Groningen Journal of International Law, vol 3(1): International Arbitration and

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Procedure

Drafting and Interpreting International

Investment Agreements from a Sustainable
Development Perspective
Claudia Salgado Levy*

Keywords
INVESTMENT TREATY ARBITRATION; INVESTMENT TREATY INTERPRETATION;
SUSTAINABLE DEVELOPMENT; INVESTMENT POLICY MAKING; SYSTEMIC TREATY
INTERPRETATION

Abstract
The proliferation of International Investment Agreements (IIAs) and treaty-based
investment arbitration has raised concerns over the extent to which IIAs are actually fair
and are able to balance the interests of foreign investors and States. The strong
protections afforded by IIAs to investors may restrict the host State’s ability to regulate
for the public interest and potentially allow newly adopted public policies to be subject to
compensation.
Several economic transactions that have qualified as investments for treaty protection
have fallen short of contributing to the host State’s sustainable development. They have
not added to the generation of employment and growth, the transfer of new technologies
and knowledge or the strengthening of infrastructure. Nor have many of these economic
transactions contributed to the home country’s development. Moreover, regulatory
measures adopted with the aim of fostering sustainable development (ie environmental
measures) have been successfully challenged by investors. In some cases tribunals have
interpreted these measures as creeping or indirect expropriations, therefore requiring
compensation.
Both the lack of consideration for the host State’s interests under international
investment law and the limitation to the State’s policy space have been perceived as
having negative implications for the development of the country, and in particular for the
adoption of sustainable policies. Though little empirical evidence exists, it has been
suggested that investment arbitration is a threat to the adoption of public policy
regulations and may even have a ‘chilling effect’ on them.
A possible way forward is the negotiation of a new generation of investment treaties,
as well as the renegotiation and revision of the existing ones. These changes are needed
in order to balance the interests of States and investors and to incorporate innovative
features in light of the necessary policy space that States require in order to foster
sustainable development through the application of dynamic social and environmental
norms and regulations. Another alternative is the adoption of interpretative approaches,
which ultimately foster sustainable development goals. The preferred options are the
contextual and dynamic interpretation of the intention of the contracting States, as well
as the systemic integration of international rules and norms into investor-State disputes.

*
PhD candidate at the Graduate Institute of International and Development Studies (2010–2015),
Geneva-Switzerland. E-mail: claudia.salgado@graduateinstitute.ch. The views expressed in this paper
are those of the author and do not necessarily reflect those of the Institute.

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60 GroJIL 3(1) (2015), 59–84

I. Introduction
The international investment regime is an emerging and rapidly evolving field of
international law.1 It is essentially constituted of a large number of International
Investment Agreements (IIAs) negotiated over the last five decades. IIAs tend to
resemble each other in their structure and content. They also pursue the same objective of
protecting foreign investments and investors from the illegal actions of host States
through the establishment of certain rules and standards of treatment.
One of the most important features of investment treaties is that they provide foreign
investors access to international arbitration for the settlement of investment disputes.
This mechanism has led to an explosion of international investor-State dispute settlement
(ISDS) cases. Indeed, the total cumulative number of known treaty-based cases filed by
the end of 2013 surpassed 560.2
The proliferation of cases has given rise to several concerns. The increasing number of
proceedings not only runs the risk of developing inconsistencies and incoherence in
international investment law regime,3 but it also creates the perception that IIAs are
devices that can immunise investors from the compliance of bona fide social and
environmental laws and regulations.4 Indeed, foreign investors have used the protection
afforded by IIAs to challenge newly enforced public policy measures, requesting the
suspension of the measure, or compensation for the losses suffered.5
Moreover, as some claim, investor-State arbitration may have a ‘chilling effect’ on the
States’ legitimate public policy initiatives and regulatory actions.6 States may become
reluctant to adopt measures for environmental protection, safety and public welfare if
they feel threatened by potential claims from foreign investors. All of this has raised
concerns that States' efforts to pursue sustainable development (SD) objectives may be
undermined by the strong treaty protections afforded to foreign investors. This might

1 Salacuse, JW, The Law of Investment Treaties (Oxford University Press, Oxford, 2010), 6–16.
2 United Nations Conference on Trade and Development (UNCTAD), REPORT: Recent Developments in
Investor-State Dispute Settlement, IIA Issues Note, 1 April 2014, at
<unctad.org/en/publicationslibrary/webdiaepcb2014d3_en.pdf> (accessed 17 April 2015), 1.
3 See generally Dolzer, R and Schreuer, C, Principles of International Investment Law (Oxford University
Press, Oxford, 2008), 35–37.
4 Ruggie, JG, Stabilization Clauses and Human Rights, A research project conducted for IFC and the United
Nations Special Representative to the Secretary General on Business and Human Rights, 11 March 2008, at
<cdm16064.contentdm.oclc.org/cdm/ref/collection/p266901coll4/id/2486> (accessed 17April 2015).
5 See Ethyl Corporation v The Government of Canada, NAFTA/UNCITRAL, Preliminary Tribunal Award on
Jurisdiction, 24 June 1998; Methanex Corporation v United States of America, NAFTA/UNCITRAL, Final
Award of the Tribunal on Jurisdiction and Merits, 3 August 2005; Dow AgroSciences LLC v The
Government of Canada, NAFTA/UNCITRAL, Notice of Arbitration, 31 March 2009; FTR Holdings SA,
Philip Morris Products SA and Abal Hermanos SA (Switzerland) v Oriental Republic of Uruguay, ICSID case
No ARB/10/7, Request for Arbitration, 19 February 2010; Vattenfall AB, Vattenfall Europe AG, Vattenfall
Europe Generation AG v The Federal Republic of Germany, ICSID Case No ARB/09/6, Award, 11 March
2011; Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Nuclear Energy GmbH, Kernkraftwerk
BrunsbüttelGmbH und Co oHG, Kernkraftwerk Krümmel GmbH und Co oHG v The Federal Republic of
Germany, ICSID Case No ARB/12/12; Philip Morris Asia Limited v The Commonwealth of Australia,
UNCITRAL, PCA Case No 2012-12.
6 For further discussion on this issue, Moloo, R and Jacinto, J, “Environmental and Health Regulation:
Assessing Liability Under Investment Treaties”, 29(1) Berkeley Journal of International Law (2011) 1; See
also Paparinskis, M, “Regulatory Expropriation and Sustainable Development” in Gehring, MW,
Cordonnier-Segger, MC and Newcombe, A, eds, Sustainable Development In International Investment Law
(Kluwer Law International, Alphen aan den Rijn, 2011), at <ssrn.com/abstract=1698192> (accessed 17
April 2015).

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 61
threaten the legitimacy of the investor-State dispute settlement system, to the detriment of
States and foreign investors. Within this context, the purpose of this paper is to contribute
some reflections on how to achieve the necessary protections of foreign investors while
promoting States’ sustainable development through investment agreements.7
To begin with, this paper makes an assessment of the current framework of investment
treaty provisions from a sustainable development perspective. With this aim, the paper
uses several examples, including the definition of investment, investor and expropriation.
It suggests that existing treaty provisions and the interpretation given to them by arbitral
tribunals fall short of assisting – and sometimes even constrain – contracting States in
pursuing SD outcomes.
Second, this paper examines recent investment policy-making undertaken with the
aim of fostering SD-friendly IIA clauses. In so doing, it will provide an initial review of
recent State practice regarding the adoption of SD treaty provisions. Likewise, it will
mention the policy options offered in UNCTAD’s Investment Policy Framework for
Sustainable Development (IPFSD).8
Finally, this paper argues that sustainable development objectives can also be
incorporated in international investment law through the application of a ‘SD-oriented
interpretation’ within the context of investor-State dispute settlement (ISDS) cases. The
judicial function of investment tribunals and the interpretative techniques rooted in
customary international law offer ample justifications and entry points for the adoption
of such an interpretative approach.

II. The Current Framework of International

Investment Law and Sustainable Development
At present, more than 3,200 IIAs have been concluded with the purpose of promoting
and protecting foreign investments.9 Over time, a series of concerns have emerged
regarding today's multi-faceted and multi-layered network of treaties.10
First, investment treaty provisions tend to be drafted in very general terms, usually
lacking specificity and clarity. This has provided tribunals with broad interpretative
discretion, allowing them to take ‘expansionary views’ on the scope of application and
the meaning of these provisions. Through that, tribunals have contributed to a lack of
predictability and certainty as well as a certain fragmentation of international investment
law. Second, IIAs contain little to no straightforward references of the parties’ intention
to foster sustainable development goals. In some IIAs, these references are expressed
vaguely or in an indirect manner. This combination of broad interpretations by arbitral

7 While SD is the overall objective and theme of this paper, an in-depth discussion on the content and
meaning of sustainable development is beyond its scope. Instead, the paper uses SD as embracing the
three pillars of economic development, social equity and environmental protection, as set out in the
United Nations Report of the World Commission on Environment and Development (WCED) in 1987,
also known as the Brundtland Report; UN General Assembly, Report of the World Commission on
Environment and Development, 11 December 1987, (96th plenary meeting) A/RES/42/187.
8
United Nations Conference on Trade and Development (UNCTAD), Investment Policy Framework for
Sustainable Development (July 2012) at <unctad.org/en/PublicationsLibrary/diaepcb2012d5_en.pdf>
(accessed 6 May 2015) (IPFSD).
9 UNCTAD, World Investment Report 2012: Towards a New Generation of Investment Policies, 2012, at
<unctad.org/en/PublicationsLibrary/wir2012_embargoed_en.pdf> (accessed 17 April 2015), 84.
10 For a full discussion of concerns see, for instance, UNCTAD, World Investment Report 2014: Investing in
the SDGs: An Action Plan, at <unctad.org/en/PublicationsLibrary/wir2014_en.pdf> (accessed 17 April
2015), Chapter III.B.

