International Investment Agreements, Human Rights, and the Path to Net-Zero: What Role for Corporate Codes?

Abstract

The Paris Agreement’s commitment to achieve net-zero greenhouse gas emissions by 2050 has resulted in an uptick in environmental laws and regulations. However, such state conduct could implicate other legal obligations and norms, including international investment law and international human rights law. The conversation about human rights, net-zero and investment treaties, including arbitration cases and arbitral awards under the treaties, is in its relative infancy. This article examines how investment treaties are equipped to reconcile relevant norms with a particular focus on corporate codes and policies that pronounce broad commitments to protecting human rights and the environment. It establishes certain principles to guide parties and arbitral tribunals as to the codes while recognizing the inevitable challenges they will face.

I. Introduction

Under the 2015 Paris Agreement, states have committed to reduce greenhouse gas (GHG) emissions to net-zero by 2050. ¹ New laws and regulations, including states’ innovative use of fiscal and tax tools, seek to reduce hydrocarbon use. ² Joining states are businesses that have adopted models and plans with net-zero pledges. ³ The measures, while designed to protect the environment, affect basic human rights, especially the right to life, the right to health, the right to property and the right to work. ⁴

The actions of states and the private sector in support of net-zero occur within the context of complex regulatory or legal regimes, which may be at odds with reasonable means to reduce GHGs. A body of law that could implicate the path to net-zero and associated human rights is international investment law. Thousands of international investment agreements (IIAs) include promises by host states to protect investors and their investments. Many IIAs allow foreign investors to bring claims against host states in arbitration for allegedly not protecting their investments as promised under the IIA, under a process commonly known as investor-state dispute settlement (ISDS). ⁵

Investors have already brought ISDS claims challenging states’ enactment or enforcement of environmental laws and regulations with some of the latter linked to the net-zero objective. ⁶ More arbitration claims are likely given the relatively broad language in IIAs that protect foreign investors and their investments and states’ commitments under the Paris Agreement. ISDS is perceived, however, to stymie states in their effort to combat climate change due to the fear that the adoption and enforcement of new environmental regulations and laws would prompt an arbitration claim. ⁷

A somewhat overlooked aspect of the legal landscape is that investors bringing claims against host states under IIAs may have adopted a voluntary code of conduct, ⁸ such as a corporate social responsibility (CSR) code or an environmental, social and corporate governance (ESG) code under which the entity expresses adherence to the Paris Agreement or standards aligned with net-zero. ⁹ The codes of conduct, frequently adopted by multinational corporations (MNCs), may also express the enterprise’s commitment to human rights with reference to human rights treaties and the Universal Declaration of Human Rights (UDHR) while even linking the net-zero aim to the enterprise’s obligation to respect human rights. In addition to expressing public commitments to the environment and human rights, company codes may pronounce guidelines for employees and the company’s suppliers, partners or other stakeholders. ¹⁰

This article argues that states, investors and arbitral tribunals should take corporate codes seriously. Code text may be aligned with the very state action giving rise to the investor’s arbitration claim. The code may reflect the investor’s understanding of the IIA’s investment protection measures, which, in turn, sheds insight into an investor’s legitimate expectations as to both environmental and human rights obligations. The investor, while making public commitments in its code, may have not lived up to them, so to what effect?

At the outset, this article introduces the Paris Agreement’s net-zero obligation and the associated human rights consequences. It then examines key IIA texts as to investment protection measures, the environment and human rights, with a brief mention of certain ISDS cases. Recognition is given to the fluidity of the IIA landscape, especially given recent reforms to IIAs and ISDS due to their human rights and environmental consequences.

After the background is established, the article focuses on code text that addresses environmental and human rights norms and obligations. The article’s last section sets forth a guide for parties and arbitral tribunals to give legal effect to a corporate code depending upon the code language, the corporation’s practice under the code and IIA obligations. The focus on actual corporate code text, particularly in the context of treaty language, builds upon the work of Professor Esty and Dr de Arriba-Sellier, ¹¹ Professor Ishikawa, ¹² and, to a certain extent, Professor Barnali Choudhury. ¹³ It is distinct from the well-recognized, growing body of literature that examines the need for ISDS reform and its potential effect on businesses and human rights. ¹⁴

II. Net-Zero and International Human Rights

The Paris Agreement emerged from the United Nations (UN) Climate Change Conference (COP21), which was held in Paris in December 2015. ¹⁵ It reflected the first time that all states, not just developed ones, committed to reducing GHGs to net-zero emissions by 2050. ¹⁶ This goal requires a ‘complete transformation of how we produce, consume and move about.’ ¹⁷ In short, a world dependent upon hydrocarbons must defer to one in which renewables predominate.

The shift to renewables is daunting given the capital required to build renewable energy supplies, the need for new technical capacity, the importance of cooperation among states as well as between states and the private sector and the possible displacement of workers. Another major hurdle is the requirement of legal reform, which has the potential to be mired in politics as powerful actors may resist a move away from hydrocarbons.

Each party to the Paris Agreement is to ‘prepare, communicate and maintain successive nationally determined contributions (NDCs) that it intends to achieve.’ ¹⁸ The party is to ‘pursue domestic mitigation measures, with the aim of achieving the objectives’ of the NDCs. ¹⁹ Beginning in 2023, and every five years thereafter, each party must report on its emissions and actions to implement the treaty. ²⁰

The Paris Agreement recognized that developed country parties are to continue to take ‘the lead by undertaking economy-wide absolute emission reduction targets’ while developing country parties ‘should continue enhancing their mitigation efforts’ and they ‘are encouraged to move over time towards economy-wide emission reduction or limitation targets in the light of different national circumstances.’ ²¹

A party is to ‘pursue domestic mitigation efforts’ to achieve the NDC, but it is not bound to adopt a specific domestic measure. ²² Nevertheless, at least 27 states and the European Union (EU) have passed laws to aid in their net-zero commitments. ²³ For example, in 2023, over 59 per cent of Swiss voters approved Switzerland’s Climate and Innovation Act, which established the net-zero target as binding. ²⁴

