How to use law to make foreign investment work for sustainable development

Source: IIED

The International Institute of Environmental Development (IIED) has published a handbook that shows how government officials and civil society organisations in low and middle-income countries can use legal tools to ensure foreign investments contribute to sustainable development.

The book focuses on investments in agriculture and the extractive industries – mining, oil and gas.

These sectors attract much of the foreign investment in many low and middle-income countries. Increased investment could transform local economies by contributing public revenues and new livelihood opportunities. But the deals can also pile pressure on natural resources and spark conflict with local communities who depend on them.

"Public mobilisation against 'land grabbing' highlights that investment quality, not just quantity, matters a great deal, even in countries where investment is much needed," says Dr Lorenzo Cotula, the book's author.

"Legal tools can influence investment quality – from the tax regime to social and environmental safeguards, though to the inclusiveness of investment models and processes," says Cotula. "There is much that governments and civil society can do to use those tools to promote investments that respond to local aspirations, and to get a better deal from incoming investments."

The handbook explains what the laws that regulate foreign investment are, how they work, and how to use them most effectively.

It covers the variety of legal arenas that can influence the outcomes of investments — from investment treaties, extractive industry legislation, land tenure, human rights norms, environmental legislation and tax law —including arrangements to fight tax avoidance.

The book covers four main ways in which government and civil society can use legal tools to promote sustainable development, by:

• Aligning public policies and decisions on investment with a strategic vision of sustainable development based on local and national aspirations.

• Ensuring a fair economic deal.

• Taking social and environmental considerations seriously.

• Balancing investment protection with competing policy goals.

The handbook aims to support government officials in low and middle-income countries in their management of foreign investment for sustainable development, and support civil society efforts to influence decisions and hold government and investors to account.

Governments play a central role in developing and enforcing legal rules. But Cotula argues that engagement with investment law is not a task for regulators and legal experts alone.

"Harnessing the law to make investment work for sustainable development requires vibrant civil society organisations and social movements to advocate, scrutinise, challenge and influence," writes Cotula. "Perhaps most importantly, it requires citizens themselves to be able to appropriate and wield legal tools in their efforts to shape their own future."