Realigning investment contracts with sustainable development

Investment contracts – from land concessions to production sharing agreements for oil and gas projects – define the terms of an investment and influence the distribution of its costs and benefits. The process to conclude the contracts influences who has what say, when and how. IIED works with partners to rethink these legal documents and the process through which they are formulated.

January 2005 - 2016
Lorenzo Cotula

Principal researcher and head of law, economies and justice programme

Law, economies and justice
A collaborative programme of work on renegotiating the law to promote fairer, more sustainable economies
An open pit mine

The Cerrejón open-pit coal mine in Colombia is one of the world’s largest. Local people say they have lost acess to land and water. (Photo: Tannenhaus via Wikipedia, CC BY 2.0)

Economic liberalisation, improved transport and communications, and global demand for energy, minerals and agricultural commodities have fostered foreign investment in natural resource projects in many poorer countries. And in many lower-income countries, the natural resource sector accounts for a large share of investment inflows. 

Greater investment can help promote economic growth, generate public revenues, develop infrastructure and create employment. But it may also fail to create enough positive links with the local economy, and may crowd out local producers.

Foreign investment can bring cleaner technologies and better management practices, but large natural resource projects may also degrade the environment. Investments can create new livelihoods that help reduce poverty, but may also dispossess poor people of their land and natural resources. 

These positive and negative social, environmental and economic outcomes depend on many factors, including policy, institutional and socioeconomic contexts. But the ‘quality’ of the investment contract is an important part of it. 

Investment contracts include, for example, petroleum, mining and agricultural concessions, and production sharing agreements for oil and gas projects. Although there is huge diversity in contractual practice, these agreements usually allocate resource rights, set the terms for resource development activities, define how returns will be shared between investor and state, and determine social and environmental safeguards. 

Together with applicable national and international law, the contracts define the way risks, costs and benefits are distributed. Who can participate in contract development greatly influences the extent to which third parties can have their voices heard.

What did IIED do? 

We generated evidence on evolving contractual practice and the sustainable development issues associated with it; developed learning materials and organised learning events for government and civil society; and supported policy work in selected countries in Africa and Asia. 

Additional resources

Blog: Reconsidering the foundations of natural resource contracts: from concepts to practice, Lorenzo Cotula, August 2019, published in International Law @ UEA Blog

Chapter: Reconsidering Sovereignty, Ownership and Consent in Natural Resource Contracts: From Concepts to Practice, Lorenzo Cotula, published in European Yearbook of International Economic Law 2018, Springer 

Foreign investment, law and sustainable development: a handbook on agriculture and extractive industries, Lorenzo Cotula (2013, second edition 2016), IIED, Natural Resource Issues series