Although aimed at tackling climate change, the Paris Agreement has implications beyond the environment. Its object and purpose are intertwined with human rights. ²⁵ The treaty’s Preamble acknowledges that ‘climate change is a common concern of humankind.’ ²⁶ It further provides that ‘[p]arties should, when taking action to address climate change, respect, promote and consider their respective obligations on human rights.’ ²⁷ Additional reference in the Preamble is to the effect of climate change on ‘the right to health, the rights of indigenous peoples, local communities, children, persons with disabilities and people in vulnerable situations and the right to development, as well as gender equality, empowerment of women and intergenerational equity.’ ²⁸

The human rights implications of climate change and the Paris Agreement’s approach to it are principally two-fold. First, by not tackling climate change, a state has failed to respect, protect and fulfil human rights. ²⁹ Second, in addressing climate change, parties ‘should take human rights into account’; this requirement, according to Professor John H. Knox, ‘helps to mainstream human rights norms into the ongoing implementation and evolution of the climate regime.’ ³⁰

Well before the Paris Agreement, the link between a safe and clean environment and human rights was recognized. As Professor Dinah Shelton has noted, as early as the 1972 Stockholm Conference on the Environment, the ‘fundamental rights of freedom, equality and adequate conditions of life in an environment of a quality’ were tied to a ‘life of dignity and well-being.’ ³¹ Furthermore, beginning in 2008, the UN Human Rights Council undertook an extensive review of the relationship between climate change and human rights, including issuing a report in 2009 on the topic, which explained how climate change threatens many human rights. ³² The work of the UN Human Rights Council, whether through resolutions or the reports of special rapporteurs and independent experts, contributed to the integration of human rights into the Paris Agreement. ³³

The momentum linking human rights and the environment has continued since 2015. On 8 October 2021, the UN Human Rights Council adopted a resolution that recognized ‘the right to a clean, healthy and sustainable environment as a human right that is important for the enjoyment of human rights.’ ³⁴ In a much-heralded development, on 28 July 2022, the UN General Assembly did the same with no dissent. ³⁵ The 2023 Report of the Special Rapporteur on the Promotion and Protection of Human Rights in the Context of Climate Change documented states’ efforts at the national level, whether by way of constitutional amendments or national legislation or by individuals and civil society through climate change litigation, to include human rights factors in their efforts to tackle climate change. ³⁶

Indeed, municipal courts have chimed in on the human rights dimensions of climate change. In Milieudefensie et al v. Royal Dutch Shell plc, the District Court of The Hague, the Netherlands ordered Royal Dutch Shell (RDS) to reduce global carbon dioxide emissions by 45 per cent by 2030 based on the argument that RDS breached its duty of care owing to a class of Dutch citizens. ³⁷ Although the Dutch Civil Code is silent about the duty not to emit carbon dioxide above a certain level, it is subject to a judicial interpretation of ‘the unwritten standard of care’ based on ‘relevant facts and circumstances, the best available science on dangerous climate change and how to manage it and the widespread international consensus that human rights offer protection against the impacts of dangerous climate change and that companies must respect human rights.’ ³⁸ Key to the standard of care, according to the court, are soft law instruments, such as the UN Guiding Principles on Business and Human Rights (UN Guiding Principles or UNGPs), the UN Global Compact and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD Guidelines). ³⁹ The lower decision was appealed and on 12 November 2024, shortly before this article was finalized, the appeal court recognized Shell’s obligation to reduce carbon emissions but refused to adopt the lower court’s specific percentages of reduction. ⁴⁰ Furthermore, the Milieudefensie decision came after another decision of the District Court of The Hague, Urgenda Foundation v. State of the Netherlands, ordering the Netherlands to reduce emissions by 25 per cent below 1990 levels by 2020 based on the state’s duty under human rights law to provide a safe living climate. ⁴¹ The Court of Appeals and the Supreme Court of the Netherlands affirmed the District Court. ⁴² The landmark decisions of the Dutch courts, with their human rights-based approach to environmental regulation, are likely the first steps in what could be considered the lining up of an arsenal of tools to bring business enterprises into line with the Paris Agreement.

III. IIAs, Net-Zero and International Human Rights

The international community’s intense focus on addressing climate change, however, must be put in a context that goes beyond environmental and human rights treaties. Designed to protect foreign investors and their investments, IIAs typically enable the foreign investor to bring an arbitration claim against a state for alleged violations of the IIA’s investment protection measures. The possibility of legal liability under ISDS could impede the state’s efforts to reach net-zero as the latter could be at odds with the IIA’s investment protection commitments. ⁴³ Indeed, according to the UN Conference on Trade and Development (UNCTAD), close to 25 per cent of ISDS cases involve investors from fossil fuels and renewable energy sectors. ⁴⁴ Notable among the cases are the estimated 80 of them under the Energy Charter Treaty (ECT) dealing with a reversal of state policy regarding feed-in tariffs designed to promote investment in solar energy. ⁴⁵

Each IIA is different, yet many require that a host state, namely the state party to the IIA hosting investment from an investor from another state party, provide the better of either national treatment (NT) or most favoured nation (MFN) treatment to the investor and the investment. ⁴⁶ Furthermore, the IIA may require that the host state refrain from expropriating the foreign investment, or engage in acts tantamount to expropriation, absent compensation. ⁴⁷ Another common feature of IIAs is that they afford a certain minimum level of treatment, such as fair and equitable treatment (FET) or full protection and security. ⁴⁸ As noted, many IIAs allow an aggrieved investor to pursue a claim in arbitration against the host state for an alleged violation of the IIA’s investment protection promises. ⁴⁹

In response to concerns that IIAs have constrained states in areas essential to governance, a few states terminated all or most of their IIAs. ⁵⁰ South Africa now requires that foreign investors comply with its Protection of Investment Act (2015). ⁵¹ Under the latter, South Africa has the right to regulate to protect the environment and promote sustainability. ⁵² Furthermore, a foreign investor with a complaint against the government may seek to mediate the dispute and has the right to pursue claims in the courts, tribunals or statutory bodies of South Africa. ⁵³ India has terminated various IIAs and taken ‘a very cautious approach to signing [new] BITs.’ ⁵⁴

The EU and various states have announced an intention to leave the ECT over the failure of attempts to reform the ECT to reconcile investment protection with states’ obligations under the Paris Agreement. ⁵⁵ Specifically, efforts of states to reach net-zero have resulted in investor claims under the ECT, such as German energy companies bringing a claim in arbitration against the Netherlands in response to a 2019 law that required the elimination of coal usage for electricity by 2030. ⁵⁶

