Narrowing the Accountability Gap: Toward a New Foreign Investor Accountability Mechanism

Georgetown International Environmental Law Review, Winter 2008 by Bridgeman, Natalie L, Hunter, David B

I. INTRODUCTION

An ever-increasing number of standards, guidelines, principles, norms, and best practices (hereinafter "standards and norms") have been adopted to address the environmental and social impacts of multinational enterprises ("MNEs"). This increase in standards and norms corresponds to a rise in MNE sensitivity to the environmental and social impacts that their activities have on local communities in developing countries.1 Well-known examples of these standards and norms include the Organisation for Economic Cooperation and Development's ("OECD") Guidelines on Multinational Enterprises,2 the United Nations Global Compact,3 the World Commission on Dams' Principles and Recommendations,4 the International Finance Corporation's ("IFC") Environmental and Social Standards,5 the Equator Principles,6 the Roundtable on Sustainable Palm oil,7 Rio Tinto's corporate sustainable development policies8, and literally dozens of other industry- or company-specific standards and norms.9

These standards and norms are considered "voluntary" by definition because they are typically not state-sponsored or the product of public regulation. Although some of the norms and standards have benefited from the leadership or participation of intergovernmental institutions, many others have been derived from wholly nongovernmental, multi-stakeholder dialogues, industry-wide or sectoral processes, or the initiatives of individual MNEs. These standards and norms have also been the subject of substantial scholarship, reflecting the rise of democratic pluralism in international environmental governance.10

These standards and norms undeniably fill a normative gap located between the state-centered focus of international law and the often inadequate or unenforced standards of the developing country hosts for MNE activities.11 As a result, these standards and norms have the potential for improving the performance of MNEs and their subsidiaries or suppliers in developing countries and also for guiding MNE compliance with international legal and ethical obligations.12

Despite the attention given to the creation and substance of these new standards and norms, relatively little attention has been paid to mechanisms for ensuring compliance with them.13 To the extent that any of these standards and norms contemplate a compliance mechanism, they typically embrace internal monitoring or oversight with limited third-party or independent verification.14 In particular, although locally affected communities are often the presumed beneficiaries of the standards and norms, only a few of these systems provide any procedural or other rights to allow such communities to hold the MNEs accountable to the applicable standards and norms.15 The dearth of mechanisms for MNE accountability stands in stark contrast to the accountability systems present when states exercise their public power to regulate.16 Put differently, MNEs now operate in a 'norm-rich' environment that lacks effective governance structures for monitoring or enforcing compliance with the applicable standards and norms.

The lack of effective compliance mechanisms may undermine the credibility and effectiveness of these standards and norms. Critics can (at times rightly) accuse MNEs of 'green washing' and make continued ad hoc (and ad hominem) attacks on their operations if no credible, effective, and objective mechanism exists for communities to challenge whether promises made are promises kept. In short, a new mechanism is needed to close the 'accountability gap'17 between the aspirational quality of these standards and norms and their implementation.

This article proposes a new Foreign Investor Accountability Mechanism ("the Mechanism"). The Mechanism will enhance the environmental and social sustainability of foreign direct investment by holding MNEs accountable to projectaffected communities. The Mechanism will narrow the 'accountability gap' by providing communities affected by foreign investment projects with an avenue for voicing their concerns and for holding MNEs accountable both to local and national laws that may apply. The Mechanism will also allow affected communities to enforce the various promises that MNEs make during project design, approval, and preconstruction phases, or to gain financing or the 'social license to operate.'18 These promises may include:

(i) commitments to follow international, industry-wide, or sectoral standards and norms;19

(ii) commitments made as part of corporate-wide social and environmental policies;20 and

(iii) project-specific commitments made to secure host government approval or financing from financial institutions, such as the IFC,21 export credit agencies,22 or private commercial banks.23

Most of the environmental and social commitments MNEs make with respect to foreign investments in developing countries are front-loaded, because communities have more leverage in exacting commitments prior to project approval or financial approval. Once project financing, national permits, or informal 'social licenses' are granted, it may be too late to introduce new environmental or social conditionalities into the project. Given the lack of opportunity for effective accountability and compliance, communities have less leverage to ensure that prior commitments are met. The Mechanism proposed in this article would help to empower local communities in monitoring MNEs throughout the project's lifetime.