Rethinking Investment Policy to Support Sustainable Development

Economies need investment to grow, support public services and infrastructure, and make the clean energy transition a reality. With only a short time remaining to meet significant global commitments such as the Sustainable Development Goals (SDGs) and the Paris Agreement, every penny is crucial. While the challenge was already great, the devastation wrought by COVID-19 makes this work even harder, yet also more urgent and important. 

Most investment treaties, however, still do little to support investment that advances sustainable development and the post-COVID recovery. Instead of setting up a framework to promote collaboration on sustainable investment, these treaties can stifle government action to develop economies that create value in the country and are respectful of the environment. They can cost governments millions—or even billions—of dollars when a foreign investor decides to bring the government to international arbitration.  

Under most investment treaties, foreign investors have access to a powerful mechanism known as investor–state dispute settlement (ISDS), which allows them to sue the host governments if its actions harm current or future profits and are found in breach of one of the main principles included, such as those relating to non-discrimination, expropriation, or "fair and equitable treatment."

IISD has worked with and advised dozens of countries and regional groups on investment law and policy. Countries are, in fact, hungry for innovative ways to reform their outdated investment treaties, developing their own model investment treaties or creating strategies for renegotiating or exiting outdated treaties.  

A New Investment Model for Sustainable Development

As early as 2005, IISD developed a text for a Model International Agreement on Investment for Sustainable Development. This model has been extremely influential and has heavily influenced the development of modern investment treaty models with respect to the definition of investment that takes into account sustainable development; the formulation of investment principles that allow for the necessary policy space; alternatives to investor–state arbitration; obligations for investors to respect human rights, the environment, and refrain from illegal action, such as corruption and fraud; and obligations on home states to support sustainable investment and allow victims to seek justice in the home state of the investor.  

However, while newer treaties and treaty templates incorporate reforms to varying degrees, the stock of old and outdated treaties remains largely intact. These treaties continue to present a great risk for governments around the world, including in the COVID-19 context. Governments must take action now—they have the knowledge and the tools. 

The Annual Forum of Developing Country Investment Negotiators

For discussing all these issues, IISD has established the only international platform for government officials exclusively from developing and emerging economies. This one-of-a-kind forum allows investment negotiators to strategize collectively, exchange best practices, and raise questions in a supportive environment. 

This year’s Forum, the 13th of its kind, was the first to be held virtually because of COVID-related travel restrictions. Whether in-person or online, the annual gathering offers developing country government participants a unique chance to share and learn from the experiences of colleagues across continents. Far more than just a meeting, the Forum has evolved into a vibrant community of government officials determined to work together toward systemic reform of international investment governance and to safeguard the best interests of their developing nations. 

The 2020 Forum was no exception. The discussions, co-hosted by the Government of Thailand and held online between September 3 and 11, looked not only at governments’ COVID-19 policy responses and what options investment negotiators have to safeguard these from ISDS challenges, but also debate about the road ahead. Negotiators discussed what investment for a sustainable, resilient recovery might look like—and how countries can shift the focus of discussions in various ongoing international processes on the quality of foreign direct investment, rather than just its quantity. 

With the stakes so high, we remain committed to ensuring developing countries can attract responsible investment that advances sustainable development while safeguarding their legitimate policy space. COVID-19 may have reshaped our world forever, but it has also reminded us that while the world of investment policy-making may move slowly, the risks can materialize quickly, and having a space where negotiators from developing countries can convene and debate a way forward at the national, regional, and multilateral levels is vital to enabling concrete change and fairer, more resilient economies.