A second response to concerns about the perceived pro-investor approach of IIAs is for the state to eliminate ISDS, as is the case with various Australian Free Trade Agreements, ⁵⁷ or replace the arbitral tribunal with a court, as contemplated by the EU-Canada Comprehensive Economic and Trade Agreement (CETA). ⁵⁸

A third approach, and relevant to the net-zero aim, has been for states to amend IIAs to prioritize state environmental regulation, including as to climate change. Various institutions, including the OECD and the UNCTAD, have been at the forefront of how to integrate climate change with investment objectives. ⁵⁹

Certain new IIAs recognize that their investment protection obligations owing to the foreign investor are not to conflict with the state’s ability to regulate in certain areas, including the environment. For example, the investment chapter of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP Agreement) provides as follows:

Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives. ⁶⁰

Similarly, in the Investment Chapter of CETA, the parties ‘reaffirm[ed] their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity.’ ⁶¹

In the Paris Agreement, states committed to net-zero, and since then at least one IIA has paid respect to that obligation. Specifically, in the Environment Chapter of the Australia-United Kingdom Free Trade Agreement (Australia-UK FTA), both states affirmed their ‘commitment to address climate change’ as reflected in the UNFCCC and the Paris Agreement. ⁶² The Investment Chapter of the Australia-UK FTA, in turn, referred to the treaty’s Environment Chapter as applying ‘to promoting mutually supportive investment and environmental outcomes’ that are ‘consistent with the sovereign right of each Party to set its levels of environmental protection.’ ⁶³ Express reference is to ‘affirming commitments under multilateral environmental agreements’ and ‘supporting the transition to low carbon and climate resilient economies.’ ⁶⁴

A second important dimension of the landscape is the growing reference in IIAs to CSR. Various treaties now acknowledge the state obligation to encourage investors within their territory or jurisdiction to adopt internal policies aligned with CSR principles, such as the OECD Guidelines and the UN Guiding Principles. ⁶⁵ Other IIAs impose obligations on investors directly. Notably, the South Africa Development Community (SADC) Model BIT 2012 provides that ‘[i]investments shall meet or exceed national and internationally accepted standards of corporate governance for the sector involved.’ ⁶⁶ Another twist is Article 23 of the Dutch Model BIT 2018, which authorizes an arbitral tribunal to consider any non-compliance with the OECD Guidelines and UNGPs in setting investor compensation. ⁶⁷

Investment treaties take on yet a third level of complexity when the law applicable to interpreting them is considered. IIAs, as treaties, are subject to general international law. ⁶⁸ Indeed, some of them provide that they are governed by the treaty itself and international law. ⁶⁹ The role of international law raises the issue of the relationship of treaties, such as the Paris Agreement, human rights treaties or customary international law to the express obligations under the IIA or at least can be used by an arbitral tribunal to interpret the investment protection measures as mandated under Article 31(1) of the Vienna Convention of the Law of Treaties. ⁷⁰ Other IIAs may be subject to state law in various respects, which in turn could have rigid environmental standards, including those enacted to comply with the Paris Agreement. ⁷¹

Reform of IIAs and the dispute resolution process under them has been driven by more than general concerns about the ability of states to govern as they see fit. IIAs were considered to reward investors even when their investments infringed on human rights, such as the right to life, the right to health, the right to water and the right to work. ⁷² International institutions, such as the United Nations Commission on International Trade Law (UNCITRAL) through its Working Group III, have undertaken a broad initiative to address questions about the legitimacy of ISDS with stakeholders raising human rights concerns beyond the specific mandate of the reform initiative. ⁷³ Dispute resolution bodies such as the International Centre for the Settlement of Investment Disputes (ICSID), apparently concerned about the lack of transparency in ISDS, have reformed their rules to broaden public awareness of specific cases and enable access by non-disputing parties by way of submission of amicus briefs. ⁷⁴ The latter could be seen as a small procedural step toward fulfilling human rights objectives.

IV. Corporations, Human Rights and Net-Zero

A. Corporate Codes and International Law

Corporations have human rights obligations independent of the well-recognized duty of states to respect, protect and fulfil human rights. In 2011, the UN Human Rights Council unanimously endorsed the UN Guiding Principles. ⁷⁵ The UNGPs are the ‘world’s most authoritative, normative framework guiding responsible business conduct’ as well as ‘addressing human rights abuses.’ ⁷⁶

Under the UNGPs, business enterprises, regardless of where they operate, are to ‘comply with all applicable laws and respect human rights.’ ⁷⁷ Specifically, business enterprises ‘should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved.’ ⁷⁸ The corporate responsibility to respect human rights means that business enterprises ‘should have in place policies and processes appropriate to their size and circumstances’ with three components including a policy commitment to meet the responsibility. ⁷⁹ The UNGPs’ corresponding operational principle provides that business enterprises should have a publicly-available policy statement, approved by senior management and informed by expertise, that expresses the commitment to respect human rights. ⁸⁰ The policy is to be implemented at all levels, including as to ‘business partners and other parties directly linked’ to the entities’ ‘operations, products or services.’ ⁸¹

In a similar vein, the OECD Guidelines, which were introduced in 1976 and last updated in 2023, set forth recommendations as to enterprise conduct. ⁸² Chapter IV of the 2023 Guidelines, which addresses human rights, adopts key aspects of the UNGPs as to the responsibilities of business entities to respect human rights. ⁸³ The commentary notes to Chapter IV advise enterprises to rely on various OECD due diligence guidance standards, including the OECD Due Diligence Guidance on Responsible Business Conduct and the OECD Due Diligence Guidance on Meaningful Stakeholder Engagement in the Extractive Sector (Extractive Sector Guidance). ⁸⁴ The Extractive Sector Guidance recognizes that due diligence involves risk assessment as to numerous factors, including human rights and the environment, and mandates meaningful stakeholder engagement. ⁸⁵

