Investment Governance in Cambodia: A Window of Opportunity
This blog has been translated into Khmer and is available on Open Development Cambodia’s website at this link (the language can be selected in the top right corner).
The significance of investment governance for inclusive, sustainable development is often overlooked, including by stakeholders who work on natural resource governance and social and environmental issues. And yet, investment governance plays a major part in shaping the outcomes of their efforts.
As part of the Advancing Land-based Investment Governance (ALIGN) initiative, the Columbia Center on Sustainable Investment, the International Institute for Environment and Development, and Open Development Cambodia convened a series of virtual workshops to explore this gap in Cambodia. The online meetings brought together community representatives, civil society organizations, government officials and lawyers to consider and discuss Cambodia’s new investment law promulgated on 15 October 2021. Participants considered how the new investment law and recent investment treaty-related negotiations might provide opportunities for greater alignment of the country’s investment governance with sustainable development objectives, and human rights, environmental and climate obligations.
Opportunities to promote responsible investment and strengthen investment processes
A key objective of the new law is to promote ‘quality’ investment in Cambodia (article 1). The term ‘quality’ is not defined, leaving open the question of whether it can be construed — or, even better, defined in a sub-decree — to mean investments that promote inclusive, sustainable development. The international community has, through various processes of consensus, articulated a vision of how investment can contribute to inclusive, sustainable development through, for instance, the concept of ‘responsible investment’. The Voluntary Guidelines on the Responsible Governance of Tenure (in paragraph 12.4) expand upon this vision and explain that responsible investment does no harm, safeguards against the dispossession of legitimate tenure right holders and environmental damage, and respects human rights.
The extent to which Cambodia will incorporate principles of responsible investment into the implementing sub-decrees of the new law remains to be seen, but the new law offers some opportunities. For example, an investment project may be cancelled for failure to fulfill legal obligations or where the project adversely affects the environment or public interests or people’s welfare (article 31).
The law also indicates that Cambodia’s investment proposal screening process will be set out in a new sub-decree (article 11). The new application system could screen prospective investors to check their reputation, expertise and experience, financing and commitment to sustainable development and responsible business conduct. It could also screen prospective investments to examine feasibility, plans for community consultation and consent, climate change implications, empowerment of local peoples, including youth and women, site suitability, use and management of natural resources and consistency with national and sustainable development objectives.
How to strengthen investment processes and promote responsible investment in practice
Communities affected by investments are vital stakeholders in investment governance. There are different levers that they can pull to better align investments with inclusive, sustainable development. For instance, at the law and policy design level in Cambodia, they can advocate for implementing sub-decrees that define quality investment and bring screening processes and the grounds for termination into line with international principles of responsible investment. They can also encourage governmental and private sector compliance with existing national laws that incorporate inclusive, sustainable development standards by building capacity and knowledge around such standards and the experiences of affected communities.
Governments and investors have much to gain from ensuring all investments are responsible. Responsible investments reduce the risk of and substantial costs associated with conflicts with local communities, increasing the chances of successful project outcomes. Successful investments that facilitate socio-economic development, avoid conflict, care for the local environment and, as a result, generate profit are a win-win-win for investors, government, and communities alike.
Challenges facing investment governance in Cambodia
Cambodian communities are often not aware of planned projects and relevant draft laws and policies and are therefore unable to provide critical insights to shape them and avoid negative impacts from the outset. Where Indigenous peoples or other project-affected communities are involved, their right to free, prior and informed consent must be respected. More generally, where legitimate rights-holders are concerned, they should be consulted and allowed to meaningfully participate in decision- and law-making processes.
Local communities and civil society organizations would benefit from support and strengthened understanding of investment governance to scrutinize draft laws and policies and to evaluate and monitor the implementation of specific projects. They need greater capacity to conduct constructive and fruitful dialogue with the government and the private sector to avoid bad laws and irresponsible investments from the outset and secure mitigation and remedial measures for those natural resource projects that do adversely impact them.
Another challenge concerns Cambodia’s exposure to investor-state disputes under investment treaties and broader trade agreements with investment chapters (together referred to as IITs or international investment treaties) which often include investor-state dispute settlement provisions (ISDS). Even with strong domestic laws that protect communities and the environment, so long as such ISDS provisions remain in force, governments are at risk of litigation with outsized costs, even when they take legitimate action to protect human rights or the environment, including to combat climate change. Moreover, empirical evidence does not show that IITs stimulate new inward investment (let alone new ‘quality’ investment), nor that the benefits associated with any new investments outweigh the costs.
There are 21 known IITs with ISDS provisions applicable to Cambodia. A foreign investor recently brought the first known investment treaty-based claim against Cambodia (link behind paywall). Further, the Regional Comprehensive Economic Partnership (RCEP), a mega trade agreement with investment provisions, entered into force for Cambodia on 1 January 2022. The parties to RCEP agreed to begin discussions on ISDS within two years. Cambodia might consider available options to align IITs with sustainable development, including withdrawal of consent to existing ISDS clauses and refusal to sign new treaties.
A window of opportunity
These ALIGN workshops revealed that opportunities exist to strengthen investment governance in Cambodia to better facilitate inclusive, sustainable development. In particular, community representatives, civil society and lawyers have much to contribute. They can input into the design, for example the drafting of laws and policies that relate to them, including the sub-decrees. They can contribute to national-level decision making, for example, during negotiations of the RCEP’s ISDS chapter. And they can support implementation of investment governance — particularly when a project is proposed that will affect them.
ALIGN supports governments, civil society, local communities and other relevant actors in strengthening the governance of land-based investments. The project is implemented by a consortium led by the International Institute for Environment and Development, the Columbia Center on Sustainable Investment, and Namati, and is funded with aid from the UK government. This material has been produced as part of ALIGN by CCSI and IIED; however the views expressed do not necessarily reflect the official views or policies of ALIGN partners or the UK government.
This story was originally published by the Columbia Center on Sustainable Investment.