3. States Responsibility and Liability for Transboundary Environmental Harm

As of February 2022, the International Environmental Agreements (IEAs) Database Project, developed and maintained by the University of Oregon, lists 1414 Multilateral Environmental Agreements (MEAs).²² MEA is the generic term for a treaty, convention, protocol or other binding instrument related to the environment and concluded between more than two parties.²³ While there is a significant number of MEAs in force, only a small fraction of them address the question of liability for environmental damage.

The above table shows that many MEAs introducing liability rules are not yet in force or that their provisions on the development of an international liability regime remain unimplemented. Taken in isolation, these observations have legal significance for each treaty regime, its effectiveness to prevent environmental degradation and the cost allocation in cases of environmental damage. However, when considered in the broader context, the number of MEAs with liability provisions, the total number of signatory States and, ultimately, the willingness of States to ratify these MEAs are of importance to the overall picture of environmental liability rules which includes those of a customary law nature.

Being a legal source independent of conventional law, customary international law has the potential to bridge geographic and thematic gaps in existent and future MEAs. ILC Special Rapporteur Michael Wood wrote in the commentary to the draft conclusions on the identification of customary international law: “(T)reaties that are not yet in force or which have not yet attained widespread participation may also be influential in certain circumstances, particularly where they were adopted without opposition or by an overwhelming majority of States.”²⁸ The observation that broad participation in the adoption of a treaty text (Article 9 VCLT) can contribute to the identification of customary international law as was supported by the ICJ in Continental Shelf. In this case, the ICJ considered UNCLOS a reflection of customary international law given that it was adopted by 117 States even though it had not yet entered into force, something which only occurred in 1994, some nine years after the Continental Shelf judgment.²⁹ However, this case is rather special as the ICJ could rely on centuries of practice in the use of the high seas. In addition, the role of unratified treaties for customary international law is only one aspect of many that have to be taken into consideration when identifying the rules of customary international law.

The traditional inductive approach to customary international law does not render acts of international organisations, the existence of adopted but unratified treaties and universal declarations as irrelevant. They are commonly discussed as evidence of opinio iuris, the psychological element of the two components forming customary international law.³⁷ This has been widely discussed and accepted, including the ICJ,³⁸ with respect to General Assembly Resolutions and final documents adopted at large-scale UN conferences, most notably the 1972 Stockholm Declaration and the 1992 Rio Declaration. However, soft law instruments reflecting progressive opinio iuris will easily be outweighed by conservative, or even regressive, State practice as the ICJ noted in the Nuclear Weapon Case:

The emergence, as lex lata, of a customary rule specifically prohibiting the use of nuclear weapons as such is hampered by the continuing tensions between the nascent opinio iuris on the one hand, and the still strong adherence to the practice of deterrence on the other.³⁹

This traditional understanding of customary law is often accused of not adequately responding to pressing global challenges.⁴⁰ Consequently, there is broad and, at times, inventive academic debate on how the process of forming customary international law can be accelerated, simplified and altered to meet the needs of specialised branches of international law such as environmental law or human rights law.⁴¹ One proposed method is to merge the two elements into one category by considering occurrences such as the verbal claims of relevant entities as both opinio iuris and State practice.⁴² The International Law Association argued in 2000 that resolutions of intergovernmental organisations are a form of State practice, viewing them as “a series of verbal acts by the individual member States participating in that organ.”⁴³ The ILC concurred in its commentary on draft conclusion 6 of its 2018 draft conclusions on the identification of customary law. In para 2 draft conclusion 6 itemises these different forms of practice by stating:

Forms of State practice include, but are not limited to: diplomatic acts and correspondence; conduct in connection with resolutions adopted by an international organization or at an intergovernmental conference; conduct in connection with treaties; executive conduct, including operational conduct ‘on the ground’; legislative and administrative acts; and decisions of national courts.⁴⁴

According to the ILC commentary, the phrase “conduct in connection with resolutions adopted by an international organization” includes acts by States related to the negotiation, adoption and implementation of resolutions, decisions and other acts adopted within international organisations. This observation is of special importance in areas of international law which are distinguished by highly active specialised organisations, as typical in the area of international environmental law. However, the ILC emphasised⁴⁵ that no form of practice has a priori primacy over another in the identification of customary international law, which makes the identification process a holistic endeavour.

The non-exclusive list provided by draft conclusion 6 para 2 supports a generous understanding of State practice. In addition, it is to a certain extent an invitation to see both State practice and opinio juris in even a single, legally non-binding resolution of an international organisation that enjoyed wide support from member States. The same argument can be made when State representatives adopt a treaty text at an international conference. Voting in favour of a resolution, or failing to object, can be seen as a form of evidence that States accept the resolution’s content as reflecting law (opinio iuris, cf. para 2 of draft conclusion 10). However, this interpretation of approval ignores the fact that States are well aware of which forums and what language indicate the non-binding status of a document. With regard to the adoption of a treaty text to consider a positive vote, or the failure to object, an incident of both State practice and opinio iuris disregards the legal significance of acts such as parliamentary approvals, formal ratifications and reservations in the later stages of the treaty-making process. Therefore, the ILC considered it necessary to make a clear negative statement with regard to the impact of legally non-binding resolutions, namely that they cannot in and of themselves create a rule of customary international law.⁴⁶ That said, even if non-binding instruments or treaties that did not attract sufficient ratifications (so-called ‘failed treaties’) do not form customary international law in and of themselves, they are not without legal significance: the possibility remains that the legal and policy approaches expressed in these instruments will shape the future practice of States when the growing need for urgent action in areas such as environmental law necessitates the use of on-hand solutions.