The OECD Guidelines go beyond the UNGPs by expressly referencing the Environment in Chapter VI. ⁸⁶ Of note, Chapter VI recognizes that enterprises ‘can be involved in a range of adverse environmental impacts’ with climate change at the top of the list. ⁸⁷ Accordingly, through ‘environmental management,’ enterprises can ‘contribute to delivering an effective and progressive response to global, regional and local environmental challenges.’ ⁸⁸

The commentary in Chapter VI links the enterprise’s role to the objectives of the Paris Agreement and related concerns about the human condition. The relationship is described as follows:

Adverse environmental impacts are often closely interlinked with other matters covered by the Guidelines such as health and safety, impacts to workers and communities, access to livelihoods or land tenure rights. Furthermore, carrying out environmental due diligence and managing adverse environmental impacts will often involve taking into account multiple environmental, social and developmental priorities. ⁸⁹

The commentary later recognized that enterprises have ‘an important role in contributing towards net-zero greenhouse gas emissions and a climate-resilient economy.’ ⁹⁰ Key to the engagement of enterprises is that they introduce and implement ‘science-based policies, strategies and transition plans on climate change mitigation and adaptation.’ ⁹¹

The OECD Guidelines have a strong pronouncement about the link between environmental degradation and human rights, which is a substantial advancement. The UNGPs, however, are silent about environmental harm, let alone climate change, so what is their relevance to foreign investment?

The UN Working Group on the issue of human rights and transnational corporations and other business enterprises (Working Group) recently recognized that the UNGPs ‘provide useful and valuable guidance to States and business enterprises to deal with the impacts of climate change on human rights.’ ⁹² The Working Group reached this result by noting that the UNGPs referenced two international human rights treaties, the International Covenant on Civil and Political Rights (ICCPR) and the International Covenant on Economic and Social Rights (ICESR), which ‘have been interpreted since 2011 in a manner consistent with international environmental and climate law.’ ⁹³

So how does the Working Group fit the aim of net-zero within the UNGPs’ framework? In line with UNGPs, the Working Group first addresses the state duty to protect human rights, with special recognition of the duty ‘to protect against foreseeable impacts related to climate change.’ ⁹⁴ Included among the list of recommended measures are for states to enact legislation requiring business enterprises ‘to conduct human rights and environmental due diligence.’ ⁹⁵ States are to lead by example and review their international agreement, including IIAs, ‘to ensure that they do not constrain or restrict efforts to take effective action in relation to climate change-related impacts on human rights and the environment. ⁹⁶ The Working Group then has a detailed section setting forth measures for business enterprises so that they can fulfil their ‘responsibility to act in regard to actual and potential [human rights] impacts related to climate change.’ ⁹⁷

Over the past few years, the European Union has focused on establishing legal standards to guide large EU entities and certain non-EU companies as they transition to 2050 and the promise of climate neutrality. ⁹⁸ On 24 May 2024, the Council of the EU approved a Proposal for a Directive on corporate sustainability due diligence, which will require covered entities to identify and address ‘potential and actual adverse human rights and environmental impacts’ in their operations as well as in subsidiaries and entities in their value chain. ⁹⁹ Under the Directive, large companies will be required ‘to adopt and put into effect, through best efforts, a transition plan for climate change mitigation aligned with the 2050 climate neutrality objective of the Paris Agreement.’ ¹⁰⁰

Given the UNGPs, the OECD Guidelines and the Paris Agreement, to name just some instruments, it is not surprising that over the past decade, numerous corporations have adopted codes of conduct or policies that reflect a commitment to the environment, or in a broader sense, to respect human rights. The new EU Directive signals that more such codes are on the horizon. Documenting the codes would take many pages so the focus that below is on certain codes in the natural resources sector as well as two codes in the technology field. ¹⁰¹

B. Corporate Codes and Domestic Legal Systems

Municipal courts have given legal effect, however, to certain corporate codes. For example, publicly listed corporations in the United States could face shareholder lawsuits over false or misleading statements in their codes. ¹⁰² In this situation, the codes themselves contain statements that are actionable under the USA federal securities laws when they are material and false, as investors in the corporations are deemed to have relied on the statements when purchasing stock.

Consistent with the approach of the USA federal securities law, under a directive of the European Commission, a trader engages in a misleading action by not complying with ‘commitments contained in codes of conduct’ when ‘the commitment is not aspirational but is firm and is capable of being verified’ and ‘the trader indicates in a commercial practice that he is bound by the code.’ ¹⁰³

Second, corporate codes and practices under them involving MNCs could facilitate the parent corporation’s accountability for the conduct of a subsidiary in a foreign country, principally under a theory of common law negligence. The UK Supreme Court in Vedanta Resources plc v. Lungowe recognized that a UK parent company could be liable for alleged harmful emissions from its subsidiary mining company in Zambia based on a duty of care arising from the parent’s corporate policies. ¹⁰⁴ Apparently, Vedanta’s corporate responsibility report showed that it ‘adopted and enforced corporate policies governing environmental and human rights issues over its subsidiaries’ including training and monitoring of the policies. ¹⁰⁵ The legal significance, according to the Supreme Court, is as follows:

Even where group-wide policies do not of themselves give rise to such a duty of care to third parties, they may do so if the parent does not merely proclaim them, but takes active steps, by training, supervision and enforcement, to see that they are implemented by relevant subsidiaries. Similarly, it seems to me that the parent may incur the relevant responsibility to third parties, if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not in fact do so. In such circumstances its very omission may constitute the abdication of a responsibility which it has publicly undertaken. ¹⁰⁶

Although the judgment in Vedanta Resources addressed a jurisdictional issue, and the case was eventually settled, the words of the UK Supreme Court were a wake-up call that corporate codes and policies, along with practices under them, have legal consequences.

