Societal norms, legal rules, and market forces work together to shape the behavior of businesses. Those three forces (normative, legal, and market) must work in harmony to encourage and support responsible business conduct. A chapter titled “Indemnifying irresponsibility: how international investment law undermines responsible business conduct” written by Lise Johnson, Lisa Sachs, and Carolina Menezes Cwajg for the “Research Handbook on International Corporate Social Responsibility” demonstrates how one aspect of the legal framework - international investment law - can undermine the normative, legal, and market incentives for businesses to adopt more responsible practices.
The chapter argues that in disputes between investors and host governments, arbitral tribunals have disregarded businesses’ failures to identify and address actual and potential risks and harms generated by their activities, and indemnified investors for losses incurred as a result of their own misconduct. It then provides two key recommendations. First, it suggests a reorientation of international investment law so that it is supportive of responsible business conduct. And second, it suggests that businesses’ use of investment law to bring claims against states should be considered when assessing whether and to what extent businesses are complying with standards of responsible business conduct.
