the parties’ own domestic legal and regulatory framework.

Concerning the second practice, while this is mostly focused on the parties’ co-operation in the context of IIA-based joint committees, it is important to recall that the other implementation mechanisms envisaged under the methodological framework under Chapter 4 may also play an important role in supporting the parties’ joint initiatives. Co-operation initiatives identified by the parties in the context of joint committees or other treaty bodies can be, therefore, complemented and supported by development co-operation or by the initiatives of relevant international organisations.

Before proceeding further with the analysis, the following clarifications are also necessary:

• Consideration of the broader context. IIAs are not the only policy instrument available to states to foster sustainable investment. The specific country context in the negotiating state – including its investment and sustainable development priorities and its own capacity and level of development – will inevitably affect the choice of the policy instruments that are the most appropriate to achieve the desired objectives. The same context will also influence the state’s own negotiation approach to future IIAs. The decision on which sustainable investment commitments to include in the IIA may be influenced in part by what the state has done or plans to do domestically to harness sustainable investment.

• Consideration related to the IIA type. The type of IIA the parties are negotiating will also influence the choice of the negotiation approach. For example, Free Trade Agreements (FTAs) have a much broader scope compared to traditional Bilateral Investment Treaties, also covering areas such as regulatory coherence or sustainable development in specific chapters (different than the investment chapters). Hence, they offer more opportunities for the integration of sustainable investment concerns. International green economy collaborations such as the Singapore-Australia Green Economy Agreement (GEA) have not only a very focused scope – addressing the issue of decarbonisation specifically – but are also entirely non-binding. They provide a framework for the parties’ co-operation, without creating binding commitments. All these specificities may have an impact on the choice of negotiating approach that is more appropriate in a given context.

• Consideration of implementation needs. IIA commitments will have to be implemented domestically. The level of ambition under the IIA will have to take into account the specific financial, human, and technical resources at the state’s disposal. Such elements may therefore also influence the choice of negotiating approach, with reliance on co-operation being, in certain instances, more appropriate than the introduction of new treaty commitments.

5.2. Examining treaty negotiation approaches in selected FDI Qualities areas

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

The impact assessment under FDIQR principle 1.d refers to multiple processes, all of which can be further strengthened in an IIA context. Such processes include: (i) impact assessment and periodic review of measures of general application (e.g. through the implementation of strategic impact assessment (SIA) processes); (ii) impact assessment of investment projects (e.g. through the implementation of environmental and social impact assessment (ESIA) processes); and (iii) monitoring and evaluation of the effects of the policy or project on sustainable development objectives.

Impact assessment and periodic review of measures of general application

Several treaties within the IIA sample (e.g. EU-Angola SIFA, Article 25; WTO IFD Agreement, Article 23) address the impact assessment of measures of general application (such as laws, regulations, judicial decisions, and administrative rulings). Article 22.8 of the EU-New Zealand FTA goes a step further by identifying the specific social, economic, and environmental impacts that should be analysed in the impact assessment, in line with the FDIQR principles. It also requires the analysis of the rationale supporting the adoption of relevant measures, including through assessment of potential alternatives. Furthermore, contrary to the EU-Angola SIFA and the WTO IFD Agreement, which only encourage the parties to undertake relevant impact assessments, the requirements under the EU-New Zealand FTA are formulated as binding obligations.

Treaty provisions on the impact assessment of measures of general application are already fully aligned with the FDIQR principles, both from a subject-matter and intensity perspective. States wishing to further strengthen such provisions could draw inspiration from domestic practices on SIA, to the extent that these are compatible with and relevant to their respective jurisdictions. For example, domestic laws may provide for the obligation to explicitly evaluate the impacts of policies, plans, and other measures of general application on specific issues, such as climate change. They could also require that the impact assessment extends to the consideration of the positive contribution of the relevant policy, plan, or measure on specific sustainable development objectives. Depending on their specific objectives and priorities, the parties may incorporate such elements also in the context of relevant IIA provisions on SIA.

The example below considers elements of Article 22.8, EU-New Zealand FTA. It also assumes that negotiating states wish to strengthen impact assessment provisions by incorporating additional elements to be considered in the context of SIA, in particular from an environmental perspective. Such additional elements might concern, for example, the requirement for the assessment to focus not only on potential adverse impacts of the measure of general application on sustainable development but also the positive contribution they can make.

