Op-ed: The rights and duties of sovereign wealth funds under international law

The College of Law at Hamad Bin Khalifa University recently co-organized a colloquium on International Investment Law & State Capitalism with the National and Kapodistrian University of Athens-Athens Public International Law Centre (Athens PIL) and the Tilburg Law and Economics Institute at Tilburg University. Featuring legal scholars from around the world, the colloquium covered an array of legal issues arising from the role of certain states as powerful commercial actors on the world stage.

Qatar is one of these. Established in 2005, the Qatar Investment Authority (QIA), Qatar’s sovereign wealth fund, has substantial investments – whether portfolio, property, or private equity – around the world.

One of the colloquium panels, which I chaired, examined the purpose and scope of substantive rights, obligations and exceptions to a state’s foreign investment activity. The legal landscape is complex. International treaties, the laws of states into which investment has flowed (the host state), contractual obligations and even non-binding yet influential, legal norms all could be relevant.  Within each of these sources of laws and norms is a series of rules and standards, some of which are critical to a state’s identity and, in certain instances, even to its national security.

From my perspective, this session reinforced a theme that resonates with HBKU Law’s approach to teaching and research: international law involves both public aspects, such as the relationship between states and, ever more so, private dimensions. In today’s world, one cannot fully appreciate the role of states at the international level without recognizing that some of them wield substantial economic might. The panel discussion reminded me of the need to question the traditional public-private distinction, as it prevents us from anticipating problems and, more importantly, producing effective solutions.

For example, Qatar is a party to a number of bilateral investment treaties with other states that seek to promote foreign investment. The treaties do so by requiring the host state to afford certain protections to foreign investors and their investments, which arguably apply to QIA investments abroad. The treaty protections may require the host state to treat the foreign investor and its investments like a local investor and its investment, or no worse than how the host state treats investors and their investments from other countries.

In addition to prohibiting discriminatory conduct, the treaties usually prevent the host state from expropriating foreign investment, absent due process and compensation. They also typically prevent the host state from engaging in conduct that defies an investor’s legitimate expectations. In many instances, the treaties enable an aggrieved investor to bring a claim in arbitration against the host state for a violation of the treaty.

Investors that seek protection under the treaties are largely private corporations, yet they may include a sovereign wealth fund. Does the latter alter application of the treaty? The treaties normally do not prohibit an arm of the state from receiving protections. Nevertheless, the fact that a sovereign wealth fund is driving the investment could have a political dimension. Could the host state invoke a security exception to the investment merely due to the nature of the foreign investor or the source of the foreign investment? Another interesting observation by one of the panelists was on the issue of legitimate expectations of sovereign investors, as perhaps the latter have a more informed insight into developments within a host state, so their expectations may be more sophisticated than that of a private corporation.

The relevant legal landscape, while establishing rights and limits, reflects certain shared, fundamental values, such as the need to protect the environment and national security.  From my perspective, the most interesting aspect of the panel was learning how sovereign wealth funds are helping to shape some of these norms through their response to either legal constraints or adherence to voluntary standards.

For example, the QIA was involved in drafting, and later endorsed, the Sovereign Wealth Funds: Generally Accepted Principles and Practices (Santiago Principles). Under the Santiago Principles, the QIA has committed to adhere to 24 guiding principles that seek to “promote transparency, good governance, accountability and prudent investment practices.” As another example, QIA is a founding member of the One Planet Sovereign Wealth Fund Initiative, and, under this, it considers climate change when making investment decisions.

Given the economic power of sovereign wealth funds, one could see them in a collective sense as initiating wide-reaching change if they are motivated to do so.

QIA’s establishment of and adherence to investment standards could launch a more engaged conversation within Qatar about the international legal dimensions of corporate social responsibility. HBKU Law looks forward to helping shape this dialogue and facilitating the involvement of our students and faculty, as well as relevant stakeholders.