International Standards for Corporate Conduct
New York Law Journal
To what extent are multinational corporations bound by international standards of conduct relating to the environment? If a corporation violates international standards, who is entitled to enforce them and in which courts? If U.S. federal (or state) courts are asked to adjudicate claims of environmental injury arising from corporate conduct abroad that violates international norms, how should those courts respond?
Given the number of U.S.-based multinational corporations and the heightened environmental awareness in both developed and developing countries, this is a subject of increasing concern for U.S. lawyers, corporations and courts. It is also another area where environmental impacts overlap with human rights concerns in developing countries, where oil, gas, mining and logging operations can lead to environmental impacts that trigger popular protests which are then suppressed by abusive state security forces (sometimes assisted by the corporation). Where local laws and courts are unable to provide a remedy for either corporate misconduct or governmental abuses, injured plaintiffs increasingly turn to foreign courts for relief under international as well as domestic law.
This column describes the growing body of international standards applicable to multinational corporate conduct affecting the environment and examines how U.S. courts have addressed corporate violations of international standards under the Alien Tort Statute, which permits foreign nationals to recover damages in federal court for violations of the "law of nations."
Principles and Practices
Until recently, aside from specialized international conventions regulating hulls and discharges from maritime vessels or liability of nuclear power plants or aircraft, there have been few international standards for corporate conduct affecting the environment. However, as international commerce expanded and the influence of corporate activities in developing countries came to rival that of many governments, the past 25 years have seen new efforts to establish international norms for corporate actions affecting the environment, as well as human rights, employment, consumers, and corruption. This movement began in the United States with the "CERES Principles" following the Exxon Valdez oil disaster in Alaska in 1989. Shortly thereafter, the World Business Council for Sustainable Development, an organization based in Switzerland, pioneered an effort to enlist all major U.S., European and Japanese corporations to commit to environmentally sustainable business practices through codes of conduct intended to complement the national commitments to sustainable development being developed for the Rio Earth Summit in 1992.
A similar development occurred with the efforts of the World Bank and its private finance affiliate, the International Finance Corporation (IFC), both of which developed environmental impact assessment procedures modeled on the U.S. National Environmental Policy Act but broadened to include not only the natural environment but also social and cultural impacts of World Bank and IFC projects. As the recognition grew that public financing was dwarfed, even in developing countries by private lending, demand grew for private lenders to require similar environmental and social impacts assessments from their borrowers to assure that adverse impacts could be identified and mitigated as part of the commercial lending process.
There are now 74 financial institutions (including five from the U.S.) that have committed to the Equator Principles in making loans for projects in developing countries. The Equator Principles, last revised in 2006, are currently being updated to reflect IFC's new "Performance Standards" and its industry-specific environmental, health and safety guidelines. The revised Performance Standards require an assessment of a project's social and environmental impacts, as well as labor and working conditions; resource efficiency and pollution prevention; community health, safety and security; land acquisition and involuntary resettlement; biodiversity conservation; indigenous peoples; and cultural heritage.
The borrower (or third-party expert) must consult with the affected communities and, where significant adverse impacts are expected, "ensure their free, prior and informed consultation and…their informed participation" in that process. The borrower must also establish a grievance process to facilitate resolution of complaints about a project's social and environmental performance, provide an independent expert to help assess the borrower's compliance with the Equator Principles and comply with host country environmental and social legal requirements. Each Equator lender must report at least annually on its own implementation of the Principles.
A parallel effort to define appropriate standards for socially responsible corporate conduct has been carried out by the International Organization for Standardization, which is widely known for its ISO 9000 series of quality control and its ISO 14000 series of environmental performance standards for businesses around the world. The ISO 26000 standards also incorporate best corporate practices relating to the environment, human rights, labor practices, corruption, consumer protection and community involvement. Unlike the Equator Principles, which were developed principally by lenders financing capital projects in developing countries, ISO 26000 is intended to apply directly to corporations doing business throughout the world.