The example also assumes that negotiating parties wish to strengthen their co-operation to ensure that SIA processes at the domestic level will be effectively implemented, with a view to addressing potential challenges. Relevant joint initiatives may be further identified in the context of the IIA-based joint committee, and may entail, among others, activities aimed at the exchange of information and best practices on SIA implementation, as well as technical assistance and capacity building programmes seeking to strengthen governmental capacity to correctly implement SIA processes. The joint committee can also further identify opportunities to harness the support of development co-operation or international organisations operating in the field.

Impact assessment on measures of general application

1. The regulatory authority of each Party affirms its intention to carry out, in accordance with its respective rules and procedures, an impact assessment of major regulatory measures it is preparing.

2. For carrying out an impact assessment, the regulatory authority of each Party shall promote the identification and consideration of: (a) the need for a regulatory measure, including the nature and the significance of the problem a regulatory measure intends to address; (b) any feasible and appropriate regulatory and non-regulatory options that would achieve the Party's public policy objectives, including the option of not regulating; (c) to the extent possible and relevant, the potential social, economic and environmental impact of the options, such as any impacts on climate change, biodiversity, land, soil, water and air, population and human health, labour rights, international trade and investment, the impact on SMEs, and gender; (d) the positive contribution of the proposed measures to sustainable development, including decarbonisation, labour rights, population and human health, and gender equality; and (e) how the options under consideration relate to relevant international standards, if any, including the reason for any divergence, where appropriate.

3. With respect to any impact assessment that a regulatory authority of a Party has carried out for a regulatory measure, that regulatory authority shall report on the factors it considered in its assessment and summarise the relevant findings. The information shall be made publicly available no later than when the regulatory measure to which it relates is made publicly available.

4. The Parties shall strengthen their co-operation in the domestic implementation of processes aimed at assessing the impact of major measures of general application on sustainable development.

Source: The provision above is based on Article 22.8, EU-New Zealand FTA. The wording in bold is an example of text that – depending on the context, objectives and level of ambition of treaty parties – state parties could introduce in their IIAs, in alignment with the FDIQR principles and to incorporate developments from domestic practices relevant to their respective jurisdictions.

Periodic review of measures of general application

Provisions on periodic review of measures of general application are included in the EU-Angola SIFA and the WTO IFD Agreement, in both cases drafted in exhortative and high-level terms. Binding language appears, instead, in Article 22.9 of the EU-New Zealand FTA, which provides both for the criteria guiding the review exercise and the transparency requirements applicable to the process, in line with the FDIQR.

The example below considers elements of the EU-New Zealand FTA as drafting reference. Also in this case, it considers a scenario where the parties wish to address the issue of domestic implementation by relying on their co-operation, identifying initiatives that contribute to strengthening domestic capacity in undertaking periodic review processes.

Periodic review of measures of general application

1. The regulatory authority of each Party shall maintain processes or mechanisms to promote periodic review of regulatory measures in effect.

2. The regulatory authority of each Party shall endeavour to ensure that periodic reviews consider, where appropriate: (a) whether there are opportunities to achieve its public policy objectives more effectively and efficiently; and (b) whether the regulatory measures under review are likely to remain fit for purpose.

3. The regulatory authority of each Party shall, to the extent possible and appropriate, make publicly available any plans for, and the results of, such periodic review.

4. The Parties shall strengthen their co-operation in the domestic implementation of processes aimed at periodically review the impact of major measures of general application on sustainable development.

Source: The provision above is based on Article 22.9, EU-New Zealand FTA. The wording in bold is an example of text that – depending on the context, objectives and level of ambition of treaty parties – state parties could include in their IIAs, in alignment with the FDIQR principles.

Impact assessment of investment projects

In the IIA sample, language on environmental and social impact assessment (ESIA), ESIA only appears in the EU-New Zealand FTA, exclusively in the context of activities related to the production of energy goods and raw materials. The review of domestic practices on ESIA however, may provide inspiration to negotiating parties wishing to strengthen this provision in alignment with the FDIQR.