Indeed, a few years after Vedanta Resources, the UK Supreme Court in Okpabi v. Royal Dutch Shell plc reversed the court of appeal’s ruling that held as a matter of law that a UK-domiciled parent company, Royal Dutch Shell Plc (RDS), owed no duty of care to Nigerian plaintiffs who alleged injury due to the environmental harm caused by the parent’s Nigerian subsidiary. ¹⁰⁷ Relying on Vedanta, the Supreme Court held that RDS’s control over the subsidiary depends upon the facts, and included in the mix of relevant ones are RDS’s ‘ground standards and practices.’ ¹⁰⁸

The ruling of the District Court in The Hague in Milieudefensie also drew on RDS’s ‘Sustainability Report 2019’ in establishing that the RDS Board has oversight over RDS’s climate change risk management with each Shell entity responsible for implementing ‘climate change policies and strategies.’ ¹⁰⁹ The decision made reference to other RDS policies and practices, including the statement from RDS’s website that it has ‘the responsibility and commitment to respect human rights’ with the UNGPs informing the company’s human rights policy. ¹¹⁰ The District Court found that RDS’s policies enabled RDS to exercise control over the emissions of related entities and suppliers. ¹¹¹ Although the RDS policies and statements set out how RDS sought to accomplish the energy transition, ¹¹² they were found by the court to be ‘rather intangible, undefined and non-binding plans for the long-term (2050).’ ¹¹³ In this sense, and somewhat troubling, is that RDS’s corporate policies are a double-edged sword. Their adoption established the company’s agreement to adhere to certain standards but their proposed or actual action under them was perceived not to be a true measure of adherence to the standards.

Yet at least one court in the United States has taken a different approach as to potential corporate liability for the actions of its suppliers in alleged violation of the corporation’s code. In Doe I v. Wal-Mart Stores, Inc., the United States Court of Appeals for the Ninth Circuit considered whether Wal-Mart could be held accountable to foreign workers for its foreign suppliers’ alleged violation of local working conditions laws. ¹¹⁴ Wal-Mart’s contracts with foreign suppliers incorporated its ‘Standards for Suppliers’ (Standards), which required compliance with local laws and standards and gave Wal-Mart or a third party the right to inspect the production facilities to ensure compliance. ¹¹⁵ Indeed, the Standards provided as follows:

Wal-Mart or a third party designated by Wal-Mart will undertake affirmative measures, such as on-site inspection of production facilities, to implement and monitor said standards. Any supplier which fails or refuses to comply with these standards or does not allow inspection of production facilities is subject to immediate cancellation of any and all outstanding orders … and otherwise cease doing business [sic] with Wal-Mart. ¹¹⁶

Plaintiffs, a putative class of workers from foreign suppliers, alleged that Wal-Mart did not condone the failure of suppliers to adhere to the Standards. ¹¹⁷ The Ninth Circuit, in affirming the dismissal of the case, found that the Standards did not require Wal-Mart to inspect the facilities or monitor the suppliers and thus the workers were not third-party beneficiaries of the obligations in the Standards. ¹¹⁸ Critical to the court’s reasoning is that the Standards contain ‘no comparable adverse consequences for Wal-Mart if Wal-Mart does not monitor that supplier.’ ¹¹⁹ Of additional consideration to the court is that there was not a contractual duty owed from Wal-Mart to the workers. ¹²⁰

Third, beyond the fact that host states could cite codes to challenge the investor’s argument, a tribunal could use code text to interpret ‘open or blanket norms, such as good faith in contract law, the reasonableness in tort law and good management in corporate law’ as Jan Eijsbouts has noted. ¹²¹ For example, assume the investor alleges that the host state’s conduct as to its investment violated the customary international law minimum standard of treatment afforded an alien under the Neer case. Under Neer, proof that the state’s conduct was ‘arbitrary, grossly unfair, unjust or idiosyncratic’ would support a violation of the customary international law minimum standard. ¹²² A business enterprise’s code could inform the interpretation an arbitral tribunal gives to the Neer criteria.

C. Corporate Codes: Text and Analysis

The Climate Policy of the Australian global energy company, Woodside Energy, starts with a statement titled ‘Background,’ which sets out the objectives of the Paris Agreement. ¹²³ Following the Background is Woodside Energy’s statement of the Objective of its Climate Policy, which is ‘to thrive in this energy transition as a low cost, lower carbon energy provider.’ ¹²⁴ The Woodside Energy Climate Policy identifies five approaches to meeting the objective, including ‘science-based near, mid and long-term net emissions reduction targets that are consistent with Paris-aligned scenarios,’ developing and operating projects consistent with the target, investing in new products, publishing ‘transparent climate-related disclosures’ and ‘[a]ligning our advocacy to the principles of this Climate Policy.’ ¹²⁵ Thus, the Woodside Energy Climate Policy embraces the Paris Agreement and identifies how the company intends to reach net-zero. Its detailed, scientific approach aligns with the OECD Guidelines.

In case of doubt, Woodside Energy has a separate publication, Better is a Lower-Carbon Future, in which it states that its ‘aim is to be net-zero in our direct emissions by 2050.’ ¹²⁶ Furthermore, in 2024, Woodside Energy published its Climate Transition Action Plan and 2023 Progress Report. ¹²⁷ In addition to providing information about net emissions and progress on the path to net-zero, the report included a statement titled Social Impact Management. ¹²⁸ The latter acknowledges that Woodside Energy understands ‘the impacts of our activities, both environmental and social including human rights’ and that this is ‘embedded into our Project Management Framework.’ ¹²⁹ The Social Impact Management statement refers to a social impact assessment that was made with local community engagement and that the company works ‘with our suppliers to embed this approach into our value chain and will continue to do so through the transition.’ ¹³⁰

The Code of Conduct of the mining corporation, Newmont Corporation (Newmont Code), ‘[s]ets out expectations of behavior’ for Newmont leaders, employees and individuals and entities with which it does business. ¹³¹ It makes the link between the environment and human rights. Specifically, in its Standards of Conduct at Newmont, the Newmont Code states in a paragraph titled ‘We promote sustainability’ as follows:

We adhere to the social, environmental, and economic principles of sustainable development, and the ongoing role of sustainability as a critical differentiating factor in who we are and how we conduct our business. Our commitment to sustainability includes the promotion of fundamental human rights, especially of those who live in the communities where we operate and those with whom we work. ¹³²

The Newmont Code refers to Newmont’s separate ‘Sustainability and Stakeholder Engagement Policy,’ which includes a section titled ‘Climate Change.’ ¹³³ In this section, Newmont states that it ‘support[s] the Paris Agreement outcomes and the long-term goal to limit average temperature rise to well below 2˚C.’ ¹³⁴ Furthermore, Newmont commits to targets ‘to more efficiently manage our global energy consumption and explore, develop and implement renewable energy and low-carbon fuel switching opportunities.’ ¹³⁵ It states that the target commitment will be reported in a transparent way that is ‘independently verified.’