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62 GroJIL 3(1) (2015), 59–84

tribunals and weak references to SD, together with strong substantive and procedural
protections given to foreign investors, has resulted in the concern that IIAs can be
detrimental to countries' broader SD goals.
In the following section, this paper reviews a few examples of where tribunals have
adopted wide, inconsistent and even contradictory interpretations to the requirements
ratione personae, materiae and, in terms of procedural aspects, disregarded what States had
intended to see applied in ISDS cases. Arbitral tribunals have upheld jurisdiction over
disputes that States might never have envisaged as being the subject of arbitration, or
found violations of provisions for regulatory actions long perceived to be outside the
realm of IIAs. In many instances, this has touched upon issues of great relevance for
countries' SD objectives.

II.1. Broad Interpretation of the Definition of Investment

One of the most important IIA provisions is the clause setting out the scope and
definition of investment.
Through this provision, signatory countries determine which investments benefit from
the treaty's protection. IIA treaty practice varies, with the two most important choices
embraced by States being the asset-based definition and the enterprise-based definition of
investment. Both, as open-ended approaches, have favoured a broad definition of
investment.11
One recurring issue relates to the question whether IIAs should only protect – and
hence attract – responsible or sustainable development enhancing investment (eg.
investments that generate employment, transfer new technologies, strengthen
infrastructure or build knowledge). Alternatively, should IIAs be a tool to protect (or
attract) any kind of foreign capital and at any cost for the host State?
The open-ended approach to treaty drafting and the extensive interpretations adopted
by arbitral tribunals have given rise to developments that may have an adverse effect on
countries' sustainable development objectives. First, treaty protection has been extended
to transactions that have fallen far short of contributing to the host State's economic
growth. Second, treaty protection has been granted to investments that have disregarded
the host State’s national laws and regulations, resulting in a situation where illegal
investments have benefitted from treaty protection. Both situations will be further
explained.
II.1.1. Does any Transaction Qualify as Investment?
In theory, States conclude investment treaties to attract foreign direct investments (FDI),
which is a potential vehicle for the transfer of technology and can contribute relatively
more to growth than domestic investment.12 However, not every economic transaction
may be qualified as an investment, nor should be protected by investment treaties.
Many economic transactions fall far short of stimulating broad-based economic
growth or generating the necessary linkages required to make FDI work for sustainable
economic development.13 In fact, simple sales transactions, purchases of goods and short-

11 UNCTAD, REPORT: Scope and Definition: A sequel, Series on Issues in International Investment Agreements
II, 2011, at <unctad.org/en/Docs/diaeia20102_en.pdf> (accessed 17 April 2015), 21.
12 Borensztein, E, de Gregorio, J and Lee, J-W, “How does foreign direct investment affect economic
growth?”, 45 Journal of International Economics (1998) 115.
13 Gallagher, K and Chudnovsky, D, eds, Rethinking Foreign Investment for Sustainable Development: Lessons
from Latin America (Anthem Press, London, 2010).

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 63
term commercial credits do not contribute to development of the host State since they do
not help generate employment, nor do they provide knowledge, transfer of skills or
technology to the local community. Furthermore, these transactions may not even have
any return to the home country.
The case Patrick Mitchell v Democratic Republic of Congo (DRC) was an attempt to
categorise a legal counselling firm as an investment. The arbitral tribunal decided that a
US national, who had operated a small law firm in the DRC, was an investment.
However an ad hoc committee annulled this arbitral award because the original tribunal
had ‘manifestly exceeded its power’ and had failed to State its reasons for finding that Mr
Mitchell had made ‘investments’ covered under the relevant investment treaty and the
ICSID Convention.14
In Malaysian Historical Salvors v the Government of Malaysia,15 the sole arbitrator held that
although the contract did provide some benefit to Malaysia there was not a sufficient
contribution to Malaysia’s economic development to qualify as an ‘investment’ for
purposes of Article 25(1) of the Convention. Nonetheless, the annulment committee had
an opposing view and considered that the sole arbitrator limited itself to the analysis of
the requirements under the Convention, but failed to apply the bilateral investment
treaty, which has a broad definition of the term investment. Moreover, the annulment
committee considered that the investment made by the Malaysian Historical Salvors was
a contribution that had cultural and historical value to the country.16
Although ICSID decisions do not constitute precedent, and ICSID tribunals are not
bound by previous decisions, several tribunals have coincided with the identification of
some features required for an investment to qualify as a covered investment: 1. It must
have certain duration and a regularity of profit and return; 2. There must be an
assumption of risk involved, usually by both sides; 3. There must be a commitment; and
4. The economic operation must have significance for the host State’s development.17
These features are now known as the ‘Salini test’.
Some tribunals have applied this test to determine whether the requirement of having
an investment in the host State is satisfied.18 Nonetheless, other tribunals have

14 Patrick Mitchell v Democratic Republic of Congo, ICSID Case No AERB/99/7, Award, 9 February 2004;
Patrick Mitchell v Democratic Republic of Congo, ICSID Case No AERB/99/7, Decision on the Application
for Annulment of the Award, 1 November 2006.
15 The Malaysian Historical Salvors (MHS) was a marine salvage outfit owned by a British national that
retrieved thousands of pieces of Chinese porcelain from the Straight of Malacca in the 1990’s. In
contract with Malaysia, the company was to receive a portion of the proceeds from the sale of the
treasure; however, MHS maintained that it received a smaller cut of the profits than was promised
under the contract. For more information, see International Institute for Sustainable Development,
Investment Treaty News, at <iisd.org/itn> (accessed 17 April 2015).
16 Malaysian Historical Salvors, SDN, BHD v The Government of Malaysia, ICSID Case No ARB/05/10,
Annulment Decision, 16 April 2009.
17 Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco, ICSID Case No ARB/00/4, Decision on
Jurisdiction, 23 July 2001, para 52. Some tribunals have considered that the fourth condition is included
in the other three.
18 This is the formula adopted in Joy Mining Machinery Limited v Arab Republic of Egypt, ICSID Case No
ARB/03/11, Award on Jurisdiction, 6 August 2004; Jan de Nul NV and Dredging International NV v Arab
Republic of Egypt, ICSID Case No ARB/04/13, Decision on Jurisdiction, 16 June 2006; Helnan
International Hotels A/S v Arab Republic of Egypt, ICSID Case No ARB/05/19, Decision of the Tribunal
on Objection to Jurisdiction, 17 October 2006; Mr Patrick Mitchell v Democratic Republic of the Congo,
ICSID Case No ARB/99/7, Decision on the Application for Annulment of the Award, 1 November
2006; Saipem SpA v The People’s Republic of Bangladesh, ICSID Case No ARB/05/07; Malaysian Historical

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64 GroJIL 3(1) (2015), 59–84

disregarded the application of the Salini test. In particular, the Phoenix tribunal rejected
the notion that a contribution to development should be criteria of an ICSID investment,
on the view that development of the host State is impossible to ascertain.19 In Pey Casado v
Chile, the tribunal considered that the feature of contribution is in fact included in the
other features of the investment, as a consequence but not a condition for, or an essential
component of it.20
From the above analysis, it is worth recalling that even if the ICSID Convention is
silent on the definition of the term ‘investment’, in its preamble it states that private
international investment has a role in the international cooperation for States’ economic
development. Hence, ICSID tribunals should interpret ‘the term investment in the light
of the objectives and purposes of the Convention and take into account, explicitly or
implicitly, the significance of the investment for the host State’s development. The major
aim of the Convention was to encourage the economic development of State parties by
way of foreign investment.
Through investment treaties, contracting States can provide specific rules and
definitions as well as additional requirements for purposes of granting jurisdiction to
ICSID tribunals. However, they cannot oppose, disregard or extend the Convention’s
requirements because it is the Convention which sets the general framework for ICSID
Jurisdiction. As Prosper Weil stated

it is within the limits determined by the basic ICSID Convention that the
BITs may determine the jurisdiction and powers of the ICSID tribunal, and
it is not for the Contracting Parties in their BIT to extend the jurisdiction of
the ICSID tribunal beyond the limits determined by the basic ICSID
Convention.21

II.1.2. Should Investment Treaties Protect Illegal Investments?

Due to broad interpretations, treaty protection has been extended in one way or another
to investments which have been operated by willful misrepresentation, fraud, in bad
faith, or in violation of national or international public policy.
The fact that ‘illegal’ investments are protected by IIAs is detrimental to SD because it
may convey the message that foreign investors are not expected to respect and comply
with the laws and regulations of the host State in areas such as labour, antitrust, human
rights and environmental laws. Also, investments made through corrupted practices have
a direct and pernicious effect on the economic development of countries, notably so in
developing countries.22
In Occidental v Ecuador, the tribunal found that the investors breached a clause of the
participation contract by purporting to transfer rights under the contract without the
required ministerial authorisation. As a consequence to the contractual breach, the
Minister of Energy and Mines declared the termination (caducidad) of the contract. The

Salvors, SDN, BHD v The Government of Malaysia, ICSID Case No ARB/05/10, Award on Jurisdiction,
17 May 2007.
19 Phoenix Action Ltd. v The Czech Republic, ICSID Case No ARB/06/5, Award, 15 April 2009, para 85.
20 Victor Pey Casado and President Allende Foundation v Republic of Chile, ICSID Case No ARB/98/2, Award,
8 May 2008, para 232.
21 Tokios Tokeles v Ukraine, ICSID Case No ARB/02/18, Decision on Jurisdiction, 29 April 2004,
(Dissenting Opinion, Weil P) para 13.
22 F-W Oil Interests Inc v The Republic of Trinidad and Tobago, ICSID Case No ARB/01/14, Award, 3 March
2006, para 212.

