Recent momentum in developing corporate accountability laws across the EU is at risk of being undermined by controversial clauses in trade deals, according to new analysis. In a report published today (28 September 2021), the Business & Human Rights Resource Centre exposed how investor-state dispute settlement (ISDS) clauses in trade and investment agreements threaten efforts to prevent and hold corporations liable for their social and environmental impact.

ISDS clauses demonstrate the extent to which corporate interests are protected, at the expense of protecting human rights, within trade and investment deals. They provide companies with an avenue through which to sue states if national policies threaten their investment – even if those policies exist to protect human rights and the environment. Corporations have already used the ISDS system to sue states at least 1,100 times in response to laws seeking to raise minimum wages, guarantee affordable water and phase out the use of fossil fuels.

Key takeaways from the report:

1. EU laws under development seeking to hold companies accountable for their rights abuses could be derailed by claims brought under ISDS clauses.
2. A just recovery from the pandemic could be undermined by international trade and investment agreements, which have played a key role in establishing and entrenching corporate power.
3. ISDS clauses further exacerbate the inequality in development between the Global North and the Global South.

More than 60% of ISDS cases have been decided in favour of the investor, with an average award of US$125 million. Such cases are conducted through a secretive parallel legal system, separate from national courts and laws, effectively allowing corporations to operate outside the domestic legal system. This has already had a chilling effect on states which have dropped plans for new legislation to benefit social and environmental rights, due to the fear of being undermined by the ISDS system. At the same time, companies have brought persistent challenges to States attempting to enforce existing laws protecting human rights, in an affront to democratic processes.

This presents a real and powerful threat to the incoming EU human rights due diligence legislation, which is designed to hold corporations accountable for their human rights and environmental impact. If such legislation passed- mandating companies to conduct human rights due diligence or change practices that abuse rights- unscrupulous companies could sue the EU for huge sums in compensation, arguing that new legislation damages future profits and violates their right to a stable business environment.

Tom Wills, Project Manager – Corporate Accountability and Trade, Business & Human Rights Resource Centre, said: “Governments must be able to implement policies in the public interest. Corporations cannot be allowed to challenge regulations with huge lawsuits, especially where human rights or climate change is at stake. Trade deals must be drawn up in line with countries’ human rights obligations. Failure to do so will make it nearly impossible to achieve a balance between corporate power and human rights, particularly in the Global South.

“When they were created, ISDS clauses in trade deals were justified as leading to greater levels of foreign direct investment. Decades on, there’s no conclusive proof they even do that. In the absence of such evidence, there is no reason for states to support ISDS – a system in which they can only lose. States must recognise the damage which can come from domestic regulations being undermined by trade policy. They must begin looking at their trade and investment agreements and, where possible, terminate or renegotiate any ISDS clauses.”

Thulsi Narayanasamy, Head of Labour Rights, Business & Human Rights Resource Centre, said: “While civil society is urging states to introduce new laws to stop forced labour, human rights abuses and environmental destruction, ISDS in trade agreements represents a very real threat to the ability of states to do what they are obligated to – protect rights. When countries like Slovenia try to compel companies to follow basic laws to ensure they don’t destroy the environment and that’s enough to get them slapped with an ISDS case, it’s clear we are reckoning with an extraordinary imbalance of power between big business and people and planet. A system that pits protecting rights against protecting profits simply isn’t compatible with creating the just recovery desperately needed.

“The EU is due to table legislation later this year which mandates companies to conduct human rights due diligence, but there have already been concerns about corporate lobbying efforts to water down the efficacy of the laws so that company liability for abuses is minimal. Bringing in new laws while maintaining ISDS not only demonstrates a failure of policy coherence by the EU, but presents a clear and present risk to EU States’ ability to freely legislate.”

//ENDS

Note to editors:

• Case study: In 2020 the UK energy company Ascent Resources brought an ISDS case against Slovenia for requiring it conduct an environmental impact assessment of a proposed fracking project. Community campaigners petitioned the government, concerned about the proximity of the project to the local water source. Ascent calls the requirement “arbitrary and unreasonable” and is suing for €120 million in compensation. The case is ongoing.
• The Business & Human Rights Resource Centre is an international NGO that tracks the human rights impacts (positive and negative) of more than 10,000 companies across nearly 200 countries. We seek responses from companies when concerns are raised by civil society.
• Legislative initiatives designed to hold corporations accountable for their human rights and environmental impacts are gathering pace in Europe and beyond. An up-to-date picture can be accessed here.
• There are ISDS provisions in at least 2,800 trade and investment deals around the world, and these have been used to bring cases 1,104 times.
• Joint statement of businesses and investors calling for EU-wide mandatory human rights and environmental due diligence legislation.

Media contact: Priyanka Mogul (London-based), Media Officer, Business & Human Rights Resource Centre, +44 (0) 7880 956239, [email protected]