Project Background and Contact
Private international investment flows are the predominant source of capital in the global economy. Between 1990 and 2000, Foreign Direct Investment (FDI) outflows grew almost fivefold, from about $200 billion to nearly $1 trillion. In the next decade, the governance of these investment flows will be a hotly contested issue among policymakers and civil society. Unlike trade, no overarching rules-framework currently governs international investment. Recent attempts to create one, notably the ill-fated Multilateral Agreement on Investment (MAI), articulated only the rights of foreign investors, especially the right of equal and non-discriminatory access to investment opportunities (most favored nation and national treatment).
Experience with the investment provisions of the North American Free Trade Agreement (NAFTA) indicates how problematic international investment rules can be that are not drafted with due consideration of the full range of public goods that can be affected by the exercise of private rights. Beyond rights, a ‘sustainable development’ framework articulates the responsibilities of private investors, as well as home and host country governments.
Rules for FDI and Portfolio Investment
A set of clear principles and common responsibilities is needed not only for FDI but also for portfolio investment, which is the fastest growing type of finance flowing to developing countries. The underwriting and trading of portfolio securities is mostly the preserve of large US investment banks and institutional investors. These institutions mobilize huge amounts of capital and channel them (inter alia) into energy, water and other huge infrastructure projects and other corporate activity in developing countries. There is no common requirement, say as a condition of underwriting, to exercise social or environmental due diligence and to assure investors that such projects will not generate environmental or social harms-for which investors might even be liable.
The Opportunity: Defining Investor Responsibility
Investment rules are a breaking issue on the political agenda: Governments are now beginning to negotiate rules governing finance and investment at all levels. Bilateral agreements continue to be concluded, investment has been included in the agenda for regional (e.g. Free Trade of the Americas) negotiations and there is continuing discussion of its inclusion in the WTO. There is both an urgent need and a political opportunity to press for the inclusion of rules which reflect the environmental and social concerns embodied in the concept of sustainable development.
Investment rules should articulate not only the rights but also the responsibilities of investors, as well as host and home governments: A growing body of both ‘hard’ and ‘soft’ law is emerging which governs global environmental and human rights issues, including multilateral environmental agreements, World Bank pollution standards, ISO standards, ILO core labor standards, and human rights conventions. These standards need to be brought together and codified in a single framework and made part of investment and trade agreements.
Advocacy and Implementation
Sustainable development investment rules should-and could-be implemented in parallel with regional economic and/or global environmental agreements: A codified set of sustainable development investment rules is most likely to be implemented in the context of regional economic cooperation agreements; or global environmental agreements such as the UN Framework Convention on Climate Change.
With a good Framework, an effective global coalition can be mobilized to press for the implementation of Sustainable Development Investment Rules: A large and growing coalition of environment, human rights, labor, development, and ‘socially responsible’ business and investor groups is calling for the integration of ethics into market governance, including investment. This coalition helped to defeat the MAI and is poised to advocate for an approach that establishes global benchmarks. The first step to effective proactive advocacy is a solid conceptual foundation and policy framework.