Neither the Equator Principles nor the ISO 26000 standards are intended to be legally binding or, as they are careful to point out, to create rights in any third parties. Yet they do establish, as the Equator Principles state, a "financial industry benchmark for developing individual, internal social and environmental policies, procedures and practices." This process of developing international norms of environmentally and socially responsible conduct is likely to ripen into obligatory norms of conduct, particularly where corporate activities have a high risk of adverse environmental, social or human rights impacts.
In fact, that process is well under way. In March 2011, John Ruggie, the U.N. Special Representative on Human Rights and Transnational Corporations, submitted a series of "Guiding Principles on Business and Human Rights" that attempted to bridge the conceptual divide between those (principally in developing countries) who argue that multinational corporations should assume direct responsibility for promoting human rights in areas where their actions affect the lives of nearby residents (or the natural resources on which those residents rely) and those who believe that corporations, like other private parties, have no duty to carry out governmental obligations to protect and promote human rights.
Ruggie's Guiding Principles proposed a middle ground: While governments have the duty to "protect" and "provide remedies" for human rights, multinational corporations have an obligation to "respect" those rights and to "exercise due diligence" to assure that none of their activities (including procurement and marketing) adversely affects human rights. These twin corporate duties to respect human rights and to exercise due diligence to avoid adversely affecting such rights have been endorsed by the U.N.'s Human Rights Council and are now widely accepted within U.N. and other international bodies as customary norms for all multinational corporations.
In May 2011, the Ruggie Principles were broadened and given even more authoritative status by the Organization for Economic Cooperation and Development (OECD), of which the U.S. is a significant member (along with 41 other developed and "emerging" countries). At its 50th anniversary meeting, the OECD formally adopted new Guidelines for Multinational Enterprises that incorporate the Ruggie Principles' "Protect, Respect and Remedy" framework for corporate due diligence and add specialized chapters on corporate environmental performance, employment, corruption, consumer protection and other areas of corporate conduct.
According to the OECD, the Guidelines "provide voluntary principles and standards for responsible business conduct consistent with applicable laws and internationally recognized standards. However, the countries adhering to the Guidelines make a binding commitment to implement them in accordance with the [OECD decision on multinational enterprises]. Furthermore, matters covered by the Guidelines may also be the subject of national law and international commitments."
As the OECD Guidelines illustrate, international standards for multinational business develop incrementally, becoming recognized over time as customary international law (often called the "law of nations"). Except for certain crimes, customary international law provides only the norms of expected conduct, not the remedies for violations of those norms. Those remedies, as the OECD Guidelines also illustrate, must come at the national level, with each country providing an appropriate remedy and procedure to assure enforcement of the international standard. The Ruggie Principles make this explicit for human rights standards, for which each state has a duty not only to protect human rights but also to provide a remedy for their enforcement. The same pattern of international norms and national enforcement will hold for the OECD Guidelines as they ripen into customary standards of corporate conduct affecting the environment and related areas.
Alien Tort Statute
Because customary international law is not generally self-executing in the U.S., specific legislation is typically required for its recognition and enforcement. Perhaps the most important of these statutes is that enacted by the first Congress in 1789, the Alien Tort Statute (ATS), now codified as 28 U.S.C. §350. The ATS provides, in its entirety, as follows:
The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.
Beginning in 1980 with Filartiga v. Pena-Irala, 630 F.2d 876 (2d Cir. 1980), the ATS has provided a remedy for foreign plaintiffs who allege violations of "the law of nations" (customary international law) by multinational corporations engaged in oil, gas, mining and logging activities in developing countries where those operations allegedly caused significant environmental damage, triggered either popular protests or labor unrest and ended with police or military detentions, torture or execution of protestors, environmental advocates or union leaders. In 2004, the U.S. Supreme Court held, in Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), that the ATS did indeed provide a domestic U.S. remedy in tort for plaintiffs who could show that the defendant had violated specific universally recognized and obligatory human rights standards.