The 1941 Trail Smelter Award highlighted the two facets of the no-harm rule it put in place, namely that States have a ‘negative obligation’ to refrain from actively causing significant harm to the environment of another State and their ‘positive obligation’ to prevent other, usually private actors⁴⁷ under their jurisdiction, from doing so. ⁴⁸ However, the award’s distinction between a State’s obligation “not to cause harm”, conceived as an absolute prohibition, and its duty “to prevent harm” caused by others, which is a due diligence obligation, has become blurred in the ICJ’s jurisprudence. The Advisory Opinion entitled Legality of the Threat or Use of Nuclear Weapons illustrates the ICJ’s approach to avoid conceptually distinguishing between polluting actors and rather include both public and private sources of pollution under the prevention principle. In contemplating the use of nuclear weapons by States, the Court observed: “The existence of the general obligation of States to ensure that activities within their jurisdiction and control respect the environment of other States or areas beyond national control is now part of the corpus of international law relating to the environment.”⁴⁹ This comprehensive prevention approach, which has since been adopted by other international tribunals⁵⁰ and the ILC Draft Articles on Prevention,⁵¹ has consequences for State obligations concerning their own environmentally harmful activities: each State’s obligations under the prevention principle are those of conduct not of result, even if the State itself is the polluter. In other words, in a case involving transboundary environmental damage caused by a State’s activities, that State may escape its international responsibility if it can demonstrate that State authorities have complied with all due-diligence obligations required under international law when permitting such activities.

Today it is widely recognised as a customary international rule that States are duty-bound to prevent, reduce and control the risk of environmental harm to other States and, according to the ICJ,⁵² to areas beyond State jurisdiction (global commons).⁵³ These preventive obligations require States to act with due diligence, which means that they have to take the appropriate amount of care to avoid and, if necessary, address transboundary harm through necessary action. The ICJ does not treat due diligence as a one-size-fits-all standard under international law but requires the application of a subject-matter specific due diligence standard.⁵⁴ Consequently, one has to consult the environment-centred ICJ cases to obtain insights into the understanding of the international standard of care required under the duty to prevent environmental damage. In Pulp Mills, the ICJ noted that particular care is required when implementing obligations in the field of environmental protection due to the irreversibility of some environmental harm, i.e. the due diligence standard becomes more demanding in correlation to the expected permanence of the harm.⁵⁵ Then again, a State is required to use ‘all means at its disposal’ to prevent environmental harm, which underlines that the standard of care is context-specific for both the environmental risk entailed and the actual capacities of the State concerned.

A State’s obligation to prevent transboundary pollution consists of two subcomponents, namely procedural obligations and substantive obligations. A State’s procedural obligations involve risk management before any potentially harmful activities start. In Certain Activities and Construction of a Road, the ICJ observed: “(T)o fulfil its obligation to exercise due diligence in preventing significant transboundary environmental harm, a State must, before embarking on an activity having the potential adversely to affect the environment of another State, ascertain if there is a risk of significant transboundary harm, which would trigger the requirement to carry out an environmental impact assessment.”⁵⁶ An environmental impact assessment (EIA) includes a description of possible damage containment measures,⁵⁷ the implementation of which then falls within the categories of the States’ substantive obligations.

A State’s substantive obligations require enacting appropriate damage prevention and containment measures, such as taking needed regulatory and administrative steps⁵⁸ which, when exercised, exonerate it from international responsibility even if the measures diligently taken were not successful (obligation of conduct).⁵⁹ Which measures are appropriate will depend on several factors and may vary. In contrast, procedural obligations are quite specific about what is required for ‘appropriate’ risk management. Domestically this includes the diligent execution of preliminary risk assessment and, if required due to the identified risk, an EIA. Internationally, procedural obligation after a risk has been identified includes providing notification to as well as consultations and negotiations with any potentially affected States.⁶⁰ If States fail to take these steps, they are internationally responsible for the violation of their procedural obligations irrespective of whether any transboundary harm has occurred.⁶¹ Accordingly, procedural obligations are obligations of result with respect to the required actions but are still classed as obligations of conduct with respect to the transboundary environmental harm. If the latter occurs even though a State has taken all the appropriate procedural and substantive measures, that State is not internationally responsible for any resultant transboundary harm and thus does not have to compensate those affected for environmental damage.