Newmont’s Sustainability and Stakeholder Engagement Policy has a separate section titled ‘Human Rights,’ in which Newmont commits to implement the OECD Guidelines and the UNGPs and expresses its commitment to the UDHR and implementing the Voluntary Principles on Security and Human Rights with the expectation that its employees and business partners would respect human rights. ¹³⁶ Furthermore, in the policy, Newmont expressed a commitment ‘to understanding and respecting the cultural heritage, rights and norms of local communities.’ ¹³⁷

Exxon Mobil Corporation has its Climate Policy Principles, in which it affirms ‘the goals of the Paris Agreement,’ indicating that it has been consistent in its support and ‘engaged with government officials to encourage remaining in the Paris Agreement.’ ¹³⁸ Exxon Mobil’s carbon capture program is set out in its Advancing Climate Solutions Report along with its plan to net-zero by 2050. ¹³⁹ The company recognizes, however, that ‘the energy transition is underway, but it is not yet happening at the scale or on the timetable required to achieve society’s net-zero ambitions.’ ¹⁴⁰

Although the policies may not directly link the net-zero aim to human rights, some extractive industry companies have codes of conduct with a focus on human rights. The Shell Code of Conduct states that the company complies ‘with applicable [human rights] laws and regulations, including the United Nations Universal Declaration of Human Rights and the core conventions of the International Labour Organisation.’ ¹⁴¹ In fact, Shell has a separate ‘Shell’s approach to Human Rights,’ which states that the UNGPs inform Shell’s ‘integrated approach to human rights’ and mentions other international standards, such as the UDHR and the OECD Guidelines, with the standards applying to Shell employees, joint venturers and contractors as well as anyone acting on Shell’s behalf. ¹⁴² In addition to human rights, Shell has a climate target of being ‘a net-zero emissions energy business by 2050’ and indicates that ‘this target supports the more ambitious goal of the Paris Agreement.’ ¹⁴³

Even enterprises outside of the energy field have adopted codes for human rights and climate change. For example, Meta (formerly Facebook) has a Corporate Human Rights Policy, which acknowledges adherence to the UNGPs and sets out a detailed implementation scheme. ¹⁴⁴ Further, in its pronouncement on Sustainability, Meta makes the link between net-zero and human rights by ‘envision[ing] a just and equitable transition to a zero-carbon economy’ while ‘ensuring that no one is left behind.’ ¹⁴⁵

The Microsoft Corporation is another example of a business entity with a voluntary code of conduct that focuses on the UNGPs. The ‘Microsoft Global Human Rights Statement’ recognizes that its ‘approach to advancing human rights across the globe incorporates international laws, principles, and norms’ and expressly references the UDHR, human rights treaties and ‘the work of the United Nations on good governance and the rule of law.’ ¹⁴⁶ In discussing the implementation of the obligation to respect human rights, the Microsoft Statement acknowledges that ‘international principles and norms,’ including the UNGPs ‘our diligence.’ ¹⁴⁷ On the climate change front, Microsoft has pledged to be carbon neutral by 2030. ¹⁴⁸

The legal status of corporate codes has received considerable attention. At one extreme, and a view expressed when they were in their infancy, is that corporate codes have little relevance as they are voluntary and do not impose serious constraints. ¹⁴⁹ At the other extreme, and a view gaining traction, is that they establish binding legal norms on an enterprise. ¹⁵⁰ They set out ‘the standards by which a corporation professes to be bound.’ ¹⁵¹ In various instances, they have made their way into contracts between the corporation and suppliers or partners. ¹⁵² Corporations have reporting based on their adherence to their own codes, as well. ¹⁵³

V. ISDS and Corporate Codes: A Path Forward

Investor arbitration claims arising under IIAs offer a unique setting to examine the relevance of corporate codes in the context of international legal standards, national legal standards and the actions of investors and states. The issues are many. Could a host state rely on the investor’s code heralding its support and compliance with the Paris Agreement as a defence to the investor’s claim challenging state environmental regulation? Could an investor’s failure to adhere to its own code affect the merits of its claim or the amount of damages if the investor is held entitled to a remedy? To what extent could an arbitral tribunal use the code language to give effect to the investment protection norms and infuse environmental and human rights standards into them?

As noted, the UNGPs contemplate that enterprises adopt a policy expressing their commitment to respecting human rights. ¹⁵⁴ Other international instruments have similar standards that instruct corporations as to their codes and policies. Hence, in recent decades most MNCs have adopted some form of a code. ¹⁵⁵ Considerable focus has been on the enforcement of largely ‘soft law’ standards by imposing a due diligence reporting requirement on the business entity or other forms of oversight yet with little effect. ¹⁵⁶

An attempt to establish rules to guide arbitral tribunals and parties to investment disputes as to the text of codes faces numerous challenges. An obvious difficulty is each code’s uniqueness. Some codes share similar language, such as expressing a commitment to the Paris Agreement or human rights treaties, but many do not. Even when codes share features, the precise language used in each code ultimately shapes the legal consequences. In short, the lack of uniformity among codes means that generalizing could be an exercise in futility.

Second, code language should be carefully parsed. Does it impose mandatory obligations on the enterprise or is the text merely aspirational? If the former, is there a specific beneficiary? Doe I v. Wal-Mart instructs that, absent an unambiguous commitment, a tribunal should proceed with caution in imposing a duty on an enterprise as to a third party. Yet the UK Supreme Court decisions in Vedanta and Okpabi recognize that an enterprise’s policies plus its actual conduct could be relevant to establishing its relationship with third parties. And even as to aspirational language, should an arbitral tribunal elect to ignore it on the grounds that it is legally irrelevant?

Third, IIAs are far from uniform with different types of investment protection provisions. Some IIAs give host states leeway in regulating as to the environment with some even imposing obligations on investors, such as to the environment and human rights. ¹⁵⁷ The fluidity of the situation, with extensive reform initiatives underway, brings even more uncertainty into the picture.