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
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tribunal qualified the investors’ conduct as a ‘wrongful act’, ‘negligence’, ‘grave mistake’
and ‘unlawful act’.23 Furthermore, since the investors did not seek nor obtain the required
authorisation, the tribunal found that investors acted negligently and committed an
unlawful act which contributed in a material way to the prejudice which the investors
subsequently suffered when the contract was terminated.24 Through these findings, the
tribunal concluded that by committing this ‘material and significant wrongful act’
investors only contributed 25% of the prejudice which they suffered when the Ministry
adopted the punitive measure (termination of the contract).25 The dissenting arbitrator
was of the view that ‘the consequence of the fault committed by the Claimants, when
they violated the Ecuadorian law, was overly underestimated and insufficiently taking
into account the importance that each and every state assigns to the respect of its legal
order by foreign companies.’26
Notwithstanding the Occidental v Ecuador case, it appears to be an emerging consensus
that illegal investments should not be protected by investment treaties and, in particular,
by the investor-State dispute settlement mechanism. Several investment tribunals have
dealt with investors’ misconduct and have acknowledged that investors’ illegal behaviour
may have an international legal effect and may be taken into account during an
arbitration proceeding.
In Saluka v Czech Republic the tribunal recalled that investments must have been made
in accordance with the provisions of the host State’s laws, and that unlawful investments
were not entitled to protection under the treaty.27 Similar conclusions were reached in
Salini Costruttori SpA and Italstrade SpA v Kingdom of Morocco28 and in Tokios Tokelés v
Ukraine.29
The tribunal in LESI SpA et Astaldi SpA v Algeria stated that investments made in
violation of fundamental governing principles lose their protection.30 Along the same
lines, the tribunal in Rumeli Telekom v Kazakhstan recalled that in order to receive the
protection of a bilateral investment treaty, the disputed investments have to be in
conformity with the host State’s laws and regulations and that investments in the host
State will only be excluded from the protection of the treaty if they have been made in
breach of fundamental legal principles of the host country.31
Other important cases under which investments were not protected by the ISDS
mechanism due to their illegal character are Inceysa Vallisoletana SL v Republic of El
Salvador32 and Fraport AG Frankfurt Airport Services Worldwide v Republic of the Philippines.33

23 Occidental Petroleum Corporation and Occidental Exploration and Production Company v The Republic of
Ecuador, ICSID Case No ARB/06/11, Award, 5 October 2012, paras 662–692.
24 Occiendental v Ecuador, paras 679–680.
25 Occiendental v Ecuador, para 687.
26 Occidental Petroleum Corporation and Occidental Exploration and Production Company v The Republic of
Ecuador, ICSID Case No ARB/06/11, Dissenting Opinion Stern B, para 4.
27 Saluka Investments BV v The Czech Republic, UNCITRAL, Partial Award, 17 March 2006, paras 204, 217.
28 Id, para 46.
29 Tokios Tokelés v Ukraine, paras 84–85.
30 LESI SpA et Astaldi SpA v République Algérienne Démocratique et Populaire, ICSID Case No ARB/05/3,
Decision, 12 July 2006 (translated from French), para 83.
31 See also, Plama Consortium Limited v Republic of Bulgaria, ICSID Case No ARB/03/24, Award, 27
August 2008; Alasdair Ross Anderson et al v Republic of Costa Rica, ICSID Case No ARB(AF)/07/3,
Award, 19 May 2010; Philippe Gruslin v Malaysia, ICSID Case No ARB/99/3, Award, 27 November
2000; Phoenix Action v Czech Republic; Gustav FW Hamester GmbH and Co KG v Republic of Ghana, ICSID
Case No ARB/07/24, Awards, 18 June 2010.
32 Inceysa Vallisoletana SL v Republic of El Salvador, ICSID Case No ARB/03/26, Award, 2 August 2006.

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Yet, several scholars as well as investment tribunals have suggested that investor’s
conduct should more frequently influence the award of monetary damages. For instance,
in MTD Chile SA v Republic of Chile, the tribunal reduced by half the damages that were
awarded to the claimant because of his own behaviour.34
Thus, the above cases suggest that due consideration should be given to the legality
requirement of the investment. A balanced approach is needed between the promotion
and protection of investments and the investor’s duty to comply with the substantive
legal framework during the admission process of the investment as well as its lifespan.
Fostering investors’ compliance with domestic laws and fundamental principles as well
as with the proper standards to conduct their business is positive from the perspective of
SD.35

II.2. Broad Interpretation of the Definition of Investor

Another important IIA provision is the clause setting out the scope and definition of
‘investors’. Through this provision signatory countries determine which foreign investors
benefit from the treaty's protection. Treaty practice varies in the criteria used for
determining the nationality of legal entities, ie the country of organisation or
incorporation, the country of the seat or the country of ownership or control. In many
cases, IIAs use a combination of criteria.36
Investment treaties which only adopt the test of the place of constitution or
incorporation as the criteria to define foreign investors may be misused. For instance,
nationals of a contracting State may incorporate an entity in the other contracting State
and then bring back the assets as protected foreign investments, so as to take advantage of
the protection against their own country.37 Equally, investors may incorporate an entity
in third countries with the aim to acquiring the protection of investment treaties that they
would not otherwise have in their home State's jurisdiction. These situations are known
as treaty shopping and round-tripping.38
Several issues merit attention in this regard. First, the potential abuses of the
‘corporate nationality’ and, in general, treaty shopping may result in host States
becoming the object of claims by ‘mailbox companies’.39 Second, the contracting parties’
intention is circumvented by investors’ operating through shell companies. Third, these
shell companies do not have a real link or substantial business activity in their place of
incorporation, and hence do not contribute to the home State's economic development.
Tribunals have adopted broad interpretations on these issues in a series of cases, for
example, the following. In Tokios Tokelés v Ukraine the tribunal decided that, although it
was 99% owned and two thirds managed by Ukrainian nationals, the company Tokios
Tokelés was a Lithuanian national. It reached this conclusion by interpreting the

33 Fraport AG Frankfurt Airport Services Worldwide v The Republic of the Philippines, ICSID Case No
ARB/03/25, Award, 16 August 2007: Award was annulled by the Decision on the application for
annulment, 23 December 2010; however, the issue about the illegality of the investment was not subject
of further analysis by the ad hoc committee.
34 MTD Equity Sdn Bhd And MTD Chile SA v Republic of Chile, ICSID Case No ARB/01/7, Award, 25 May
2004.
35 Further issues on legality of the investment are dealt with below.
36 UNCTAD, Scope and Definition, supra nt 10, 81.
37 Id, 15.
38 Sornarajah, M, “The Retreat of Neo-Liberalism in Investment Treaty Arbitration” in Rogers, CA and
Alford, RP, eds, The Future of Investment Arbitration (Oxford University Press, Oxford, 2009), 279.
39 UNCTAD, Scope and Definition, supra nt 10, xiii.

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 67
ordinary meaning of the terms contained in the definition of investor under the bilateral
treaty.40
As a consequence of the interpretation, in accordance with the ordinary meaning of
the words, the tribunal found itself competent to resolve a dispute that was ultimately
between the host State and its own nationals, who were able to benefit from the ISDS
mechanism through the creation of a foreign subsidiary. This decision did not take into
account the objective and purpose of either the ICSID Convention or the Ukraine-
Lithuania bilateral investment treaty. The ICSID Convention was meant for promoting
private international investment and settling disputes between a contracting State and
nationals of the other contracting State.41 The Convention is thus in a peculiar situation,
as it neither covers disputes between two governments (since these disputes may be
brought to the International Court of Justice or the Permanent Court of Arbitration), nor
disputes between States and their own nationals, since they may be brought to domestic
courts or domestic arbitration.42
In Saluka v Czech Republic, the tribunal agreed that Saluka had no real connection with
the State party to the investment treaty and that it was a mere shell company under
Japanese ownership. It also acknowledged the disadvantages of the formalistic test, in
particular the risk for treaty shopping, but concluded that it cannot impose upon the
parties a definition of ‘investor’ other than that which they themselves have agreed.43
In a more recent case, Abaclat et al v Argentina, the tribunal held that securities
entitlements acquired by claimants in secondary securities markets outside Argentina
were investments. According to the dissenting opinion,

the … case is … the first one to come before an ICSID tribunal in which
the alleged investment is totally free-standing and unhinged, without any
anchorage, however remote, into an underlying economic project,
enterprise or activity in the territory of the host state. None of the logical
short-cuts put forward by the majority award to palliate this absence, holds
water.44

The above cases illustrate the broad interpretations given to the investor’s definition. It
is important to note that through investment treaties, contracting parties aim to protect
their investors when investing abroad. A strong reason for doing so is that both parties
benefit from this foreign investment. On the one hand, from the perspective of a capital
importing country, investments can contribute to its economic development, ie by
generating employment, transferring new technologies, infrastructure and knowledge. On
the other hand, from the capital-exporting perspective, its national investors will increase
their profits abroad and hence will contribute to the economy of the home country, ie by
paying taxes and repatriating profits as well as the home country’s balance of payments.

