OECD Mediated Settlement Produces Novel Opt-Out Mechanism That Could Bolster Cooperation Between Investors and Local Communities

By Diego Luis Alonso Massa, 10 September 2021

The introduction of a novel opt-out clause in a Swiss energy company’s code of conduct for third-party infrastructure projects not only promises to foster greater corporate responsibility in the regulation of its own investments, but could also set a positive precedent for better cooperation between (international) investors and local communities around the world.

On 26 August 2021, Swiss energy company BKW Energie AG (BKW) – in which the Canton of Bern is a shareholder (52.54%) – and Swiss NGO ‘Society for Threatened Peoples’ (STP) concluded a mediated settlement in which BKW agreed to revise its code of conduct to improve its human and environmental rights due diligence monitoring.

In the settlement, BKW agreed to introduce an ‘opt-out’ clause into its contracts with third parties that entitles it to withdraw commitments – and in some instances exit projects – if project-partners fail to satisfactorily address human and environmental rights violations.

This forms part of BKW’s transition to renewable energy whilst bolstering its commitment to recognising indigenous peoples’ right to freely give or withhold prior consent to projects affecting them or their territories through the establishment of an effective and easily accessible complaints mechanism.

Background

The settlement was agreed against the backdrop of a decade-long permitting and compensation dispute regarding the impact of the Storheia Wind Power Project on one of Norway’s indigenous Sami communities.

Storheia, which began operating in February 2021, is Norway’s largest wind farm and Europe’s largest onshore wind power project.

BKW is a shareholder in European investor consortium Nordic Wind Power DA – a partner (40%) together with Norwegian utilities, TrønderEnergi (7.9%) and Statkraft (51.1%), in the ‘Fosen Vind’ project which includes Storheia.

In Norway, projects may be built despite pending court proceedings. So, while the Supreme Court of Norway is reported to have rejected the community’s legal challenge on 30 August 2021, STP’s complaint to the National Contact Point of Switzerland (Swiss NCP) in January 2020 seeking mediation and negotiation support within the framework of the OECD Guidelines for Multinational Enterprises was the catalyst for the settlement.

OECD Mediation

In its complaint, STP maintained that BKW knew of the human rights violations associated with Storheia – which allegedly threatened the reindeer herding community’s access to its winter pastureland, putting their livelihood and an important part of their culture at risk.

In doing so, STP alleged that BKW (i) breached international agreements and standards, (ii) failed to perform effective human rights due diligence, and (iii) failed to leverage its influence as an investor to prevent or mitigate the project’s adverse impacts.

In response to the complaint, the Swiss NCP conducted a preliminary investigation before establishing an ad hoc internal working group to act as a mediator in accordance with its Specific Instances Procedure.

In its written response to the Swiss NCP on 24 February 2020, BKW defended the due diligence process it had conducted before deciding to invest in the Storheia project, and contended that the affected Sami community had actively participated in the decade-long planning and approval process.

However, following the Swiss NCP’s Initial Assessment Report, the parties accepted the Swiss NCP’s invitation to mediate with a focus on BKW’s implementation of the human rights due diligence recommendations contained in the OECD Guidelines.

This culminated in the mediated settlement and BKW’s undertaking to introduce the ‘opt-out’ clause into its contracts with third parties. Presumably the introduction of the ‘opt-out’ clause will only apply to BKW’s future contracts. As the Swiss NCP will only assess BKW’s implementation of the undertaking after a period of 6 months, perhaps more details will emerge then.

Remarks

While the settlement itself only operates between the parties, the product of BKW and STP’s mediation process could serve as a model for investors and local communities more generally – especially regarding the human and environmental rights issues raised within the context of the green transition.

If incorporated into commercial agreements and investment treaties by means of a multi-tiered dispute resolution clause, for example, both the OECD mediation process and the opt-out clause offer attractive alternative solutions.

Mediation, in general, and OECD Mediation, in particular, promises affected parties (particularly, individuals and environmental or human rights organisations) an effective alternative to expensive liability suits. While the non-adversarial means of settling matters – by agreement between the affected parties themselves – carries the added advantage of not triggering any state liability ­– whether for regulatory acts of omission and commission – under investment treaties.

For example, had the Supreme Court of Norway not dismissed the Sami community’s complaint – the question of whether this could have triggered a claim under the EFTA Convention warrants serious (albeit speculative) consideration as to the desirability of such a course of conduct.

In addition, the ‘opt-out’ clause is something sustainability-minded investors may consider incorporating into their own Environmental, Social, and Corporate Governance regulations to increase their leverage over third-party suppliers and implementing partners to ensure better compliance with national and international agreements and standards over a project’s entire duration, as well as a means of responding to issues not identified before a project’s inception.

At the same time, the ‘opt-out’ clause promotes deeper collaboration between local and indigenous communities and civil society organisations, on the one hand, and investors and sovereign wealth funds, on the other, by actively involving community and civil society organisations in the process of reporting and resolving human and environmental rights violations in the development of new energy and infrastructure projects. This also comes with the advantage of reducing the pressure on states who oftentimes find themselves hamstrung by NGOs’ and international investors’ conflicting expectations.

URL: https://taobserver.com/news/26/oecd-mediated-settlement-produces-novel-opt-out-mechanism-that-could-bolster-cooperation-between-investors-and-local-communities