What Do We Mean by Investment Facilitation?
“Investment facilitation” has become a hot topic in international development policy-making discussions. Government officials are urged not merely to “promote” investment through targeting or other specific tools, but also to “facilitate” investment by providing an investment-friendly legal and business climate.[1] In recent years, the United Nations Conference on Trade and Development (UNCTAD) has been advancing work on a “Global Action Menu for Investment Facilitation.” And in December 2017 at the 11th Ministerial Conference of the World Trade Organization, a group of 70 member-states, including both developed and developing states, signed a Joint Ministerial Statement on Investment Facilitation for Development, calling for structured discussions toward the development of a multilateral framework on investment facilitation.
For countries seeking development through investment, the idea of facilitation and the means of doing so may seem attractive and uncontroversial. However, as we consider precisely what “investment facilitation” means and what measures it entails, there will undoubtedly be disagreement regarding whether and what types of “facilitation” are desirable for different stakeholders. Some of the most common ingredients of “investment facilitation” cited, for instance, in the WTO Joint Ministerial Statement are streamlining and expediting administrative procedures and requirements. Such streamlining and expediting could help increase investment into countries that have duplicative and unduly burdensome regulatory requirements for starting or operating a company. However, requirements that seem unduly burdensome in the eyes of the regulated may, in the eyes of others, be crucial for ensuring that projects are developed with input from interested and affected stakeholders, and that the resulting investment protects or benefits people and the planet. It may therefore be challenging, unrealistic, and problematic to devise multilateral principles – much less binding, enforceable rules – for all countries regarding how solicitous of the private sector and business friendly they should be.
But there are some relevant areas in which international collaboration and assistance on “investment facilitation” is clearly needed—for instance, in improving the processes around environmental, social and human rights impact assessments and associated multi-stakeholder consultations.
Advocates for robust environmental, social, and human rights impact assessments (collectively referred to herein as ESHIAs), have long highlighted that such assessments and accompanying consultation processes can produce important benefits in terms of identifying, understanding, avoiding, and mitigating risks of a wide range of projects, and that such processes are crucial to informed decision-making by public and private sector actors. There is mounting evidence that it is not just the individuals, communities, and environment potentially affected by a project that can benefit from a well-implemented assessment, but also the investment project and its financial backers. A range of studies – such as those done by the World Bank on water privatization projects, by Daniel Franks and Rachel Davis on the costs of community conflicts in extractive industry projects, by the Office of the High Commissioner on Human Rights examining business-related conflicts in Peru, and by the Munden Project on land-related investments – have produced important findings on how weaknesses in government and company efforts to conduct robust and meaningful ESHIAs and engage with stakeholders on these issues can translate into material business risks. Failures to perform ESHIAs adequately and to actually achieve a “social license” may result in projects being blocked. Additionally, for those projects that do become operational, inadequate ESHIAs and consultations may subsequently raise the risk of negative environmental, social, and human rights impacts. Those impacts, in turn, can give rise to community conflicts, adverse government action, and potential liability, all of which can be costly, and even fatal, to the project. Thus, while ESHIAs and consultation processes may be time- and resource-intensive in the short term, upfront expenditures on proper assessments can help ensure that projects thrive over the long term.
Conducting robust and rights-compliant ESHIAs and consultation processes, however, is not easy. Indeed, even in jurisdictions with a fairly long history of conducting, resourcing, and monitoring environmental impact assessments, external reviews have found that the quality of those assessments is too often lacking. One study of environmental impact assessments conducted for UK offshore oil and gas projects, for example, found that “a relatively weak picture of overall performance emerges, with only 51% of an overall satisfactory quality … and the remainder unsatisfactory.”[2] Countries with more recently adopted ESHIA requirements, with fewer resources to devote to quality control, or without strong civil society representatives capable of monitoring and enforcing compliance with ESHIA standards, may face even greater challenges and produce even less satisfactory outcomes.[3]
Thus, while there is likely often significant external and internal pressure on government agencies to make ESHIA processes both faster and simpler,[4] it is clear that we must be thinking first and foremost about how to ensure that these are performed, and performed well. Consequently, while the language of “investment facilitation” is often about streamlining processes, improving efficiency, and reducing timelines, it is important to highlight, as organizations such as UNCTAD have done, that it must also and especially be about improving quality of engagement, understanding, and outcomes in a way that is beneficial to individuals and communities, as well as investors.
To address these issues, the investment facilitation agenda should leverage work, expertise, and initiatives in the substantive areas of responsible business conduct, human rights, and environmental policy. Together, academics, civil society, national policy makers, and intergovernmental organizations can engage in a wide-ranging effort to improve understanding of and decisions regarding investment projects and their environmental and social impacts, and better address some of the key and recurring challenges impeding sustainable cross-border investment. Best practice guidance on responsible investment, including sector-specific guidance applicable to, for example, land-based investments, can also be leveraged to strengthen investment processes.[5] If, instead, the investment facilitation agenda focuses only or too disproportionately on easing investors’ ability to enter and establish their operations by securing quick environmental and other approvals, there may be near-term gains for investors and investment attraction metrics, but reduced likelihood of long-term success for all stakeholders.
There are various criticisms of why the WTO may not be the correct venue in which to address these issues, and indeed, the exclusion of civil society from the recent discussions in Buenos Aires does not bode well for a truly open and informed process capable of ensuring that investment facilitation is properly situated within the broader sustainable development agenda. Rather than an international body aimed at removing red tape, we need international collaboration designed to address the very real, pervasive, and costly challenges that arise when potential negative externalities of major investment projects are not understood, communicated, and mitigated.
[1] For an overview of some of the discussions on investment facilitation, see, e.g., F. Hees and P. M. Cavalcante, Focusing on Investment Facilitation – Is It That Difficult?, Columbia FDI Perspectives, no. 202, June 19, 2017.
[2] A. Barker, C. Jones, Investment Facilitation and EIS’s: A Critique of the Performance of EIA within the Offshore Oil and Gas Sector, 43 Environmental Impact Assessment Review 31, 34 (2013).
[3] See, e.g., J. Li, Environmental Impact Assessments in Developing Countries: An Opportunity for Greater Environmental Security (2008) (discussing environmental impact assessments in Asia); B. Anifowose, D.M. Lawler, D. van der Host, and L. Chapman, A Systematic Quality Assessment of Environmental Impact Statements in the Oil and Gas Industry, 572 Science of the Total Environment 570 (2016) (focusing on environmental impact statements in Nigeria); A. Ingelson and C. Nwapi, Environmental Impact Assessment Process for Oil and Mining Projects in Nigeria: A Critical Analysis, 10 Law, Environment and Development Journal 35 (2012).
[4] See, e.g., K. Hochstetler, Tracking Presidents and Policies: Environmental Politics from Lula to Dilma, 38 Policy Studies 262 (2017); E.C. Jana, Peru Weakens Environmental Protections, Encourages Investment in Extractive Industry,” NotiSur – South American Political and Economic Affairs (July 25, 2014).
[5] See e.g., Food and Agriculture Organization of the United Nations (FAO), Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security (2012); Committee on World Food Security (CFS), Principles for Responsible Investment in Agriculture and Food Systems (2016).