40 Tokios Tokelés v Ukraine.

41 Preamble, International Center for Settlement of Investment Disputes, Convention on the Settlement of
Investment Disputes between States and Nationals of Other States (2006) 575 UNTS 159.
42 Schreuer, C, The ICSID Convention: A Commentary (2nd ed, Cambridge University Press, Cambridge,
2009), 25.
43 Saluka v Czech Republic, para 229.
44 Abaclat and Others v Argentina, ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility,
4 August 2011; Abaclat and Others v Argentina, ICSID Case No ARB/07/5, Dissenting Opinion Abi-
Saab, G), 28 October 2011, para 118.

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68 GroJIL 3(1) (2015), 59–84

Abuses on the part of investors and treaty shopping diminish the common will of the
contracting States. Treaty shopping disregards the fact that treaties are negotiated based
on each party’s needs and strengths, and also that treaties contain their own internal
balance. As Professor Stern has mentioned, it looks like we are ‘walking towards a
general system of compulsory arbitration involving states for all matters relating to
international investments.45
It might be the case that a State concludes an investment treaty with another State in
order to attract investors from that State because of a specific reason. This could include
the fact that the home State has strong environmental laws and regulations, and therefore
its nationals have already developed environmental friendly technology, or because
national investors already comply with certain standards regulated by their home States,
even if investing abroad. However, by treaty shopping, including the use of the most
favoured nation’s treatment clause, several provisions of the main treaty may be
disregarded (ie, clauses on denial of benefits as well as the definition of investment and
investor).

II.3. Broad Interpretation of the Expropriation Clause

Another key IIA clause is the one on expropriation. As part of their regulatory power,
States have the right to expropriate. The idea behind the expropriation clause on
investment treaties is to protect foreign property and investments from States’ measures
that detrimentally affect them. Investment treaties only regulate the conditions that need
to be met for the expropriation of foreign property. If these conditions are met, including
an appropriate compensation, the expropriation is considered lawful and the State does
not engage in international responsibility.
However, tribunals have stated that expropriation

includes not only open, deliberate and acknowledged takings of property,

such as outright seizure or formal or obligatory transfer of title in favour of
the host State, but also covert or incidental interference with the use of
property which has the effect of depriving the owner, in whole or in
significant part, of the use or reasonably-to-be-expected economic benefit of
property even if not necessarily to the obvious benefit of the host State.46

While direct expropriations have been easy to identify, indirect expropriations have
been the object of debate and discrepancy amongst investment tribunals as well as host
States. Drawing the line between an indirect expropriation and a bona fide non-regulatory
measure adopted for public interest has been, in practice, very difficult.
The perception that general regulatory measures adopted for public interest may be
challenged as de facto takings, and thus may require compensation, have raised grave
concerns. States may be discouraged or unwilling to adopt new public regulations. Their
ability to regulate in favour of health, environment and human rights is then affected and
restrained. This limitation to the regulatory space of States can reduce States’ ability to

45 Stern, B, “ICSID Arbitration and the State´s Increasingly Remote Consent: Apropos the Maffezini
Case” in Charnovitz, S, Steger, DP and Van den Bossche, P, eds, Law in the Service of Human Dignity:
Essays in Honour of Florentino Feliciano (Cambridge University Press, Cambridge, 2005), 259.
46 Metalclad Corporation v Mexico, ICSID Case No ARB(AF)/97/1, Final Award, 30 August 2000, para
103.

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 69
achieve legitimate policy objectives and impede their realization of sustainable
development goals.
It has been strongly debated whether 1. Foreign investors have to bear the whole costs
when a bona fide regulatory measure which nullifies their investments is adopted, ie by
not being compensated even if the State measure has substantially affected their
investment; and 2. Society has to bear the costs for having adopted a new regulatory
measure in the society’s benefit, and therefore investors get compensated.47 The answer
will depend on the analysis of several issues such as whether the measure is viewed as
unreasonable or discriminatory. If investors had legitimate expectations, the impact of
the measure on the investment and whether there has been an unjust enrichment of the
State. However, good governance, which is part of sustainable development principles,
does not mean that States should compensate all and every situation where bona fide
measures affect investments.
By way of illustration, it is helpful to recall few investment cases where tribunals have
dealt with challenges to States’ regulatory measures. In Petrobart v Kyrgyz Republic the
tribunal affirmed that States, as contracting parties to investment treaties, are under the
obligation to carry out reorganisation (in this case the restructuring of a system for supply
of oil and gas) in a way which shows due respect to investors.48 In Marion v Costa Rica, the
investor was denied the permits to develop a beachfront tourist project because the area
was preserved for endangered leatherback turtles. The tribunal found that

while there can be no question concerning the right of the government of

Costa Rica to expropriate property for a bona fide public purpose, pursuant
to law, and in a manner which is neither arbitrary or discriminatory, the
expropriatory measure must be accompanied by compensation for the fair
market value of the investment.49

In SAUR v Argentina the tribunal analysed the police powers doctrine, which allows the
State to adopt regulations in the public interest. The tribunal acknowledged that police
power regulations impose a limitation on the freedom of foreign investors in the
management, maintenance, use disposal and enjoyment of their investments. Accordingly,
those policy power regulations may qualify as indirect expropriations. The tribunal also
agreed that policy power regulations do not constitute a wrongful act according to
customary law and that, in certain circumstances, compensation is not even necessary.50
Nevertheless, the tribunal emphasised that, in the instant case, the investment treaty
required compensation for any regulation adopted by the State in its policy powers’
exercise.51
In Quasar de Valors v Russian Federation, the tribunal held that,

where the value of an investment has been substantially impaired by state

action, albeit a bona fide regulation in the public interest, one can see the
force in the proposition that investment protection treaties might not allow

47 Higgins, R, The Taking of Property by the State: Recent Developments in International Law (vol 176, Martinus
Nijhoff Online, Leiden, 1982).
48 Petrobart Limited v Kyrgyz Republic, SCC No 126/2003, Arbitral Award, 29 March 2005, para VIII.8.9.
49 Marion Unglaube v Republic of Costa Rica, ICSID Case No ARB/08/1, Award, 16 May 2012, para 205.
50 SAUR International SA v Argentine Republic, ICSID Case No ARB/04/4, Decision on Jurisdiction and
Liability, 6 June 2012, para 398.
51 Id, paras 406–407.

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70 GroJIL 3(1) (2015), 59–84

a host State to place such a high individual burden on a foreign investor to

contribute, without the payment of compensation, to the accomplishment
of regulatory objectives for the benefit of a national community of which
the investor is not a member.52

Several other cases could be cited to show the difficulties of distinguishing

compensable expropriations from non-compensable regulations adopted in the public
interest, including for the protection of health and the environment. Yet, for purposes of
the analysis, it suffices to say that findings that regulatory measures need to be
compensated may preclude the adoption of legitimate regulations, and this would be
detrimental for the achievement of SD goals. It is therefore necessary to balance
investors’ legitimate rights with the State's legitimate right to regulate. States should not
lose their domestic policy space to regulate development objectives such as the
incorporation of environmental provisions, corporate social responsibility norms, and
human rights into their legal system.
Furthermore, treaty protection cannot be seen as a guarantee for risk-free activities on
the part of investors. Foreign investment occurs within a complex and sophisticated legal
framework of tax, antitrust, administrative, labour, environmental, human rights and
other laws and regulations. Investors who take the decision to invest in a foreign country
should be aware that there is always a risk that the legal and regulatory framework
changes in the absence of assurances to the contrary. The possible changes in domestic
regulatory framework and policies, such as fiscal treatment, repatriation of assets, and
other State actions are in fact considered a traditional part of the political risks of
investment.53
Similar situations arise with respect to the broad interpretation given to other key
treaty provisions such as most favoured nation treatment clause and the fair and
equitable treatment provision. Moreover, in several investment cases the State’s
regulatory power has been challenged as having simultaneously breached the
expropriation provision as well as other key investment treaty standards. Tribunals have
applied different views and considerations to determine whether the regulatory measure
has breached IIA provisions or not. The result is the same

Host states are concerned about a shrinking of domestic policy space

occasioned, based on vague standards of investment protection by
international arbitrators who exercise interpretative powers over the
content of investment treaty obligations and who are de facto able to restrict
even policy choices made by democratically elected legislators.54

Concerns that IIAs may diminish states' regulatory policy space in favor of investors’
private interests has led to different reactions by states. This will be further analysed in
the next section.

52 Quasar de Valors SICAV SA et a (Formerly Renta 4 SVSA et al) v Russian Federation, SCC Case No 24/2007,
Award, 20 July 2012, para 23.
53 Muchlinski, P, Multinational Enterprises and the Law (2nd ed, The Oxford International Law Library,
Oxford, 2007).
54 Schill, S, International Investment Law and Comparative Public Law, (Oxford University Press, New
York, 2010), 7.