The example below takes Article 13.8, EU-New Zealand FTA as starting point for negotiating parties wishing to extend its scope beyond the energy sector. A potential approach could be to make the relevant treaty language general in scope, as the ESIA requirement is not limited to specific sectors of investment. Parties could also expand the scope of the assessment to adverse social impacts to include impacts on labour rights, development of small and medium-sized enterprises, and gender equality, in line with domestic legislation. Lastly, it also provides for the need to consider the positive contribution of the investment to sustainable development, as potentially envisaged under domestic law.

Parties could also include language on co-operation to ensure the correct implementation of the EIA process. As in the SIA case, the joint committee established under the IIA can contribute to the development of initiatives seeking to provide technical assistance and capacity building to government officials, with a view to building their capacity in the implementation of EIA processes. The joint committee could also evaluate how to further take advantage of opportunities offered under development co-operation or the support provided by international organisations in this area.

Impact assessment of investment projects

1. Each Party shall ensure that its laws and regulations require an environmental and social impact assessment for activities that may have a significant social and environmental impact.

2. Each Party shall: (a) ensure that all interested persons, including NGOs, have an early and effective opportunity, and an appropriate time period, to participate in the EIA as well as an appropriate time period to provide comments on the ESIA report; (b) take into account the findings of the ESIA prior to granting the authorisation; (c) make publicly available the outcome findings of the ESIA; (d) identify and assess as appropriate the significant effects of a project on: (i) population and human health; (ii) biodiversity; (iii) land, soil, water, air and climate; (iv) cultural heritage and landscape; (iv) labour rights, SME development and gender equality; and (e) the positive contribution of the proposed measures to sustainable development, including decarbonisation, labour rights, population and human health, and gender equality.

4. The Parties shall strengthen their co-operation to support the domestic implementation of environmental and social impact assessment processes.

Source: The provision above is based on Article 13.8, EU-New Zealand FTA. The wording in bold is an example of text that – depending on the context, objectives and level of ambition of treaty parties – the parties could introduce in their IIAs, in alignment with the FDIQR principles and to incorporate developments from domestic practices relevant to their respective jurisdictions.

Monitoring & evaluation

Contrary to other areas under the FDIQR principle 1.d, monitoring & evaluation over the continuous impacts of investment projects, policies and plans is relatively new in an IIA context. There are currently no provisions in the IIA sample addressing the matter. Moreover, clear parameters guiding monitoring and evaluation are also lacking, both at the international and domestic level.

Given the novelty of the topic, rather than introducing substantive treaty language setting out binding commitments on monitoring and evaluation, parties wishing to address this issue through IIAs could, for example, focus on the development of joint initiatives seeking to strengthen monitoring and evaluation frameworks, including in the context of the activities of national investment promotion agencies (IPAs). Such initiatives could be pursued in the context of treaty-based joint committees, with the support of development co-operation resources and of relevant international organisations. They could include, among others:

• The gathering and sharing of data concerning the impacts of FDI on sustainable development.

• Technical support in the establishment of data tracking tools.

• Technical exchanges and study visits between national evaluation units and IPAs, to facilitate the sharing of best practices on monitoring and evaluation.

If appropriate depending on the context, treaty-based co-operation could be complemented by specific treaty provisions setting out the parties’ high-level commitment to work together in this area.

Monitoring and evaluation

The Parties shall strengthen their co-operation in the design and implementation of effective monitoring and evaluation frameworks, to assess the impacts of FDI, related policies, and major measures of general application on sustainable development.

Source: The provision above is an example of text that – depending on the context, objectives and level of ambition of treaty parties – the parties could introduce in their IIAs, in alignment with the FDIQR principles.

5.2.2. FDIQR principle 2.b: Policy coherence between gender and investment priorities

IIAs can contribute to strengthening policy coherence between gender and investment objectives, in line with FDIQR principle 2.b. To this end, parties may introduce specific treaty language setting out their commitment to uphold both values in a manner that is conducive to their meaningful fulfilment. This type of language is already present – in hortatory or declaratory terms – in several treaties within the IIA sample, including the EU-Angola SIFA, the Chile-Canada FTA, and the EU-New Zealand FTA.

Building on Article 35, EU-Angola SIFA, the example below addresses a scenario where state parties wish to create binding “best effort” obligations in this area. The example first recognises existing linkages between gender and investment-related objectives. It then strengthens the intensity of existing provisions by introducing an obligation for the parties to ensure alignment between objectives in the two areas.

