Stabilization clauses and human rights

The purpose of this study was to examine whether stabilization clauses, a widely used risk-management device in investment contracts, may affect a state's action to implement its international human rights obligations. Specifically, this study examined whether stabilization clauses can limit the application of new social and environmental regulations to investment activities over the life of the investment, or to obtain compensation from host states for the costs of compliance with such new laws. This study used social and environmental laws as a surrogate for human rights obligations, because these domestic laws are some of the most common means of implementing international human rights obligations in regulating business activity. This study found that stabilization clauses are sometimes drafted so as to insulate investors from having to implement new environmental and social laws, or to provide investors with an opportunity to be compensated for compliance with such laws. The sample of contracts gathered for this study showed that this was more likely to be the case in the contracts from countries outside the Organization for Economic Co-operation and Development than in OECD country contracts. For more publications on IFC Sustainability please visit www.ifc.org/sustainabilitypublications.