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 71

III. Fostering Sustainable Development Objectives

Through Investment Policy Making
When States negotiate IIAs they are accepting a restriction of their policy space in favour
of foreign investors. However, it is not until States face a claim that they are aware of the
extent to which the IIA may restrict their regulatory powers. Different reactions by States
have been adopted: attempts to withdraw from the investment regime, and attempts to
reform or modify it. The former manifests itself through efforts limiting States' exposure
to ISDS cases; the latter through the adoption of IIAs with innovative features aimed at
boosting parties’ SD objectives.
In the following subsections, this paper will list several States’ attempts to withdraw
from the international investment regime by denouncing the ICSID Convention and
investment treaties (subsection 2.1). Then, it will discuss States’ willingness to achieve
sustainable development objectives though the adoption of a new generation of
investment treaties (subsection 2.2). The latter will give special attention to the
Investment Policy Framework for Sustainable Development (IPFSD) recently adopted by
the United Nations Conference on Trade and Development (UNCTAD), which is a
valuable tool for the successful implementation of this new generation of investment
treaties.

III.1. Attempts to Limit Investment Tribunals' Jurisdiction:

Withdrawing from the ICSID Convention and/or Denouncing
International Investment Treaties
The Republic of Ecuador tried to limit ICSID jurisdiction by notifying the Centre,
pursuant to Article 25(4) of the ICSID Convention that it will not submit to ICSID's
jurisdiction for disputes that arise in matters concerning the treatment of investments in
economic activities related to the exploitation of natural resources such as oil, gas,
minerals or other resources. Then, Ecuador denounced the ICSID Convention. Finally, it
decided to terminate its bilateral investment treaties (BITs) by denouncing nine treaties in
2008,55 and by launching a process to analyse whether the remaining BITs, in particular
their ISDS clause, were consistent with the newly adopted Constitution of 2008. The
Constitutional Court of Ecuador declared the ISDS clauses contained in the BITs with
Argentina, Canada, Chile, China, Finland, France, Germany Great Britain and Ireland,
The Netherlands, Sweden, Switzerland,56 the United States of America and Venezuela as
unconstitutional. As a consequence of these findings, Ecuador sent a notification
denouncing the BIT concluded with Finland and may do the same with other BITs.57
Bolivia also denounced the ICSID Convention as a first step to avoid investor-State
arbitration.58 Furthermore, it sent a notice in 2011 to the US Government expressing its

55 BITs concluded with Cuba, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua,
Paraguay, Romania and Uruguay.
56 The BIT concluded with Switzerland in 1968 did not contain an ISDS provision, but it was also
declared contrary to the Constitution because of the State-State dispute settlement provision, at
<corteconstitucional.gob.ec/> (accessed 27 March 2015).
57 Ibid.
58 Denunciation made in 2007.

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72 GroJIL 3(1) (2015), 59–84

intention not to renew the Bolivia-USA BIT once it arrives towards its end.59 Likewise,
Venezuela denounced in 2008 the BIT concluded with The Netherlands and is planning
to renegotiate or to terminate the remaining 24 Bilateral Investment Treaties. In addition,
in 2012 Venezuela withdrew from ICSID. Along the same lines, the BIT concluded
between El Salvador and Nicaragua was denounced.60 And more recently, South Africa
expressed its intention not to renew its BIT with the Belgium-Luxembourg Economic
Union and 12 other BITs it previously entered into with other European Union (EU)
Member States. 61

III.2. Adoption of the New Generation of Investment Treaties

In addition to denouncing and withdrawing from the investment system, there is the
possibility to negotiate ‘sustainable development enhanced’ investment treaties or to
renegotiate and revise the existing ones. It is worth noting that contracting States may
also issue interpretative declarations in order to clarify the scope and meaning of key
treaty provisions. Many countries have opted for this option and are negotiating or
renegotiating agreements with some safeguards and other innovative features. Mainly,
States are seeking to find a balance between the private interests of investors and the
States’ necessary policy space to accomplish sustainable developments goals.
It is within this context that the United Nations Conference on Trade and
Development (UNCTAD) has developed an Investment Policy Framework for Sustainable
Development (IPFSD). The purpose of the IPFSD is to facilitate the drafting of IIAs that
create synergies with wider economic development goals, foster responsible investment
and ensure policy effectiveness. This policy framework consists of a set of 11 core
principles and a comprehensive list of policy options for the negotiation and design of
investment treaty clauses, covering pre and post-investment establishment, qualitative
aspects of investment, special and differential treatment to investors, reservations,
exceptions and other concrete options. These options include provisions designed to
strengthen the sustainable development dimension of the international investment policy
regime, resolve issues stemming from the regime’s increasing complexity and to adjust
the balance between the rights and obligations of States and investors.
Examples of IIA provisions that have incorporated or reflected sustainable
development related concerns are discussed below.
III.2.1. Preambles with SD references
Preamble provisions are the contracting parties’ inspirational statements. They are useful
for interpretation purposes. Several investment treaties have tried to include a reference,
although sometimes vague, to the need of both contracting parties to pursue sustainable
development objectives.

59 Network for Justice in Global Investment, The Emerging Challenge to the Investor-State Regime, 30 August
2012 at <justinvestment.org/2012/08/the-emerging-challenge-to-the-investor-state-regime-2/>
(accessed 6 May 2015).
60 UNCTAD, “Denunciation of the ICSID Convention and Bits: Impact on Investor-State Claims”, 2 IIA
Issues Note (December 2010) 1, at <unctad.org/en/Docs/webdiaeia20106_en.pdf> (accessed 5 May
2015).
61 The notice of termination was contained in a letter entitled, “Termination of the Bilateral Investment
Treaty with the Belgo-Luxembourg Economic Union”, from Maite Nkoana-Mashabane, Minister of
International Relations and Co-operation, to the Ambassador of the Kingdom of Belgium to South
Africa, Johan Maricou, 7 September 2012.

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 73
For example, Azerbaijan’s BITs concluded with Estonia (2010) and Czech Republic
(2011) state in their preamble: ‘Desiring to achieve these objectives in a manner
consistent with the protection of health, safety, and the environment and the promotion
of sustainable development...’ Similarly, the preamble of the Colombia-Japan BIT (2011)
says: ‘Recognizing that these objectives and the promotion of sustainable development
can be achieved without relaxing health, safety and environmental measures of general
application…’. The Japan-Papa New Guinea BIT (2011) also states

Recognizing that economic development, social development and

environmental protection are interdependent and mutually reinforcing
pillars of sustainable development and that cooperative efforts of the
Contracting Parties to promote investment can play an important role in
enhancing sustainable development…

III.2.2. IIA’s Definitions Reflecting SD Considerations:

III.2.2.1. Investment
UNCTAD’s IPFSD suggests that one option regarding the definition of investment could
be to indicate that protected investments shall fulfil specific characteristics according to
the parties’ needs and expectations, such as delivering a positive development impact on
the host country and assets acquired for the purpose of establishing a lasting economic
relation (Option 2.1.2). Providing further qualifications, clarifications and explanatory
notes to the term investment allows countries to attract foreign direct investment (FDI)
conducive to sustainable development and to protect transactions that contracting parties
consider beneficial for them.
Another option, which may be complementary to the aforementioned option, is to
offer treaty coverage only to legal investments at both the admission stage (2.1.2) and
during its lifespan (7.1.1). In fact, IIAs may expressly contain a provision indicating that
investments must continue to function according to the laws and regulations of the host
State or insisting that only foreign investment complying with these laws and regulations
‘from time to time in existence’ will qualify for protection.62 This requirement aims to
promote investor compliance with the laws and regulations of the host State.
However, it is worth making some clarifications of the legality requirement. Investors
are required to observe the substantive legal and regulatory norms of the host State,
which may be applicable to their investments even if they are difficult to comprehend,
such as taxation law. This does not mean that the host State can abuse its legislative
power and create inconsistency or arbitrariness where rules are applied to one person,
and not to another, or at one time and not another, or recognised and enforced by one
organ of the State and ignored by another. But the legality requirement may not be
understood to imply that foreign investments have to comply with each and every
provision of domestic law or else risk forfeiture of the protection afforded by the IIA, or
with norms that are strictly considered as formalities. In fact, as Professor Dolzer has
stated, it would appear implausible to argue that each infraction of the local laws would
deprive the investor of the guarantees laid down in an IIA.
Such a conclusion would also contradict general principles of law, such as Article 27
of the Vienna Convention, which provides that a State party may not invoke the

62 Sornarajah, M, The International Law on Foreign Investment (3rd ed, Cambridge University Press,
Cambridge, 2010), 227.

