Transnational Corporations (TNCs) are among the most powerful actors on the world stage, with the impact of their actions reverberating from individuals and local communities to entire economies and ecosystems. In the past, the harmful activities of these firms has often eluded public scrutiny but the proliferation of civil society organisations (CSOs), landmark litigation and economic growth of the ‘Global South’ has meant that they face unprecedented pressure to be socially responsible. The UN, ILO, OECD and ISO are among the many organisations that have furnished principles, standards and codes of conduct for corporations to voluntarily incorporate considerations of environmental, social and governmental (ESG) issues, but doubts have been raised about their effectiveness in changing corporate behaviour. Alongside sustainable reporting and social audits, two trends have emerged that generate pressure for stricter compliance with these instruments: shareholder resolutions on ESG issues and the revision of Bilateral Investment Treaties (BITs).
Since the 1970s, investors have raised ESG issues by leveraging their right to participate in annual general meetings and to propose items for the meeting’s agenda. Regardless of the number of votes these resolutions receive, corporations often address these concerns before the meeting so as to avoid negative publicity. It was due to shareholder resolutions that Hershey agreed to purchase 100% RSPO-certified sustainable palm oil by 2015 and Shell have to report on their carbon asset risk management from 2016 onwards. In 2014, 40% of shareholder resolutions in the USA’s 3000 largest companies concerned ESG issues and this trend is set to grow. Such engagement reflects investors’ desire to make sustainable investments and their ability to shape corporate practice.
Governments in Canada, Norway, Austria, and recently India, have prepared Model BITs with the view to revamping their international investment regime and finding an equilibrium between private and public interests. Along with assurances to protect and promote investments, this new generation of BITs includes various investor obligations, most notably, a requirement for corporations to endeavour to voluntarily implement CSR standards in their practices and internal policies. This is complemented by broader transparency requirements in arbitral proceedings and the ground-breaking right for third parties like CSOs to submit amicus curiae briefs in such disputes. Crucially, they narrowly define the grounds on which corporations can bring investment disputes, thereby allowing the state to take more actions for the public interest.
While such revisions have yet to be adopted by major capital-exporters like the Netherlands, including such provisions may give CSR instruments stronger ‘teeth’, as investors may feel obliged to implement and enforce them in good faith. Conversely, it can open up the possibility of host States justifying their encroachment on private property rights because investors failed to meet their CSR obligations.
Though it remains to be seen whether an arbitration tribunal will hold a corporation liable for breaching a CSR standard under a BIT, it is becoming increasingly apparent that two of the most important stakeholders to corporations – their shareholders and governments – are exerting pressure on them to implement CSR instruments.