Corporate Social Responsibility in Energy Investment and International Investment

BY: Trisha Gautam

The concept of Corporate Social Responsibility (“CSR”) is growing increasingly popular, especially in the international investment sphere where questions of equitability, sustainability, and human rights are at the forefront. Growing concerns surrounding climate change and its imminent consequences have led to increased calls for faster investment treaty reforms. These reforms seek to codify CSR principles into investment treaties, creating an international legal framework that helps to address social policy concerns. There are various philosophical approaches to CSR, ranging from idealistic to cynical, that argue for the best approach to reform. 

One approach to CSR, for example, calls on large businesses to “fill a leadership void” left by political powers, who are unable to enact real and vital change. This approach was touted by Harvard Business School Dean Wallace Donham, who went so far as to accord the responsibility for saving civilization to socially-conscious business practices.

The United Nations Conference on Trade and Development (“UNCTAD”) recently presented a new toolbox for investment treaty reforms that would effectively and actively “support the shift from fossil fuels to renewable energy resources.”

In order to understand the effectiveness of investment treaty reform upon CSR and global business, it is first necessary to discuss CSR and the function of investment treaties. Corporate Social Responsibility encompasses a range of different theories that offer guidelines for corporations to advance both corporate and societal objectives. These theories’ aims are to encourage companies to engage in things like “environmental preservation efforts, ethical labor practices, philanthropy, and promoting volunteering,” among a large number of other societal objectives or movements.

Investment treaties are agreements governing a State’s treatment of investments initiated by individuals or entities from another jurisdiction. They can be negotiated, written, and signed on a bilateral, multilateral, or sectoral basis. The primary function of an investment treaty is to outline the mechanism for settling investor-state disputes. Investment treaties can also contain provisions that further certain CSR goals.

In their toolbox, the UNCTAD reserved a separate set of recommendations specifically for the implementation of CSR into international treaties. One recommendation is the implementation of binding obligations within treaties “relating to human rights, labour, environmental and anti-corruption standards.” While this recommendation may seem very broad at first, many human rights and labor standards are already given a legal framework through international instruments such as the International Covenant on Economic, Social and Cultural Rights (United Nations Treaty) and the Abolition of Forced Labour Convention (International Labor Organization Convention). These legal frameworks hold States, not institutional investors, under binding obligations, but the overarching intentions outlined in the treaties could very well be applied to international investment treaties.

Another recommendation outlined in the toolbox calls for mandatory standards for investors who want to enjoy the benefits of international investment agreements. These standards include conducting environmental impact assessments and the maintenance of environmental management systems. Institutional investors, before entering the international market, should have the resources and business savvy to conform to these obligations.

As global concerns over climate change intensify, the push for incorporating Corporate Social Responsibility into investment treaties is gaining momentum, aiming to establish a legal framework that addresses critical social policy issues. It is for States to implement these binding obligations into international investment treaties, for institutional investors to commit themselves to undertaking these obligations, and for individual investors to hire institutions that focus on investing with CSR in mind.

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