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74 GroJIL 3(1) (2015), 59–84

provisions of its internal law as justification for its failure to perform a treaty.63 With a
very similar approach, the arbitral tribunal in Tokios Tokelés v Ukraine stated that ‘to
exclude an investment on the basis of such minor errors would be inconsistent with the
object and purpose of the Treaty.’64 Also, the Fraport v Philippines tribunal recalled that in
some circumstances, the law in question of the host State may not be entirely clear and
mistakes may be made in good faith.65 Furthermore, to accept that overcoming the
illegality of the investment will always deprive the investor from the IIA protection gives
the possibility to the host State to unilaterally withdraw its commitments under the IIA
towards the foreign investment by imposing new and high requirements to the
investment in such a way that it would become illegal.
III.2.2.2. Investor
Regarding the definition of investors, one option that fits with SD objectives is to require
investors to have their seat and substantive business activities in their home country in
order to be considered as nationals of this country. Alternatively, it may be possible to
include a denial of benefits clause (2.2.2) to avoid legal entities without real economic
activity in their home State to benefit from IIA protection. For instance, the recently
concluded Canada-China Foreign Investment Promotion and Protection Agreement (2012)
contains a clause on denial of benefits which allows countries to deny benefits at any
time, including after the filing of a case. The contracting parties’ intention was to carve
out from the definition of investor ‘shell companies’ owned by nationals of a third-
country.
Regarding the treaty practice, the USA-Uruguay BIT concluded in 2004 (which was not
in force yet) was replaced by a new BIT concluded by the signatories in 2005.
Modifications were made to Article 17 (denial of benefits) and the selection of arbitrators
in the settlement of disputes. In addition, for greater certainty, many explanatory notes
were incorporated in the definition of investment, investment agreement, investment
authorization and financial services.66 More recently, the China-Cuba BIT concluded in
1995 was modified by the parties in 2010. Amongst other amendments, parties clarified
the scope and the meaning of the term ‘investment’ and they included a new requirement
for legal entities to qualify as investors (ie entities need to conduct substantial business
activities in their place of incorporation, to be considered as nationals of a contracting
State).
III.2.3. Standards of Protection and Treatment Clauses with SD
Considerations:
III.2.3.1. Expropriation
The right to regulate is crucial for achieving States' particular policy objectives and
concerns, including sustainable development goals. The expropriation clause in IIAs is
one of the clauses that may limit most States' regulatory space. That is the reason why a
good option is to draft a detailed provision clarifying what constitutes indirect
expropriation in order to provide guidance to tribunals, and to prevent expansive

63 Dolzer, R, and Stevens, M, Bilateral Investment Treaties, (Kluwer Law International, The Hague, 1995);
Fraport AG Frankfurt Airport Services Worldwide v Republic of the Philippines, ICSID Case No ARB/03/25,
Award, 16 August 2007, para 304.
64 Tokios Tokelés v Ukraine, paras 83–86.
65 Fraport AG Frankfurt Airport Services Worldwide v Republic of the Philippines, para 396.
66 For further reference, Organisation of American States, Foreign Trade Information System (SICE), at
<sice.oas.org> (accessed 27 March 2015).

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 75
interpretations. It is also necessary to explain the circumstances and the criteria to
determine and differentiate non compensable regulatory measures from indirect
expropriation. As UNCTAD’s IPFSD policy options acknowledges, it is very important
to specify the standard of compensation when an expropriation has occurred.
Some clarifications of what does and does not constitute expropriation are found in
the Annex III of the Colombia-Japan BIT (2011)

… 2. The determination of whether a government measure or a series of

government measures of a Contracting Party, in a specific fact situation,
constitutes an indirect expropriation requires a case-by-case, fact-based
inquiry that considers, among other factors:

(a) the economic impact of the government measure or series of

government measures, although the fact that such measure or series
of such measures has an adverse effect on the economic value of
investments, standing alone, does not establish that an indirect
expropriation has occurred;

(b) the extent to which the government measure or series of

government measures interferes with distinct and reasonable
expectations arising out of investments;

(c) the character of the government measure or series of government

measures, including whether such measure is non-discriminatory; and

(d) the objectives of the government measure or series of government

measures including whether such measure is taken for legitimate
public objectives.

3. Except in such circumstances as when a measure or a series of

measures is so severe in the light of their purpose that they cannot be
reasonably viewed as having been adopted and applied in good faith,
non-discriminatory measures of a Contracting Party that are designed
and applied to protect legitimate public welfare objectives in accordance
with paragraph 1 of Article 15 do not constitute indirect expropriation.

It is worth noting that older IIAs also contain some explanations regarding indirect
expropriation and some others also include exceptions and reservations in respect to
health and environment. (ie Australia-Chile Free Trade Agreement (FTA) (2008); many
Foreign Investment Promotion and Protection Agreements (FIPAs) signed by Canada such as
Canada-Peru BIT (2006), Canada-Jordan (2009) and Canada-Slovak Republic BIT (2010);
several United States FTAs such as the ones concluded with Australia (2004), CAFTA-
DR (2004), Chile (2003) and Morocco (2004).
III.2.4. Achievement of SD Objectives Through Other Treaty Provisions
SD may be achieved through the adoption of several other treaty provisions. Contracting
parties can make clear that they will preserve their right to regulate for public interest by
describing situations and circumstances where treaty protection does not apply or by
adopting ‘defence clauses’ agreeing that certain policies taken pursuant to sustainable
development do not constitute treaty violations. States can also acknowledge that they

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76 GroJIL 3(1) (2015), 59–84

shall not lower environmental and labour standards in order to attract foreign
investments.
One such treaty example is the Korea-Peru FTA (2011), Chapter 9, Article 9.9, which
states:

1. 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 concerns.

2. The Parties recognize that it is inappropriate to encourage investment by

relaxing their health, safety, or environmental measures. Accordingly, a
Party should not waive or otherwise derogate from, or offer to waive or otherwise
derogate from, such measures as an encouragement for the establishment,
acquisition, expansion, or retention in its territory of an investment of an investor. If
a Party considers that the other Party has offered such encouragement, the
Parties shall consult, upon request, with a view to avoiding any such
encouragement.67

Similarly, the India-Malaysia Comprehensive Economic Cooperation Agreement (2011), Article

10.20, says

Measures in Public Interest: Nothing in this Chapter shall be construed to

prevent: (a) a Party or its regulatory bodies from adopting, maintaining or
enforcing any measure, on a non-discriminatory basis; or (b) the judicial bodies
of a Party from taking any measures, consistent with this Chapter that is in
the public interest, including measures to meet health, safety or environmental
concerns.68

Through exceptions and exclusion clauses, States may decide to exclude from the
scope of application of the treaty issues related to culture, health and the environment
that are sensitive for the achievement of sustainable development. Similarly, key sectors
necessary for the attainment of sustainable development may be excluded from the treaty
application.
III.2.5. Encouraging Anti-corruption Practices and the Corporate Social
Responsibility
In the last few decades increasing attention has been paid to anti-corruption practices and
to the duties of investors towards the countries in which they invest. There is growing
consensus around the idea of ‘international corporate social responsibility’ in response to
the perception that there is a loss of corporate accountability, partly resulting from
increasing globalisation. The idea rests on obligations that corporations should be liable
to the societies in which they operate. International governmental organisations have
expressed their interest in the need of all actors, including non-State actors, to observe the
preservation of some fundamental principles, such as respect towards human rights and
sustainable development.

67
[Emphasis added].
68
[Emphasis added].

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 77
Within the international investment law regime, the bulk of international obligations
have fallen upon host States. By contrast, investors and home States have few, if any,
international obligations.69 IIAs, with few exceptions, have been solely focused on
creating rights for investors and legal obligations for states. A small number of recent
IIAs carve out space for States to impose duties on the investor to comply with certain
standards of conduct, such as national laws and internationally recognized Corporate
Social Responsibility (CSR) standards, or to carry out good corporate governance
practices in order to enhance the sustainable development dimension of CSR.70 Few
other investment treaties have incorporated States’ efforts to prevent and combat
corruption. For instance, the Colombia-Japan BIT (2011), in its Article 8, observes

Measures against Corruption: Each Contracting Party shall ensure that

measures and efforts are undertaken to prevent and combat corruption
regarding matters covered by this Agreement in accordance with its laws
and regulations.71

However, the most significant level of regulation still falls upon States. On the one
hand, home States have adopted a legal and regulatory system that might be used to
ensure that multinational enterprises base and conform to certain standards of good
corporate citizenship.72 On the other hand, local laws of the host State exercise regulatory
control towards foreign investments and investors, mostly when the investor is a
multinational enterprise. Common examples are the regulation of domestic labour and
antitrust laws.
Therefore, enterprises are thus expected to conduct themselves in accordance with
proper standards, observing fundamental principles and to conduct investments in a
reasonable manner. Investors are expected to respect and comply with the laws and
regulations of both home and host States primarily because the high levels of mandatory
regulation in the business sphere remains at the national level.73
UNCTAD sees corporate social responsibility as the quid pro quo for the protection of
investors and investments under international investment treaties.74 Furthermore,
UNCTAD’s Investment Policy Framework contains some options that are designed to
promote responsible investment by encouraging investors' compliance with universally
recognized CSR standards.
III.2.6. Investor-State Dispute Settlement Clauses
ISDS clauses may limit the range of disputes that can be subject to arbitration, may
preclude investors not in compliance with domestic laws to have recourse to arbitration
or may enlarge the possibility of the host State to bring counterclaims in relation to
investor unconscionable behaviour.

69
Muchlinski, supra nt 54, 84.
70
For example the investment agreement for the (Common Market for Eastern and Southern Africa)
COMESA Common Investment Area (CCIA) imposes an obligation on investors to comply with local
laws and the CARIFORUM-EC Economic Partnership Agreement incorporates anti-corruption
obligations for investors.
71
[Emphasis added].
72
Muchlinski, supra nt 1, 84.
73
Ibid.
74
UNCTAD, The Social Responsibility of Transnational Corporations, New York and Geneva, 1999, at
<unctad.org/en/Docs/poiteiitm21_en.pdf> (accessed 13 April 2015).