Investment and gender

The Parties recognise that inclusive investment policies can contribute to advancing women's economic empowerment and gender equality, in line with Sustainable Development Goal 5 of the UN2030 Agenda. They acknowledge the important contribution by women to economic growth through their participation in economic activity, including investment. The Parties endeavour to implement this Agreement in a manner that promotes and enhances gender equality.

Source: The provision above is based on Article 35, EU-Angola SIFA.

Negotiating parties, however, might deem that reliance on a treaty obligation reconciling gender and investment objectives alone is insufficient to achieve the desired purpose. Co-operation in this area plays a key role and can draw from the FDIQR to provide more specific guidance on activities that would allow the parties to achieve policy coherence, while also contributing to additional FDIQR principles addressing gender equality. Relevant activities could include, for example:

• Regulatory co-operation seeking to remove barriers preventing women’s full participation in trade and investment opportunities.

• Capacity building and exchanges of best practices on how to draft gender-aligned investment laws and policies.

• Implementation of programmes to link women with the opportunities created by foreign investors (e.g. matchmaking events, supplier diversity programmes, education campaigns).

• Coaching and mentoring programmes seeking to develop women’s professional skills in sectors target of FDI.

5.2.3. FDIQR principle 4.a: Awareness raising on FDI’s contribution to sustainable development

Within the IIA sample, the consideration of initiatives on awareness raising on the contribution of FDI to sustainable development looks at two specific areas: gender and decarbonisation.

Awareness raising on FDI’s contribution to gender equality

Concerning gender, awareness raising provisions appear in the EU-New Zealand FTA and the Chile-Canada FTA. In both cases, their scope is limited to increasing the public knowledge of gender equality laws, regulations, and policies. The analysis of domestic practices, however, has highlighted how awareness raising can extend to a wide range of initiatives seeking to sensitise women and girls on the benefits that FDI creates for them, including with respect to job creation. Treaty parties to which such domestic practices are relevant may wish to take these additional elements into account in their IIA negotiation efforts. To broaden the scope of awareness raising provisions, it could be possible to rely on a combination of substantive treaty language and parties’ co-operation.

The example below considers elements of Article Nbis-01, para 7 of the Chile-Canada FTA by providing for the parties’ obligation to co-operate to raise awareness on the opportunities that the Treaty creates for women and girls.

Awareness raising on FDI’s impacts on gender equality

1. Each Party shall co-operate to promote public awareness of the economic opportunities that [the Treaty] creates for women and girls.

2. Each Party shall promote public awareness and transparency of its gender equality laws, regulations, policies and practices.

Source: The provision above is based on Article Nbis-01, para 7, Chile-Canada FTA.

If established under the relevant treaty, parties can harness existing implementation mechanisms – including the joint committees established under the applicable IIA – to identify potential initiatives that they can jointly pursue in this area. These can include, among others:

• Public information and education campaigns seeking to encourage women and girls to access professional and educational opportunities in sectors that are target of FDI.

• Community-based initiatives, such as public meetings or dialogue platforms, seeking to sensitise stakeholders on the challenges that women and girls face in accessing economic opportunities.

• Trainings for public officials and private sector members designed to combat persisting gender stereotypes.

• Initiatives and programmes seeking to close the gender gap in selected priority sectors, with a view to achieving 50/50 employment between men and women.

While these initiatives have mostly domestic relevance, parties’ co-operation may ultimately facilitate the exchange of information, best practices and lessons learned, further contributing to the implementation of international commitments.

Awareness raising on FDI’s contribution to decarbonisation

As for decarbonisation, there are currently no provisions in the IIA sample regulating awareness raising in this area. An implicit reference appears only in the Singapore-Australia GEA when addressing the parties’ co-operation with ecolabelling organisation. Given the relative novelty of the topic, an effort to strengthen IIAs’ alignment with FDIQR principles on awareness raising rests mostly on enhancing the parties’ co-operation. These efforts could be performed in the implementation of existing IIA sample provisions such as Article 32, para 3 EU-Angola SIFA, which calls on the parties to “work together to strengthen their co-operation on investment-related aspects of climate change policies and measures bilaterally, regionally and in international fora”.