On the other hand, the situation’s complexity arguably cries out for the articulation of guiding principles for investors, host states and arbitrators. Without a studied and somewhat structured approach, the likelihood of inconsistency could emerge, which would feed into the refrain that ISDS lacks legitimacy. ¹⁵⁸ Given the overwhelming commitment of states to net-zero and human rights, and that various MNCs have made some form of public representation about these critical policy objectives, and more are likely to come, it would be imprudent to ignore corporate codes.

The first general principle is to acknowledge that corporate codes, depending upon their text and the dispute at hand, may be legally relevant. Information about codes is publicly available, so a tribunal need not call upon an investor to produce the code. ¹⁵⁹ Yet beyond the codes themselves are the practices of the entity, as reflected by the conduct of its leadership and employees, which again may be publicly discernible.

Second, code text must be reviewed and categorized. A critical issue is whether the text is material to the investor’s claim against the state or the state’s defence. Materiality analysis depends upon multiple factors, which will be analyzed below, yet a threshold test is whether the text represents past conduct or whether is it a promise about future conduct. For example, the Social Impact Management paragraph in Woodside’s Climate Transition Action Plan and 2023 Progress Report mentions Woodside’s engagement with a local community as to its social impact assessment for onshore gas operations. ¹⁶⁰ This statement is about past conduct, which can be confirmed as presumably there were meetings and communications with the local community. Woodside Energy’s Social Impact Management has a second sentence about past conduct and in the same sentence offers up a statement about future conduct: ‘We work with our suppliers to embed this approach [‘sharing timely information about our activities and understanding the expectations of the communities’] where we are active and have a significant into our value chain.’ ¹⁶¹ Again, the veracity of this statement is verifiable. In that very sentence, Woodside Energy makes a future representation that it ‘will continue to do so [share information with local communities] through the transition.’ ¹⁶²

Third, as to statements about future conduct, a next level of review should be conducted to determine the degree of commitment. Is the statement conditional? To answer this question, the entirety of the referenced code and perhaps even other company statements should be considered. For example, in its Sustainability and Stakeholder Engagement Policy, Newmont expressed its support of ‘a market-based price on carbon’ and internalizing the cost of carbon but then acknowledged that the transition ‘requires governments to implement effective policy mechanisms.’ ¹⁶³ This type of statement about future conduct fits within what is recognized as a forward-looking one, in which certain assumptions are made and thus it would not be reasonable to rely on the statement. Indeed, the large USA-based technology company, Cisco, states that its ‘website contains forward-looking statements that are subject to the safe harbors created under’ US federal securities law. ¹⁶⁴ Or is the commitment to future conduct vague? Woodside stated it ‘will continue’ to work with suppliers through the transition to net-zero yet what it means to do so is not defined. Also, policies in which the investor merely states it is ‘committed’ to certain actions fall short of a promise that the investor ‘will.’

Fourth, an inventory should be prepared of code statements of support and commitments to the net-zero aim of the Paris Agreement and their link to human rights. At one end could be the absence of a code on either subject. At the other end are detailed statements referencing net-zero and human rights and perhaps even linking them, such as in the Woodside Energy Climate Policy and its Climate Transition Action Plan and 2023 Progress Report as well as with the Newmont Code and its Sustainability and Stakeholder Engagement Policy. In between are broad references to supporting net-zero, like the statement of ExxonMobil in its Climate Policy Principles, or statements of support for human rights and net-zero, like those of Meta and Microsoft.

After the codes after been appropriately understood and categorized, the next critical phase is for parties and tribunals to establish their legal significance, which necessitates an understanding of the state action an investor is challenging and the legal basis of the challenge under an IIA. As the permutations are many, making the task for this article unwieldy, it is only appropriate that the context be refined.

Accordingly, assume that in 2013, the United States and State Y entered into an IIA based on the 2012 US Model BIT. ¹⁶⁵ Under the 2012 US Model BIT, investors and their investments are to be afforded the better of either NT or MFN treatment, ¹⁶⁶ investments are to be given a minimum standard of treatment defined by customary international law, including fair and equitable treatment and full protection and security ¹⁶⁷ and expropriation of an investment is subject to due process standards along with compensation. ¹⁶⁸ The BIT’s Preamble acknowledged the treaty’s desire that investment objectives be accomplished ‘in a manner consistent with the protection of health, safety and the environment and the promotion of internationally recognized labor rights.’ ¹⁶⁹ Under the treaty’s article titled Investment and Environment, environmental laws and policies as well as relevant multilateral treaties play an ‘important role in protecting the environment.’ ¹⁷⁰ It would be ‘inappropriate’ for a State to encourage investment by ‘weakening or reducing’ its environmental laws. ¹⁷¹ The treaty recognizes the state’s broad authority to regulate as to the environment. ¹⁷² Included in the BIT is an arbitration provision that recognizes that the arbitral tribunal is to apply the BIT and ‘applicable rules of international law’ to resolve disputes. ¹⁷³

Assume that in 2016, in full compliance with the law of State Y, an investor from the United States (Investor X) established a coal mine in State Y that is a party to the BIT. State Y is also a party to the Paris Agreement. Assume that in 2020, however, State Y announced a phase-out of coal production with the only mine established since 2010, Investor X’s mine, being shut immediately. Coal mines existing before 2010, which coincidentally were all locally owned, would be phased out based on the depletion of coal. Investor X brought a claim in arbitration under the ICSID Arbitration Rules against State Y under the BIT alleging a violation of NT and the customary international law minimum standard of treatment and further alleging that State Y’s conduct constituted expropriation.

Assume also that Investor X has a corporate climate policy that merely affirmed its commitment to the Paris Agreement with no details. Investor X’s statement alone is unlikely to have substantial legal significance in ISDS except it signals that Investor X knew about and endorsed the Paris Agreement, so arguably the coal phase-out was not completely unanticipated. Whether Investor X’s conduct, in this case, a statement of adherence to the Paris Agreement, is even relevant, especially when the host state is already bound by the treaty, is one that Professor Ishikawa has explored from multiple angles, recognizing that some scholars finding investor conduct a ‘central question in the host state’s defence’ while others saying it has no bearing on the claim as only the host state’s conduct is at issue. ¹⁷⁴

The legitimate expectations of Investor X, however, could arguably be relevant to the customary international law minimum standard of treatment of an alien. ¹⁷⁵ An investor has the right to a ‘remedy in certain circumstances where the conduct of a public authority conveys an understanding that the individual will receive (or continue to receive) a substantive benefit … and then acts inconsistently with this prior conduct.’ ¹⁷⁶ As Professor Ishikawa has established, the investor’s reliance on the state’s conduct is critical to establishing legitimate expectations. ¹⁷⁷ If the Paris Agreement obligations are known to and endorsed by Investor X, establishing reliance on acts arguably at odds with these obligations could be difficult for Investor X.

