The SDGs have now received virtually global endorsement. At the same time, new BITs have emerged which incorporate both the SDGs and the concept of sustainable development. This includes Morocco-Nigeria BIT 2016 (‘the Treaty’) which may prove to be the IIA that transforms sustainable development from a ‘mere’ political commitment or soft law into a hard legal obligation (for a view on substantive provisions on sustainable development and their non-legally binding nature see Fauchald, p.189).
The Treaty refers to the SDGs and to sustainable development. In that sense, it is one of 60‑something International Investment Agreements (‘IIAs’) concluded since the adoption of the Sustainable Development Goals (‘SDGs’) by the U.N. General Assembly in 2015, which contain provisions addressing the SDGs directly. However, what makes the Treaty potentially a trailblazer in this field is the specific way in which it weaves sustainable development into its substantive provisions, particularly on the right to regulate and the definition of investment, as well as its Preamble.
Article 1.3 appears to be the first provision of any IIA to incorporate sustainable development in the definition of ‘investment’ and therefore the first treaty of any kind which is likely to require arbitral tribunals (under the dispute resolution provisions of the Treaty) to review the concept of sustainable development and its status in international law. That is likely to happen because whether an investor has an ‘investment’ is an obvious ground for objection to jurisdiction by the respondent state.
Further, Article 23 expressly preserves the host state’s right to regulate to ensure that ‘development in its territory is consistent with the goals and principles of sustainable development’. (In addition, Article 24 refers to a ‘best practice’ recommendation for investors to maximise feasible contributions to the sustainable development of the host state and local community, but this is not addressed further below, in view of its status as a mere recommendation).
Contribution to sustainable development as a necessary condition for an ‘investment’
The Treaty defines ‘investment’ as follows:
‘“Investment” means an enterprise within the territory of one State established, acquired, expanded or operated, in good faith, by an investor of the other State in accordance with law of the Party in whose territory the investment is made taken together with the asset of the enterprise which contribute sustainable development of [sic] that Party and has the characteristics of an investment involving a commitment of capital or other similar resources, pending profit, risk-taking and certain duration’. [emphasis added]
As the Treaty is new (signed by both parties but yet to be ratified by Nigeria), the definition of ‘investment’ and therefore the role of sustainable development in that definition has not yet been tested by an arbitral tribunal. How might it be treated? Looking at existing jurisprudence, investors seeking to establish the jurisdiction of (at least) ICSID tribunals, have long had to satisfy the Salini criteria for an investment, which include showing that the investment contributes to the economic development of the host state. Arguably, the definition of ‘investment’ in the Treaty goes further than a requirement for a mere contribution to economic development in the narrow sense of GDP. The question will then arise: what amounts to ‘sustainable development’?
One can envisage jurisdictional objections being made by the host state in arbitration, brought by a foreign investor, along the lines that the foreign investor’s investment does not contribute to the host state’s sustainable development. The argument might be that an alleged investment doesn’t advance sustainable development or because it actively harms it, and that the arbitral tribunal therefore does not have jurisdiction in ratio materiae. There might then arise difficult questions about when such a contribution must be made: is a past contribution sufficient, must it be continuous or can the tribunal take into account expected or promised future contributions to sustainable development?
Whether an investment qualifies under the Treaty’s definition is probably a mixed question of fact and law. To the extent it is a matter of law, it appears that according to Article 1.3 it would be partly a question of the meaning of sustainable development in the host country and a question of the interpretation of the Treaty, including the non-exhaustive description of sustainable development in the Preamble.
The status of sustainable development in international law will likely be used as a basis for interpreting the meaning of the phrase in the definition of ‘investment’ in the Treaty. That is, however, likely to raise yet further questions because there has been no authoritative single definition provided for the term ‘sustainable development’ in international law. Instead, as Professor Schrijver notes, it is thought to combine, amorphously, elements of international environmental law, international economic law and human rights law.
It is plain that sustainable development is something beyond economic development, as one can see from how the ICJ has approached sustainable development outside the sphere of international investment law. In inter-state disputes with environmental concerns, the ICJ has referred to the need to: ‘…to reconcile economic development with protection of the environment is aptly expressed in the concept of sustainable development’ (Judgment, Danube Dam, para.140) and, in a case involving a river, described the essence of sustainable development as including ‘the need to strike a balance between the use of the waters and the protection of the river consistent with the objective of sustainable development (Judgment,, Pulp Mills, para.177)
Further, the concept is even more complex than even those ICJ decisions might suggest. By way of illustration, Schrijver identifies no less than seven main elements of sustainable development, namely : (1) sustainable use of natural resources, (2) macroeconomic development, (3) environmental conservation, (4) intra-generational equity, (5) the element of time requiring both immediate action and long term strategy, (6) human rights, public participation and justice for all and (7) integration of environmental, developmental and human rights concern and how to blend them effectively in pursuance of sustainable development .
Its multifarious nature is reflected in the Treaty itself, in which the Preamble refers to sustainable development as requiring the fulfilment of the economic, social and environmental pillars which are embedded within it. So the question of what ‘sustainable development’ means in a given dispute is far from straightforward.
The legal discourse which the Treaty may generate in this regard might spill over into disputes relating to other BITs, where sustainable development is described merely as one (and perhaps not necessarily essential) characteristic of an investment rather than an essential ingredient (e.g Mauritius-Egypt BIT (2014) or even where sustainable development does not feature in the substantive provisions but appears elsewhere in treaty, such as in the preamble (e.g. Brazil-India BIT (2020) and Islamic Republic of Iran – Slovakia BIT (2016)). In such cases the host states may use a lack of contribution to sustainable development as a basis for a jurisdictional objection in the arbitration.
Sustainable development and the right to regulate
Article 23.1 addresses the host state’s the right to regulate and reads as follows:
‘In accordance with customary international law and other general principles of international law, the Host State has the right to take regulatory or other measures to ensure that development in its territory is consistent with the goals and principles of sustainable development, and with other legitimate social and economic policy objectives’.
Article 23 thus affords the right to regulate to the host state in accordance with customary international law and other general principles of international law, to ensure that ‘development in its territory is consistent with the goals and principles of sustainable development and with other legitimate social and economic policy objectives’ (emphasis added).
In practice, if a host state were to take regulatory measures which adversely affect a foreign investment, the BIT provides the state with a defence to e.g. a claim for breach of its right to fair and equitable treatment, if the state can demonstrate that the measures were taken, amongst others, to ensure development in its territory consistent with SDGs and sustainable development. Whether that defence is made out, would in part depend on whether the regulatory measures were, as a matter of fact, taken to ensure development consistent with sustainable development. Whilst that is strictly a question of fact for the arbitral tribunal, the tribunal would inevitably have to (or at least ought to) identify the content of the principle of sustainable development, with the challenges that that entails as described above.
If the Treaty is ratified by Nigeria, then it seems almost inevitable that an arbitral tribunal will one day have to grapple with the meaning of the concept of sustainable development qua hard rather than soft law, due to it forming part of the Treaty’s provisions.
That being the case, a decision is also likely to have an effect on the perception of the symbiotic relationship between ‘investment’ and ‘sustainable development’ in international investment law, whether or not sustainable development is an integral part of the ‘investment’ definition in the treaty or whether it merely appears in its preamble.
Through this process, sustainable development may gradually acquire the ‘decision-making’ function in law in the sense that it will operate as an obligation on which a case can be decided (see Vinuales).