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78 GroJIL 3(1) (2015), 59–84

While States may be willing to renegotiate or provide further clarifications to the scope
of investor-State dispute settlement provisions, several countries have decided to exclude
ISDS clauses in their investment agreements.
An example of such is the China-Cuba BIT concluded in 1995 and modified by the
parties in 2010. The ISDS provision was replaced with a more detailed one.75
Australia, New Zealand and India are examples of countries willing to exclude ISDS
provisions from investment treaties. The Australia-Malaysia FTA concluded in 2012 does
not contain such a provision,76 while India has publically stated that it is planning to
exclude arbitration clauses from its BITs, which is currently under negotiation with the
European Union, Australia, New Zealand and other countries.
Notwithstanding the intention of the parties to negotiate, renegotiate, revise and issue
interpretative declarations on IIAs, with the aim of balancing public regulatory interests
of States with private interests of investors, the effect and impact of their clauses cannot
be assessed unless they are interpreted and applied by investment tribunals to concrete
situations. It thus remains unclear whether these safeguards, exceptions, reservations and
explanatory notes will be meaningful and effective to pursue SD objectives. Nevertheless,
this should not discourage States from engaging in such a process.
Furthermore, even with investment treaties in their current form, sustainable
development objectives can be achieved through the application of a SD oriented
interpretation within the context of investor-State dispute settlement cases. This will be
discussed in the next section.

IV. Systemic Interpretation of IIAs in Their Current

Form: Achievement of Sustainable Development
Objectives
States’ willingness to ensure consistency between their long-term sustainable
development strategies and their existing investment treaties may be achieved through
negotiation, renegotiation or revision of IIAs that incorporate sustainable development
friendly provisions. Nonetheless, due to the fact that the vast majority of investment
treaties negotiated over the last five decades by more than 176 countries77 are currently in
force, the task of reviewing and renegotiating IIAs with SD oriented provisions will be no
mean feat.
Additionally, it is hard to achieve coherence between IIAs in their current form and
the new generation of investment treaties that may be negotiated with SD friendly
provisions. This is due to the fact that the potential application of the most favoured
nation treatment clause may result in disregarding stricter provisions contained in these
innovative treaties.

75
China-Cuba, Modification of The Agreement on the Promotion and Mutual Protection of Investments
between the Government of the People’s Republic of China and the Government of the Republic of Cuba, 3
April 2010, at <tfs.mofcom.gov.cn/article/h/bk/201003/20100306805846.shtml> (accessed 13 April 2015).
76
Malaysia-Australia Free Trade Agreement (FTA), 22 May 2012, at
<www.miti.gov.my/cms/documentstorage/com.tms.cms.document.Document_7257fc06-c0a81573-
2ce72ce7-76d00623/ MAFTA.pdf> (accessed 13 April 2015).
77
An example of ethical rules to be observed by arbitrators if parties so establish is the Code of Ethics for
Arbitrators in Commercial Disputes formulated by a special joint committee of the American Bar
Association (ABA) and the American Arbitration Association (AAA), revised in 2003 and effective since
March 1, 2004.

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 79
Furthermore, the effects and impact of sustainable development friendly provisions
introduced in the new generation of investment treaties is yet to be assessed. It remains
unclear how arbitral tribunals will interpret and apply these provisions.
Within this context, the form in which to achieve coherence between sustainable
development objectives and investment treaties is to apply a SD oriented interpretation of
IIAs. Such an interpretation would encourage States to pursue their SD long-term
policies and would be useful – and necessary – to reduce the risks of future threats to
global sustainability. The justifications for the adoption of such an interpretative
approach are grounded in customary international law.
This section will first recall the role of investment tribunals and then will explain two
interpretative approaches (the subjective dynamic approach and systemic integration of
norms) that may be adopted by investment tribunals in order to foster SD.

IV.1. The Role of Treaty-based Arbitral Tribunals

The exercise of the arbitrators’ authority and powers to hear and render a decision
derives from the parties’ consent.78 This is a primary consequence of the consensual
nature of arbitration.79 Arbitrators will thereby conduct the arbitration and decide the
dispute as submitted by the parties and in accordance with the legal and even ethical
framework chosen by the parties as well as by the rules otherwise binding the tribunal.80
Thus, in general terms, the first and main duty of the tribunal is towards the parties:
arbitrators’ task is to decide the case at hand and to do their best effort to render an
enforceable award. Contrary to national judges, arbitrators do not render ‘justice’ in the
name of any State.
However, the scope of the tribunal’s authority is also circumscribed by the governing
law rules under which tribunals operate. There are several possible sources of arbitrators’
powers which may act alternatively or cumulatively: international treaties between
sovereign States (investment treaties, ICSID Convention), domestic laws, direct
agreement between the investor and the State.
Against this background, this paper argues that tribunals’ role is not limited to act on
behalf of the disputing parties. Instead, tribunals’ role also contributes to the development
of international law. This is because the awards influence the behaviour of investors,
States and – most importantly – the development of international investment law by
concretising the scope and content of international standards of protection of foreign
investors as well as generating new rules.
Though no formal doctrine of judicial precedent exists in international investment
law, the decisions of arbitral tribunals may contribute as authoritative interpretations of
the substantive obligations contained in IIAs, and may be seen as a subsidiary means for
the determination of the rules of the international law on foreign investment.
Moreover, investment arbitration touches upon subject matters that raise public
interest concerns and may affect the regulatory power of States. Arbitrators have the
power to review and strike down State decisions, regulations, and national regulations.81

78
Notwithstanding the foregoing, once the arbitral tribunal is constituted and arbitrators are empowered,
they have a high degree of autonomy and authority to decide procedural and substantive matters.
79
So true is that the parties’ agreement empowers arbitrators, that parties may replace, revoke arbitrators
at any time, and even put an end to the arbitration proceedings at any time.
80
An example of ethical rules is the ABA guidelines.
81
Choudhury, B, “Recapturing Public Power: Is Investment Arbitration’s Engagement of the Public
Interest Contributing to the Democratic Deficit?”, 41 Vanderbilt Journal of Transnational Law (2008) 775.

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80 GroJIL 3(1) (2015), 59–84

This has characterised investment arbitration as part of the evolving concept of global
administrative law.82 As a scholar mentioned, arbitrators ‘exercise interpretative powers
over the content of investment treaty obligations and … are the facto able to restrict even
policy choices made by democratically elected legislators.’83
For these reasons, investment arbitrators need to ensure coherence of the international
investment regime within the context of public international law in general. They cannot,
for instance, disregard or contradict international environmental agreements or human
rights obligations.

IV.2. Interpreting the Intention of the Parties as Reflected in the

Treaty Text
Tribunals, when interpreting international investment treaties, must have due regard to
the intention of the parties having formulated them as expressed in the text.84 Tribunals’
interpretation process will be guided by the customary and general principles of treaty
interpretation which have been embodied in the Vienna Convention on the Law of
Treaties (VCLT).
Articles 31–32 of the VCLT set forth the general rules of interpretation. In order to
give effect to the intention of the contracting parties of a given treaty, tribunals need to
look into the ordinary meaning of the words in their context and in the light of the treaty’s
object and purpose. Consideration of the treaty’s object and purpose ensures the
effectiveness of its terms (effet utile).85 The preamble plays an important role for the
purpose of understanding and interpreting the context of the treaty.
Both the ICSID Convention and the vast majority of the IIAs acknowledge in their
preamble the importance of FDI for the promotion of economic development. The
ICSID Convention´s primary aim was the promotion of economic development through
the creation of a favourable investment climate that could be largely improved with the
establishment of an effective system for settlement of disputes. According to the
Executive Director´s Report on the Convention

the creation of an institution designed to facilitate the settlement of disputes

between States and foreign investors can be a major step toward promoting
an atmosphere of mutual confidence and thus stimulating a larger flow of
private international capital into those countries which wish to attract it.86

82
Van Harten, G, Investment Treaty Arbitration and Public Law (Oxford University Press, New York, 2008);
Van Harten, G and Loughlin, M, “Investment Treaty Arbitration as a Species of Global Administrative
Law,” 17(1) European Journal of International Law European Journal of International Law (2006) 121.
83
Schill, S, International Investment Law and Comparative Public Law (Oxford University Press, New York,
2010), 7.
84
As the ILC Commission observed ‘the text must be presumed to be the authentic expression of the
intentions of the parties’: see Watts, A, ed, The International Law Commission 1949-1998: Volume Two: The
Treaties (Clarendon Press, 2000), 687.
85
Villiger, M, “The Rules on Interpretation: Misgivings, Misunderstandings, Miscarriage? The ‘Crucible’
Intended by the International Law Commission” in Cannizzaro, E, ed, The Law of Treaties Beyond the
Vienna Convention (Oxford University Press, New York, 2011), 110.
86
International Bank for Reconstruction and Development, Report of the Executive Directors on the
Convention on the Settlement of Investment Disputes between States and Nationals of other States, 18 March
1965, at <icsid.worldbank.org/ICSID/StaticFiles/basicdoc/partB.htm> (accessed 13 April 2015), para
9.

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 81
Likewise, in general terms, IIAs contain statements incorporated in the preamble
which acknowledge the importance of promoting foreign investment and the flow of
capital. Indeed, foreign investments are perceived to enhance the economic cooperation
to the mutual benefit of signatory parties and to intensify and expand economic activities,
prosperity and development of both parties.87
Within this context, it seems that the idea of concluding IIAs is neither to attract all
kind of foreign capital nor at all costs; but to foster individual business initiative because
it will support growth and prosperity of signatory countries. The ultimate rationale
behind this is that the raison d’être of States is to provide wealth to their inhabitants. In a
famous statement, Aristotle asserted that the State ‘comes to be for the sake of living, but
it remains in existence for the sake of living well’.88
It is thus necessary to adopt a rational interpretation of IIAs, taking into account the
real intention of States when concluding those agreements. A balanced approach means
that IIAs cannot protect foreign transactions that are detrimental to the development of
any of the signatory countries. To conclude otherwise, would be contrary to the intention
of the contracting parties and therefore would lead to an unreasonable interpretation.