Furthermore, legitimate expectations could be relevant to cases of indirect expropriation, particularly under the 2012 US Model BIT which requires consideration ‘of the extent to which the government action interferes with reasonable investment-backed expectations.’ ¹⁷⁸ Investor X would be hard-pressed to argue that State Y’s decision to phase out coal production was unexpected given its acknowledgement of and purported adherence to the Paris Agreement and thus Investor X would be challenged to establish reliance on the conduct of State Y. ¹⁷⁹

But Investor X would likely argue that State Y’s immediate shutdown order was aimed at only one facility, that of Investor X, which could not have been expected. In this situation, Investor X’s acknowledgement of the Paris Agreement arguably has no relevance to this alleged discriminatory conduct.

The dynamics change if Investor X has a more detailed plan to net-zero. For example, the Woodside Climate Transition Plan sets out the company’s action to reduce net equity Scope 1 and 2 GHGs and to invest in products for the energy transition. ¹⁸⁰ A plan of this sort could serve as a benchmark to gauge Investor’s X conduct, and if State Y could establish that its coal phase-out enabled Investor X to achieve its plan then such fact could be relevant to the customary international law minimum standard of treatment, whether due to its foreseeability or the absence of egregious conduct by State Y.

But given the possible discriminatory conduct of State Y, which regardless of Investor X’s plan should not be sanctioned, it is likely that a corporate code with a step-by-step approach to net-zero could be relevant to any monetary amounts awarded to Investor X. The 2012 US Model BIT recognizes that compensation for expropriation should be the property’s ‘fair market value’ right before the expropriation. ¹⁸¹ Furthermore, the compensation is not to reflect ‘any change in value occurring because the intended expropriation had become known earlier.’ ¹⁸² A common approach of arbitral tribunals is to use a discounted cash flow (DCF) method to determine this value. ¹⁸³ Surely Investor X’s own plans for a reduction in GHG emissions could be relevant to a forecast of net cash flow. ¹⁸⁴

A second major way in which code language could be relevant to Investor X’s arbitration claim against State Y is if it concerns statements of fact as to the coal mine, for example, which are materially incorrect and were used to support approval of the investment. The code may contain language that all projects require extensive environmental assessment, including engagement with the local community. If the environmental assessment were not performed as stated, State Y could allege that Investor X made misrepresentations tantamount to fraud. ¹⁸⁵ As noted, numerous codes contain clear statements about how entities are conducting their business. To the extent these statements are relevant to the investment in dispute, they should be examined for their veracity. ¹⁸⁶

In a similar vein, code text could have relevant forward-looking statements. For example, an intriguing statement in the Woodside Climate Policy is the principle that it would align its advocacy to the Woodside Climate Policy principles. ¹⁸⁷ Would such a statement operate as a bar to any investor claim against a host state when the latter’s regulatory action at issue mirrors the principles in the Climate Policy? An answer of ‘yes’ is a bit of a stretch but for a host state or tribunal to ignore the language would signal that the words ring hollow. Furthermore, the Woodside Climate Policy addresses the company’s environmental steps yet can this policy be considered in isolation, or should it also be read in connection with the Woodside Climate Transition Plan, which also recognizes the ‘importance of a just transition’ and the need for the company to understand the human rights consequences of its activities? ¹⁸⁸

A third principal way for code language to come into play in ISDS is for it to guide tribunals in interpreting the substantive investment norms being protected. Take, for example, FET, an often-analyzed standard that is subject to a range of interpretations. ¹⁸⁹ The varying interpretations aside, certain conduct, such as ‘bad faith,’ is a recognized breach of the FET standard. ¹⁹⁰ The main conduct subject to the FET standard in ISDS is that of the state; nevertheless, an understanding of the effect of the state’s conduct vis-à-vis the investor could be fully developed by reference to the investor’s code text. If Investor X has adopted a plan like the Woodside Climate Transition Plan, which recognizes the role of respecting human rights during the energy transition, then the motive for State Y’s conduct should be understood from both an environmental and human rights perspective. In this way, the work of the tribunal could give effect to both important social norms.

VI. Conclusion

Attaining the Paris Agreement’s net-zero commitment by 2050 will require the engagement of all the world’s states as well as actors beyond states, principally business enterprises. More is at stake than world environmental security; the failure to reduce GHG emissions could have serious consequences to individuals, whether through home or community displacement, spread of disease, deprivation of access to water, food and jobs, and in the worst case, loss of lives.

Through corporate codes and their own conduct, numerous business enterprises, including extractive industries, have embraced the Paris Agreement with some of them including detailed public plans to meet the net-zero objective. Business enterprises have also made commitments in codes to respect human rights. The proliferation of corporate codes is not happenstance; international instruments have encouraged their development and use.

The human rights dimensions of climate change are now widely recognized; even certain business enterprises’ codes acknowledge the link, or the latter can be made based on a reasonable interpretation of code text. The legal foundation is set, whether through treaties, substantive judicial decisions and corporate codes, for a human-rights-based approach to climate change.

ISDS should not be considered removed from the substantial effort to address climate change in a way that respects human rights. Social concerns are driving reform of IIAs and the ISDS process to afford great protection to states as they regard regulation in critical areas, such as the environment. These environmental law reforms may be aimed at human rights protection too, yet even when not, the spill-over effect on the human condition cannot be minimized.

Beyond the structural changes as reflected in the reform of IIAs, the business enterprises benefiting from IIAs and ISDS are increasingly being held to account for their public pronouncements reflecting expressions of values and, in certain instances, unbridled commitments and promises. Municipal courts have recognized and given legal effect to corporate codes of conduct. It is time that arbitral tribunals do the same yet do so in a disciplined and well-reasoned manner. By using examples from existing codes, this article has demonstrated the challenges to this critical undertaking while offering some modest guiding principles.