By relying on treaty-based joint committees and harnessing development co-operation, parties could focus on the design and implementation of initiatives seeking to sensitise consumers and influence their behaviour in a way that supports decarbonisation efforts. Such initiatives could include, among others, the implementation of sensibilisation campaigns seeking to influence individual patterns of consumption and information campaigns on energy efficiency and the availability and application of ecolabelling schemes.

5.2.4. FDIQR principle 4.b and principle 4.c: Investment promotion and facilitation

Most treaties within the IIA sample consider investment promotion and facilitation activities jointly. This is the approach adopted, for example, in the Investment Protocol to the AfCFTA, the EU-New Zealand FTA and the EU-Angola SIFA. All these agreements first identify the priority sectors for investment promotion and facilitation. Attention is mostly placed on sectors that can contribute to climate objectives. These include, among others: investments in climate change mitigation and adaptation projects, investment in environmental goods and services; investment in nature-based solutions; or investment in specific sectors such as renewable energy, low-carbon technologies, raw materials, sustainable agriculture, green infrastructure.

One option available to parties wishing to strengthen the linkage between investment promotion and facilitation activities and sustainable development could be to build on the language already found in the IIA sample to broaden the list of target priority sectors. In practice, the choice of sectors is context-specific and will depend on the parties’ own priorities and choices. Examples of sustainable development-related sectors in alignment with the FDIQR include, among others:

• Gender equality: e.g. investment in women-led businesses; investment in companies with strong gender equality focus, including in terms of percentage of women employed; investment in sectors that can provide key support services to women, enabling them to benefit from the economic opportunities arising from FDI (e.g. transportation, healthcare, technology, and digitalisation).

• Productivity and Innovation: e.g. investment in research, development, and innovation in areas with high potential for productivity and innovation, such as renewable energy and clean technologies, raw materials, manufacturing in technology and IT services, pharmaceuticals, financial services and financial technology, logistics, communications.

In limited instances, IIAs also identify examples of what promotion and facilitation activities entail. Parties could include an interpretative provision listing examples of investment promotion and facilitation activities. Such an approach, which is not prescriptive in nature, would still provide parties with enough flexibility to decide which investment promotion or facilitation initiatives are the most appropriate depending on the context and the specific objectives pursued.

Investment promotion and facilitation for sustainable development

1. Each Party shall promote and facilitate investments in:

• [To be completed with a list of sectors relevant for the achievement of sustainable development objectives, based on the parties’ interests and priorities.]

2. By way of example, promotion and facilitation activities may include:

• [To be completed with list of activities, based on selected priority sectors for sustainable development.]

Source: The provision above is based on Articles 6 and 7, Investment Protocol to the AfCFTA; Article 19.11, paras 4-5, EU-New Zealand FTA; Article 33, EU-Angola SIFA.

Certain treaty provisions address specific investment facilitation measures in more specific terms. IIAs such as the EU-Angola SIFA and the WTO IFD Agreement specifically encourage the parties to establish domestic supplier databases, as a way to facilitate linkages between foreign investors and domestic firms. Relevant provisions are mostly drafted in hortatory terms, without establishing any binding commitments for the parties, thus allowing parties to retain flexibility on the modalities and timeline for implementation of such type of commitment.

Linkages with domestic suppliers

Each Party is encouraged to make available to investors and persons seeking to invest information on possible relevant domestic suppliers, including micro, small and medium-sized enterprises and women-led enterprises.

Source: The provision above is based on Article 24, WTO IFD Agreement; Article 11, EU-Angola SIFA.

Regardless of any language, the parties can rely on co-operation for the development of joint investment promotion and facilitation initiatives. Investment promotion activities could consist of, for example:

• Exchanging information on metrics, scoring mechanisms and approaches used by investment promotion agencies to target, measure and monitor sustainable investment.

• Organising joint investment promotion activities in priority sectors, including conferences and seminars, business fora, and fairs.

• Exchange of information and best practices for the development and implementation of policy and legal frameworks conducive to the achievement of sustainable development-related objectives (e.g. promotion of low carbon investments, improved access to finance and digital technology for women, promotion of supply chain development and SME absorptive capacity).

As for investment facilitation activities, these can include, among others:

• Establishing green corridors or green one-stop-shops seeking to ease administrative procedures in connection with low carbon investments.