IV.3. Systemic Integration of Norms in Treaty Interpretation

Safeguarding the unity and coherence of international law has been a concern addressed
by the International Law Commission. In 2006 a report was issued seeking to provide
solutions to the problems of coherence in international law which resulted from the
‘emergence of the new and special types of law, ‘self-contained regimes’ and
geographically or functionally limited treaty-systems’.89 Amongst other conclusions, the
ILC suggested that rules, principles and norms of international law viewed as a legal
system act in relation to, and to be interpreted against the background of other rules and
principles. Equally, the Working Group stated that certain types of general law, such as
jus cogens, must not be derogated from by the lex specialis.90
The ILC conclusions are interrelated with Article 31(3)(c) of the VCLT. According to
this provision, ‘[e]very treaty provision must be read not only in its own context, but in
the wider context of general international law, whether conventional or customary.’91 In
this sense, both, conventional and customary international law rules existing at the time
of the conclusion of the treaty as well as subsequently, may be relevant for interpretative
purposes.92 This article envisages treaty interpretation against the whole background of
international law, including general, regional or local customary rules as well as rules
contained in bilateral or multilateral treaties.93 This general principle for treaty

87
Random investment treaties were analysed and all of them had in their preamble a reference to
economic development, economic cooperation, prosperity or a similar wording.
88
Korab-Karpowicz, WJ, On the History of Political Philosophy: Great Political Thinkers from Thucydides to
Locke (Pearson, New York, 2012), 39.
89
International Law Commission, REPORT: Fragmentation of International Law: Difficulties Arising from the
Diversification and Expansion of International Law, 58th session (2006), A/CN4/L682, para 15.
90
Id, paras 251.1 and 251.10.
91
Sir Ian McTaggart Sinclair, The Vienna Convention on the Law of Treaties (Manchester University Press
ND, 1984), 139.
92
Report of the International Law Commission, Fifty-eighth session (1 May–9 June and 3 July–11 August 2006)
General Assembly Official Records, Sixty-first session, Supplement No 10 (A/61/10), 415, para 22. See
also Bekker, PHF, Dolzer, R, and Waibel, M, Making Transnational Law Work in the Global Economy:
Essays in Honour of Detlev Vagts (Cambridge University Press, 2010), 348–349.
93
Villiger, supra nt 82, 111.

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82 GroJIL 3(1) (2015), 59–84

interpretation is known as systemic integration of norms within the international legal

system.94
International courts and tribunals have already dealt with the principle of systemic
integration. It was in the Gab'íkovo-Nagymaros case that the ICJ observed the relevance of
environmental norms in the interpretation of existing treaties.95 Likewise, in the Oil
Platforms case the Court acknowledged that the treaty at hand was ‘intended to operate
wholly independently of the relevant rules of international law’ and therefore the
application of the relevant rules of international law (Article 31(3)(c) of the VCLT)
relating to this question formed an integral part of the task of interpretation entrusted to
the Court. 96
In the Mox Plant case, arbitral tribunals were invited to consider several environmental
protection treaties.97 Also in the Shrimp-Turtle case before the WTO Dispute Settlement
Understanding, the Appellate Body looked beyond trade rules and made extensive
reference to international environmental agreements.98
Investment tribunals have also acknowledged, although vaguely, this principle. In
Asian Agricultural Products Ltd. v Sri Lanka the tribunal considered that the investment treaty
in question was not a

self-contained closed legal system limited to provide for substantive

material rules of direct applicability, but it has to be envisaged within a
wider juridical context in which rules from other sources are integrated
through implied incorporation methods, or by direct reference to certain
supplementary rules, whether of international lay character or of domestic
law nature. 99

Similarly, in Metalclad v Mexico, the tribunal agreed that treaty interpretation shall
include any relevant rules of international law applicable in the relations between the
parties.100 However, the tribunal failed to state those relevant rules. In Ioannis
Kardassopoulos v Georgia the tribunal considered that the relevant rules include those of
general customary international law.101
In the same regard, the tribunal in RosInvestCo v Russian Federation emphasised that the
relevant rules applicable in the relations between the parties must be taken as a reference
to rules of international law that ‘condition the performance of the specific rights and
obligations stipulated in the treaty – or else it would amount to a general licence to

94
Campbell, M, “The Principle of Systemic Integration and Article 31(3)(C) of the Vienna Convention”,
54(2) International & Comparative Law Quarterly (2005) 279.
95
International Court of Justice (ICJ), Gabčíkovo-Nagymaros Project (Hungary v Slovakia), ICJ Reports 1997,
25 September 1997, 7, para 111.
96
ICJ, Oil Platforms Case (Iran v United States of America), ICJ Reports 2003, 6 November 2003, para 41.
97
International Tribunal on the Law of the Sea (ITLOS), The MOX Plant Case (Ireland v United Kingdom),
Provisional Measures, Order of 3 December 2001, (2002) 41 ILM 405, 413.
98
World Trade Organization Dispute Settlement Body, US Import Prohibition of Certain Shrimps and
Shrimps Products, Appellate Body Report, WT/DS58/AB/R, 12 October 1998.
99
Asian Agricultural Products Ltd v Sri Lanka, ICSID Case No ARB/87/3, Final Award, 27 June 1990,
para 21.
100
Metalclad Corporation v United Mexican States, ICSID Case No ARB(AF)/97/1, Award, 30 August 2000,
para 70.
101
Ioannis Kardassopoulos v Georgia, ICSID Case No ARB/05/18, Decision on Jurisdiction, 6 July 2007,
para 208.

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Drafting and Interpreting International Investment Agreements from a Sustainable Development
Perspective 83
override the treaty terms that would be quite incompatible with the general spirit of the
Vienna Convention as a whole.’102
The foregoing examples suggest that investment tribunals may incorporate in their
legal process of interpretation other treaties, customary rules, or general principles of law
that may be of relevance when assessing a particular dispute. In doing so, consideration
to environmental and human rights norms will be given and SD is thus enhanced.
In more concrete terms, systemic integration could play a relevant role when asserting
the scope of open-ended terms in investment treaties as well as when standards of
treatment and protection require being weighed against legitimate regulatory measures
adopted with the purpose of complying with environmental or human rights norms. In
particular, IIA clauses on fair and equitable treatment, full protection and security or
expropriation must be interpreted in light of relevant rules, principles and treaties
applicable in the relations between the contracting parties. Furthermore, systemic
integration may be applicable for balancing investment protection with public policy
objectives.
As stated by the ILC, systemic integration should apply in the presumption that ‘[in]
entering into treaty obligations, the parties do not intend to act inconsistently with generally
recognized principles of international law.’103
Systemic integration is thus a relevant tool for incorporating environmental protection
norms, human rights and other relevant rules in investment treaty disputes. This
integration not only safeguards the coherence of international law but also allows taking
into account SD objectives established in those relevant instruments.

V. Conclusion
In order to foster sustainable development through the application of dynamic social and
environmental norms and regulations, States need to have enough domestic policy space
to regulate. Constraints on this policy space may impact the achievement of SD
objectives, and investment treaties may be perceived as a limitation.
Investment treaty provisions are usually drafted in vague and broad terms and they
lack strong references to sustainable development. This has given wide interpretative
discretion to investment tribunals when balancing the protection of investors’ rights with
the interests of the host State. Several investment treaty provisions such as the definition
of ‘investment’ and ‘investor’ as well as provisions regarding the treatment of investors
have been interpreted in favour of investment protection without taking into account
broader considerations which are, ultimately, closely connected to a countries’
sustainable development policies.
States’ reactions towards these broad interpretations have been diverse. Some States
are trying to withdraw from the international investment regime while others are willing
to shift their international investment policy towards the new generation of investment
agreements. This new generation of IIAs is characterised by drafting treaty provisions
that foster sustainable development though innovative features.
With the aim to assist countries in the drafting of this new generation of investment
agreements UNCTAD has developed its Investment Policy Framework for Sustainable
Development. Furthermore, IPFSD’s core principles for investment policymaking for

102
RosInvestCo UK Ltd v Russian Federation SCC Case No V079/2005, Award on Jurisdiction, 1 October
2007, para 39.
103
Report of the International Law Commission, supra nt 89, para 19 [emphasis added].

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84 GroJIL 3(1) (2015), 59–84

sustainable development may serve as additional guidance for investment tribunals’

interpretative approaches.
Despite the willingness to shift towards new policies, States may face several
constraints. The renegotiation and revision of existing agreements may be in practice
very difficult. Furthermore, the application of investment agreements with SD features
may be limited, ie through the application of the most favoured nation treatment clause.
Within this context, investment tribunals play a fundamental role in integrating
sustainable development considerations into investment disputes. Investment tribunals
may resort to the Vienna Convention on the Law of Treaties in order to adopt
contextual, dynamic and systemic interpretative approaches in favour of the notion that
investment agreements ought to pursue the countries’ overall development, going beyond
the mere achievement of economic goals. Instead, investment should now be viewed as
sustainable, responsible and to be protected. Investment should forthwith incorporate the
concepts of sustainability and responsibility.

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