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This article is written by Sangeeta Choudhury, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.


Corporate Social Responsibility (CSR) is a term that considers the social, environmental, and economic effects of a company’s actions, including its supply and value chains. CSR is a term that has acquired popularity not just in the socio-environmental interplay of corporate activity within a state, but also in international investment law. On the basis of internationally established standards and principles, CSR programmers seek methods to ensure firms may be held accountable for these impacts. CSR has been established by international agencies such as the Organisation for Economic Co-operation and Development (with the OECD Guidelines for Multinational Enterprises) and the United Nations (with the Human Rights Council’s Guiding Principles on Business and Human Rights). It was originally founded on the sovereign ethics of multinational enterprises. These soft-law instruments were created in tandem with hard-law investment treaties, which offer foreign investors rights under international law.

Recent trade agreements and Bilateral Investment Treaties (BITs), such as the Trans-Pacific Partnership (TPP), the EU-Canada Comprehensive Economic and Trade Agreement (CETA), the EU-Vietnam Free Trade Agreement, or the Canada-Burkina Faso Foreign Investment Promotion and Protection Agreement (FIPA), to name a few, explicitly mention CSR. Unfortunately, CSR terms in trade and investment agreements, are still in their infancy. On the contrary, the vast majority of agreements make no mention of CSR. However, a new generation of investment policies has arisen during the last ten years, signaling the commencement of a shift in investment treaty-making. Recently, a growing number of countries and regions have begun to include CSR language in their trade and investment agreements in recent years. 

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A classification of CSR clauses as seen in investment treaties

It’s worth noting that in Investor-State Dispute Settlement (ISDS) proceedings, tribunals have given little or no weight to treaties and responsibilities that aren’t directly relevant to the investment at issue, primarily due to a lack of jurisdiction to hear them and so to address this problem, the countries have recently adopted the practice of inserting CSR clauses in their international investment agreements (IIAs), by means of treaties. In recent years, investment law has incorporated CSR, either implicitly or explicitly. 

The first group comprises clauses that encourage firms to self-regulate to the extent possible while the second group includes terms that say that CSR is within the jurisdiction of the home and host countries of overseas investors and the third, and the most recent, group includes terms in which authorities expressly demand investors to adhere to human rights or environmental duties.

Clauses in the first two categories envision MultiNational Enterprises(MNEs) or domestic laws organising CSR on their own (mainly host state laws) and they are referred to as indirect clauses because they create intermediary devices for regulating foreign investors’ business behavior, either through MNEs’ own policies or through host countries’ domestic legal systems. Direct CSR clauses, on the other hand, are designed to make foreign investors accountable by establishing the rules that govern their actions.

Direct CSR clauses : a method of defining international commitments for investors

Traditional investment treaties’ major goal is to offer rights to foreign investors rather than impose responsibilities on them; hence there aren’t many of them. This goal of investment treaties explains why direct clauses are frequently written in a poor manner. Article 24 of the Pan-African Investment Code (PAIC) uses conditional verbs (“should”) to encourage investors to comply with internationally recognized human rights legislation, while imperative verbs (“shall”) are employed to prevent corruption (Article 21). Article 17 of the Argentina-Japan Bilateral Investment Treaty of 2018 requires host-States to encourage investors to implement CSR principles into their internal policies on a voluntary basis. Similarly, all of the requirements of Article 24 of the Morocco-Nigeria BIT 2016 contain the phrase “strive to.” As bold as these regulations may appear, their implementation and enforcement may, at best, be a stab in the dark. As ambitious as these rules may appear, their implementation and enforcement may at best be a stab in the dark before an arbitral tribunal, and the reason for this is not far-fetched. Direct sentences can be rather weak in substance if conditional verbs are not utilized. Some people only remember one of the Salini test’s criteria: that investors must contribute to the host country’s development. This is the situation with Article 22(2) of the Draft PAIC, headed Corporate Social Responsibility: A Framework for Action.

Investors shall, in pursuit of their economic objectives, ensure that they do not conflict with the social and economic development objectives of host States and shall be sensitive to such objectives. In other words, the host-State would have to present evidence demonstrating that the investor has failed to take all reasonable steps to uphold the treaty’s provisions in good faith. This requires considering the numerous options accessible to the investor at the time of treaty compliance and determining whether the option chosen is the best at that point in time. This burden of proof is not only heavy but also impossible to bear. In this situation, it is not uncommon for an investor to seek a way out of the obligation.

Indirect clause : a way of protecting host countries’ power

The majority of CSR clauses are indirect clauses, portraying CSR as a self-regulatory mechanism that both the home and host states should encourage. This section does not impose direct CSR duties on foreign investors, but it does utilize careful language to express the Parties’ agreement to “urge” investors to follow CSR guidelines. In recent years, there has been a noticeable trend in Canadian, Brazilian, and EU treaty-making practices to include CSR elements in investment agreements.

