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IFC and UN Cooperate on Study of Investment Contracts and Human Rights

IFC and UN Cooperate on Study of Investment Contracts and Human Rights

Published 08-07-07

Submitted by International Finance Corporation

WASHINGTON, DC - August 07, 2007 - IFC, a member of the World Bank Group, and the United Nations Secretary-General's Special Representative on Business and Human Rights, Professor John Ruggie of Harvard University, launched today a joint study on foreign direct investments and human rights.

This joint study aims to examine the relationship between the protection of investor rights and the human rights obligations of the host states. Some contracts between investors and host governments include clauses that either freeze the laws that apply to the investor or allocate compensation for the costs incurred by the investor to comply with new laws. The study will look at the potential impact of these clauses on the host states’ ability to adopt and implement new human rights laws, in areas such as labor, protection of the environment and the provision of essential public services such as water.

The research will be published by IFC in early 2008. It will inform recommendations by the Special Representative in his next report to the UN Human Rights Council due in the spring of 2008.

Both the Special Representative and IFC recognize that companies have an important role to play with respect to human rights. The Special Representative and IFC want to identify what this means in concrete terms in the negotiation and design of contracts between the investor and the host government.

Professor John Ruggie stated, "This project is about finding the right balance between the investor's legitimate interest to protect an investment and the host state's duties to protect human rights. If elements of investment agreements have unintended negative consequences on a host state's ability to protect human rights, this is a problem for everyone, and will affect the sustainability of the business relationship as well as human rights. The goal is to understand if such unintended consequences exist, and if they do, to recommend tools to avoid such problems."

IFC is pursuing this project to inform itself of current developments in the area of foreign direct investments and sustainable development, so that it can provide better advice to clients and the private sector at large on best practices that balance the need to protect investor rights and public policy prerogatives of the host government. Rachel Kyte, Director of IFC's Environment and Social Development said "IFC is especially proud to support John Ruggie in this mandated work because of the prospect of developing concrete contract negotiation tools to ensure integration of project risk allocation and management, respect for human rights and sustainable development. Such an outcome makes for better investment and will carry benefits for investors, lenders, governments and communities alike."

About IFC

IFC, a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing capital in the international financial markets, and providing advisory services to businesses and governments. IFC's vision is that poor people have the opportunity to escape poverty and improve their lives. In FY06, IFC committed $8.3 billion, including syndications, to 284 investments in 66 developing countries. For more information, please visit www.ifc.org.

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International Finance Corporation

International Finance Corporation

The International Finance Corporation, the private sector arm of the World Bank Group, is the largest multilateral provider of financing for private enterprise in developing countries. IFC finances private sector investments, mobilizes capital in international financial markets, facilitates trade, helps clients improve social and environmental sustainability, and provides technical assistance and advice to businesses and governments. From its founding in 1956 through FY06, IFC has committed more than $56 billion of its own funds for private sector investments in the developing world and mobilized an additional $25 billion in syndications for 3,531 companies in 140 developing countries. With the support of funding from donors, it has also provided more than $1 billion in technical assistance and advisory services.

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