• Providing advisory services seeking to enhance the sustainability profile of both foreign investors and domestic suppliers operating in priority sectors.

• Establishing suppliers databases showcasing women-led businesses or domestic businesses responding to specific sustainability-related criteria (e.g. using low carbon technologies).

• Providing matchmaking and networking events to promote the establishment of linkages between the foreign investor and, e.g. low carbon domestic suppliers, partners and distributors, or women-led businesses.

• Establishing and implementing supplier development programmes and skills development programmes to build the capabilities of domestic suppliers and local workforce in areas of interest for foreign investors, e.g. low carbon technologies and practices.

• Establishing and implementing skills development programmes, seeking to enhance linkages between foreign investors and women entrepreneurs in the host state.

5.2.5. FDIQR principle 4.e: Promoting the consideration of ESG criteria in investment decisions

FDIQR principle 4.e addresses the importance of considering environmental, social and governance (ESG) criteria when taking investment decisions. The only treaty within the IIA sample that addresses ESG is the Singapore-Australia GEA. This treaty provides a framework for the parties’ co-operation in two different but related areas: the strengthening of ESG ecosystems in the parties’ respective countries, and the development of robust global climate-related financial disclosures and reporting standards. Co-operation in both areas is especially important, as it contributes to addressing some of the main shortcomings that affect the uptake and application of ESG standards. These relate to, among others, inconsistencies in the construction of ESG ratings, difficulties in data comparability and the general fragmentation of the ESG environment.

One option available to parties wishing to harness their IIAs to strengthen their domestic ESG ecosystems could be to create a common framework for collaboration. For example, they could use the IIA to clarify their intention to co-operate to improve their own domestic frameworks on ESG disclosure. The adoption of a soft language is justified due to the many uncertainties that still surround ESG as a topic. Additionally, or in alternative, the parties could consider introducing a binding obligation to work together for the development of ESG metrics suitable to provide comparable and consistent criteria for non-financial disclosure, thus facilitating investment decisions. What co-operation will entail in practice can be then determined on a case-by-case basis.

Strengthening ESG frameworks

1. State parties are encouraged to improve their legal and regulatory framework on ESG, with a view to improving decision making by investors.

2. For this purpose, state parties shall work together to facilitate the development and uptake of consistent, comparable, and robust ESG metrics and standards, with a view to improving disclosure of non-financial information.

Source: The provision above is based on paragraph 9.c.viii, Singapore-Australia GEA.

5.3. Areas for future research

Recent IIAs are increasingly incorporating provisions designed to facilitate sustainable investment. While these mostly focus on traditional facilitation measures (e.g. transparency, streamlining of administrative processes), the review carried out in the previous chapters shows that IIAs are also starting to incorporate provisions with a broader scope, aimed at improving the investment environment in the host state for the purpose of harnessing sustainable investment.

This chapter has analysed how such provisions can be further strengthened in alignment with the principles of the FDIQR in selected areas. The approach identified rests on a combination of sample language based on existing treaties – with potential amendments based on the review of domestic practices in selected OECD and non-OECD countries – and parties’ co-operation in the context of treaty-based mechanisms. By themselves, however, these tools might not necessarily lead to increased sustainable investment. Domestic implementation of IIAs commitments on sustainable investment remains a necessary precondition. Currently, there is no consensus as to what domestic implementation means. The framework developed under the previous chapters, relying not only on parties’ co-operation but also on international organisations’ support and development co-operation, can however be harnessed to strengthen domestic implementation efforts.

It is also important to stress that new commitments on sustainable investment are not the only type of sustainable development-related provisions appearing in IIAs. Traditional IIA provisions, addressing issues such as expropriation or fair and equitable treatment, may also incorporate sustainable development-related concerns.

Such provisions raise different sets of issues, both in terms of treaty language and in terms of implementation. Concerning the first issue, research has been ongoing in international fora – including, but not limited, to the OECD – to determine how to align investment treaty language with sustainable development objectives, for example looking at issues relating to the preservation of policy space for the host state. On the second issue, future research could similarly explore the role of the proposed implementation framework, based on parties’ co-operation, international organisations’ support and development co-operation, to further strengthen implementation of these different categories of investment treaty provisions.