1. In between two societal actors The responsibilities of SWFs towards human rights and climate change -- Eva van der Zee LLB PRI/Mistra Academic Conference 26-09-11 1

2. Worldwide phenomenon Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 2

3. Introduction Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 1.Definition 2.Methodology 3.Results 4.Socially Responsible Investment 5.Fiduciary duty 6.Attribution to the State 7.Due diligence State actor Private actor 8. Conclusion 3

4. I. Definition IMF: Special investment funds created or owned by the governments to hold foreign assets for long-term purposes (IMF 2007, p. 45) OECD: Government investment vehicles funded by foreign exchange assets that manage those assets separately from official reserves. Some are funded directly through commodity exports with an explicit decision to transfer wealth to future generations, while others result from trying to make the best from official reserve accumulation (OECD 2007, p. 42) ECB: Broadly defined as public investment agencies which manage part of the (foreign) assets of national state (…). [T]hree elements can be identified that are common to such funds: First, SWFs are state-owned. Second, SWFs have no or only very limited explicit liabilities and, third, SWFs are managed separately from official foreign exchange reserves (ECB 2008, p. 2008) IWG: Special purpose investment funds or arrangements that are owned by the general government. Created by the general government for macroeconomic purposes, SWFs hold, manage, or administer assets to achieve financial objectives, and employ a set of investment strategies that include investing in foreign financial assets. The SWFs are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports.”. [Santiago Principles 2008, p. 27] Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 4

5. II. Definition Author’s definition: 1.Owned by the general government 2.Without outside (non-governmental) liabilities 3.With investment strategies that include investing in foreign and/or domestic financial assets 4.SWFs often comprise: balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports 5.Created to invest government funds to achieve financial objectives with a medium- to long-term timescale Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 5

6. I. Methodology SWFs according to IWG and SWF Institute (50) Examination websitesSending e-mails38 SWFs selected Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 6

7. II. Methodology Desk research Objectives Legal structure Governance structure Signatory / membership Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 7

8. I. Results Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 8

9. II. Results Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 9

10. III. Results Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 10

11. IV. Results Private regulatory regimes Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 11

12. I. Socially Responsible Investment Portfolio manager (voluntarily) considers ethical criteria in its investment strategy, to decide whether to invest in a certain company, through: 1.Positive screens; 2.Negative screens: Active engagement; Divestment. Santiago Principles and SRI? Article 19: ethical concerns should consistent with what is generally accepted as sound asset management principles, and be clearly set out in the investment policy and should be publicly disclosed Article 21: incorporating ethical concerns to protect the long-term value of the investment? Article 22: ethical concerns as enhanced risk management? Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 12

13. II. Socially Responsible Investment Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 13

14. Fiduciary Duty Duties that common law jurisdictions impose upon a person who undertakes to exercise some discretionary power in the interests of another person in circumstances that give rise to a relationship of trust and confidence [Freshfields report 2005, p. 19] Beneficiaries SWFs: Governments, the current or future generations, the tax payer in general, or the residents of the home country. Fiduciary duty SWF to take ESG concerns into account? Yes, better predict financial performance ‘Arguably required in all jurisdictions’ [Freshfield report 2005, p. 13] Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 14

15. Attribution to the State ILC Articles on the Responsibility of States for Internationally Wrongful Acts (ARSIWA): o SWF can be considered as a state actor (article 4 ARSIWA): Owned by the State ‘gives rise to a rebuttable presumption that it is a state entity’ [ICSID Case No. ARB/97/7, paragraph 76] o Difficult to attribute to the State under ARSIWA Party to international treaty: o Effect of prohibiting ‘unethical’ investment, i.e. the Convention on Cluster Munitions (CCM): Binding international law (1 August 2010) 62 State-Parties, 64 signatories Belgium, Ireland, Luxembourg and New Zealand implemented laws prohibiting investments in cluster munitions Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 15

16. I. Due Diligence: state actor States should employ al possible means and measures to prevent violations committed by private actors [Lambooy 2010, p. 293] Problem I: extraterritoriality? [Sornarajah 2001, p. 507] o General duty in international law not to cause harm to other states Knowledge of harm? Duty of State to prevent such harm Home state benefits from foreign investment Problem II: Sufficiently adequate administrative and judicial system of preventing and stopping violations: o Could violations be expected? o How far reaches the responsibility to examine? Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 16

17. II. Due Diligence: private actor The steps a company must take to become aware of, prevent and address adverse human rights impacts’, in order to ‘discharge their responsibility to respect human rights’ [Ruggie report 2008, paragraph 56] o Adoption and integration of human rights policy [paragraph 60-61]; o Monitoring human rights performance and impact [paragraph 63]. Same applies to SWFs? Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 17

18. Conclusion SWFs should adopt a responsible investment policy: o Many private investment institutions invest socially responsible o 25 % of SWFs invest socially responsible o Fiduciary duty o International treaties: prohibition to assist o Double due diligence: as state actor and private actor Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 18

19. Comments? vanderzee.eva@gmail.com Introduction Definition Methodology Results Socially Responsible Investment Fiduciary Duty Attribution to the State Due Diligence Conclusion 19