Inclusion of CSR clause in some investment agreements around the world 

In recent years, Canada has incorporated CSR standards into its investment treaties. The 2013 Benin-Canada BIT, for example, lists “national treatment, most-favored-nation treatment, minimum standard of treatment, compensation for losses, compensation for expropriation, transparency, subrogation, and corporate social responsibility” as “Guiding Principles” of the contracting parties’ obligations. The parties are required by Article 16 of this BIT, designated “Corporate Social Responsibility,” to encourage firms in their territory to adhere to internationally recognized CSR norms. It contains the following features:

‘Each Contracting Party should encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate social responsibility in their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Contracting Parties. These principles address issues such as labor, the environment, human rights, community relations, and anti-corruption.’ Despite the fact that the provision has a soft character by using the terms ‘encourage’ and ‘voluntarily,’ and that the CSR provision cannot form the basis for a claim raised by a foreign investor against the host state in investment arbitration, this CSR provision marks a start of incorporating soft ICSR terms into hard international investment treaties. Article 16 of the 2014 Canada-Senegal Bilateral Investment Treaty (BIT) has a unique wording that not only requires states to encourage CSR commitments by businesses but also directly encourages them to “make investments whose impacts contribute to the resolution of social problems and the preservation of the environment.”

Brazil signed a number of Investment Cooperation and Facilitation Agreements in 2015. (ACFIs) where the ACFIs are concerned with facilitating investment and mitigating risk. Rather than imposing CSR duties on State Parties, most Brazilian ACFIs impose them directly on investors like the CSR provisions in the 2015 Brazil-Angola ACFI, the 2015 Brazil-Mozambique ACFI, the 2015 Brazil-Malawi ACFI, and the 2015 Brazil-Mexico where ACFI require ‘investors and their investments’ to strive for the highest possible level of contribution to the host state’s and local community’s sustainable development.

In 2011, the European Parliament passed a resolution on the future of European investment policy, calling for a corporate social responsibility clause to be included in every free trade agreement the EU signs. In recent years, the EU has added CSR provisions in freshly completed Association Agreements and Free-Trade Agreements, in line with this policy (FTAs). However, these treatises are few and far apart. Canada, Brazil, and EU like all other nations in the world are yet to find the right balance as they every now and then tend to take the softer path and move away from the examples set by themselves.

The enforcement of investor obligations through counterclaims

In theory, an International Investment Agreement (IIA) prohibits a host state from bringing arbitration procedures against an investor whereas a respondent state can, bring a counterclaim against an investment, asking financial compensation, under several IIAs but the counterclaims filed by a state should be related to the investor’s primary claim against the state. In principle, the ability to file a counterclaim allows a state to address the asymmetrical character of investment treaties by bringing direct claims against investors for violations, such as human rights violations. States haven’t used the counterclaims process too much in practice. This is due to a number of factors. To begin with, the vast majority of IIAs do not include any counterclaims provisions that states can invoke. Second, host-state counterclaims are rarely accepted by investment courts. The jurisdictional standards for filing a counterclaim have proven to be difficult for states to meet. This explains why the tribunal has only found jurisdiction over the state’s human rights counterclaim in one case, Urbaser v. Argentina. The tribunal in Urbaser v. Argentina deviated from earlier precedent by holding that a factual link between the claim and the counterclaim is sufficient to establish a connection between the claims. To this end, the tribunal underlined that ‘the principal claim and the claim opposed to it are based on the same investment, or the alleged lack of sufficient investment, in relation to the same Concession. This would be sufficient to adopt jurisdiction over the counterclaim as well. The counterclaim decision in Urbaser v. Argentina has significant ramifications for businesses where the Urbaser tribunal demonstrated with this ruling that host state counterclaims against investors based on human rights abuses may fall under the jurisdiction of investment tribunals. It made it apparent that firms cannot avoid culpability by claiming that they are not subject to international law.

Challenges of interpreting and enforcing CSR provisions in investment treaties

Even though it has been proposed that CSR standards can be considered as a sort of compensation for investment treaties’ main goal of investor protection, there are a number of challenges with the interpretation and execution of these CSR provisions, as evidenced by the Urbaser v. Argentina judgment, which is rare in the international circuit. To begin with, investment treaties are mostly triangular agreements that require State Parties to protect foreign investors as third-party beneficiaries. Including CSR elements in investment, treaties defeat the purpose of investment treaties by imposing obligations on both host countries and international investors. Second, unlike investment responsibilities, which are considered “hard law,” most CSR norms in international instruments are considered “soft law” because of their non-binding and voluntary nature, as well as the lack of an efficient enforcement mechanism. This makes it absolutely difficult to strictly enforce the CSR clause in investment treatise. Finally, because of the ambiguous concept of CSR, the tribunals find difficulty in interpreting these CSR rules. Before enforcing the CSR clause in investment treaties, these difficulties must be resolved first.


Canada, Brazil, and the EU have no doubt shown the world a possible solution to the existing problem. This is of course a step in the right direction, however, we are still far away from reaching an ideal situation where all investment treaties around the world will include CSR clause in such a way that it is enforceable. The above-mentioned three countries have shown the path and now others need to follow and come up with a permanent solution. In order to do so, we will have to do away with the soft terms like ‘highest possible level’ ‘seek to ensure’ or ‘do their best.’ It is also absolutely essential that the international arbitration community undertakes the needed policy reform.


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