Under the Sosa test, both federal district and circuit courts have repeatedly denied motions to dismiss where the plaintiff was able to allege specific and intentional involvement by a corporate defendant in gross human rights abuses such as torture, summary executions or war crimes, thus satisfying the Supreme Court's Sosa criteria for well-defined, universally accepted and obligatory customary law. In addition, of course, a federal court needs to have personal jurisdiction over the multinational defendant and to conclude, under forum non conveniens principles, that the courts of the country where the abuses allegedly occurred are not an adequate forum for the plaintiffs.
Not surprisingly, many ATS claims allege both human rights and environmental violations by the defendant. Indeed, of the several dozen ATS cases brought since Filartiga (which did not involve corporate action), at least 12 involved activities that polluted natural resources or allegedly violated local environmental laws or international standards. However, these environmental claims have not, by themselves, been adequate to meet the ATS Sosa test since international environmental standards have not yet achieved the recognized universal and obligatory status of human rights obligations. Whether they will do so in the future, particularly following their incorporation into the OECD Guidelines, remains to be seen.
This process of applying the Sosa test to recognize (or not) a U.S. civil remedy for violations of international law by corporate defendants has been called into question by the recent Second Circuit decision in Kiobel v. Royal Dutch Petroleum, 621 F.3d 111 (2010), reh. den. 642 F.3d 268 (2011), in which the sharply divided court held (on its own initiative) that, since the "law of nations" relates only to relations among states, corporations can never violate that law and therefore can never be subject to liability under the ATS. This holding was vigorously attacked by Judge Pierre Leval because, he said, it fundamentally misstated the role of customary international law in setting standards that are then to be enforced through each country's domestic laws, precisely as contemplated by the ATS. As explained in Judge Leval's concurring opinion (he would have dismissed the complaint on other grounds), if a multinational corporation over which a federal court has jurisdiction violates clearly defined, universally accepted and obligatory human rights standards (such as the prohibition on torture), it is U.S. federal law, not international law, that provides a civil remedy for the injured foreign plaintiffs.
Following the Supreme Court's grant of certiorari, the Kiobel case was argued in February 2012, after which the court directed the parties to brief the supplemental question of whether the ATS ever applies to actions occurring in foreign jurisdictions. This is a surprising question with respect to a statute that has been applied repeatedly, by all levels of the federal courts, including the Supreme Court in Sosa, to actions arising in foreign countries. A reversal of this longstanding (and clear) reading of the ATS would eviscerate the enforceability in the United States of international customary standards not only in human rights cases but also in environmental and other areas where obligatory international norms for multinational corporations are still being developed.
Such a narrowed reading of the ATS could also prove a backward step for U.S. and other multinational corporations. The U.S. federal courts are not, after all, the only venue in which violations of the law of nations might be litigated. The courts of other developed countries likely have personal jurisdiction over many of the major multinational corporations, as do the courts of developing countries in which most ATS claims arise.
While no corporation likes to be sued anywhere, a patchwork quilt of judicial decisions applying international corporate conduct standards differently in different legal systems (some far more likely to find that the OECD Guidelines are now part of customary law) is more likely to prove a problem for multinational companies than a reasonably consistent body of federal decisions under U.S. law. (See, for example, "Lessons From Lago Agrio," NYLJ, Sept. 15, 2011, for a description of the recent experience of Chevron in Ecuador's courts after it succeeded in persuading three U.S. federal courts to dismiss, under the doctrine of forum non conveniens, environmental pollution claims resulting from oil exploration in Ecuador.). For responsible multinational firms seeking to carry out their activities in compliance with the growing body of international environmental, human rights, worker safety and anti-corruption standards, federal court jurisdiction under the ATS or similar future laws may be far preferable to litigating international law claims in tribunals throughout the world.
Stephen L. Kass is a partner and co-director of the environmental practice group at Carter Ledyard & Milburn and an adjunct professor of international environmental law at Brooklyn Law School. Joanne Kalas, an attorney, assisted in the preparation of this article.
Reprinted with permission from the April 30, 2012 edition of the New York Law Journal © 2012 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, email@example.com or visit www.almreprints.com.