The point of discussion then is whether it falls within the scope of the customary no-harm rule that States have domestic laws in place that will enable claimants situated in an affected State to take action seeking damages against public or private polluters in cases of transboundary environmental harm. The assumption of such a duty is not completely far-fetched, especially as liability rules can have preventive effects (Chap. 2). This is further highlighted by the Institut de Droit International’s 1997 resolution on responsibility and liability under international law for environmental damage which states in its preamble: “Realizing that both responsibility and liability have in addition to the traditional role of ensuring restoration and compensation that of enhancing prevention of environmental damage.”⁶² Based on these preventive traits, it could be argued that the availability of national liability provisions and their cross-border accessibility is a part of the substantive limb of States’ preventive due-diligence obligations, alongside their duty to enforce their administrative damage containment measures.⁶³

The ICJ is not driven by such utilitarian considerations when fleshing out the different aspects of the customary no-harm rule. In Pulp Mills, the ICJ observed with regard to EIAs that they are:

a practice, which in recent years has gained so much acceptance among States that it may now be considered a requirement under general international law to undertake an environmental impact assessment where there is a risk that the proposed industrial activity may have a significant adverse impact in a transboundary context, in particular, on a shared resource.⁶⁴

To date, there is no comparable international judicial ruling on domestic liability legislation as a part of States’ due-diligence obligations. In contrast to the detailed procedural obligations identified by the ICJ, no substantive core obligations under the no-harm rule have yet been authoritatively identified. However, this does not call into question the existence of these core obligations, including States’ duty to have not only administrative control mechanisms but also civil liability rules in place.

In keeping with the methods for the identification of customary rules (¶ 15 et seq), liability legislation can only be regarded as a core obligation under the no-harm rule if it can be established that States accept liability and compensation as an indispensable element of prevention. However, this is difficult to substantiate as Article 7(2) of the 1997 UN Convention on the Law of the Non-navigational Uses of International Watercourses exemplifies.⁶⁵ Whereas para. 1 of the provision captures the essence of the no-harm rule, para. 2 turns to the question of compensation in cases where States diligently tried to prevent harm but failed to achieve the desired result. Only the occurrence of significant harm triggers a conditioned obligation to “discuss” compensation at the intergovernmental level “where appropriate”, which may well result in a no-compensation outcome.

Civil liability conventions also do not demonstrate that States consider liability provisions a necessary component of their preventive due-diligence obligations. Such conventions stipulate an operator’s strict liability in cases involving environmentally ultra-hazardous activities (Sect. 5.3) which, in short, requires neither intention nor negligence to incur liability. Given that such an operator cannot escape liability, even if all the precautionary and protective measures required by law were in place and, on top of that, was insured for damage caused, civil liability conventions are less linked to prevention than to the polluter-pays principle (¶ 38 et seq). This is succinctly highlighted by the preamble of the Lugarno Convention which States in its 6^th recital: “Having regard to the desirability of providing for strict liability in this field taking into account the ‘polluter pays’ principle”.⁶⁶

Even though it has not yet been established that environmental liability is a necessary part of due diligence under the no-harm rule, customary international law may come to recognise a separate and independent legal obligation for States to provide for liability in cases of transnational environmental harm, a possibility which will be discussed below (¶ 38 et seq).

One prominent feature of international environmental law is the pivotal role of environmental principles, which has heavily proliferated over the last 50 years.⁶⁷ The main characteristics required of environmentally-centred legal principles are that they are general, essential and fundamental and when used by way of deductive reasoning, seemingly carry environmental values and progressiveness into the international legal system. Given customary international law lacks responsiveness to pressing and rapidly evolving environmental problems because States prioritise short-term economic factors above all else, the reliance on environmental principles as a driving force to guide legal development does not come as a surprise. However, their normative weight has been disputed in individual cases, largely based on the given principle’s source, specific content and frequency of its reception.

In order to verify the existence of an international legal duty to prevent significant environmental harm within the territory where the development project is situated (Fig. 3.1), the Arbitral Tribunal in the 2005 Iron Rhine award first referred to the 1972 Stockholm Conference on the Environment.⁷² This event was considered as the starting point of a ‘trend’ in international and European law to integrate environmental measures in the design of economic development activities. Instead of identifying the relevant pieces of legislation, the Tribunal decided to point at Principle 4 of the 1992 Rio Declaration, which the tribunal viewed as capturing the said legislative trend. Principle 4 emphasises that “environmental protection shall constitute an integral part of the development process and cannot be considered in isolation from it.” Labelled as an ‘emerging principle’ in the year 1992, the Tribunal considered it to be a ‘principle of general international law’ in 2005 with reference to the ICJ’s Gabčíkovo-Nagymaros case,⁷³ where the Court spoke of ‘new norms’ and ‘new standards’ which States have to take into consideration when realising infrastructure projects.⁷⁴

By considerring ‘new rules and standards’ to which the ICJ vaguely refers as manifestations of the ‘principle of general international law’, the Iron Rhine award provides a telling example for the tendency to blur the lines between principles and rules as well as principles of general international law and customary international law to suit the needs of judicial reasoning.⁷⁵ Indeed, principles of general international law taking the form of rules are associated with a process of considerable methodological simplification, which makes them so compelling when compared to customary international law. The high level of abstraction, which is generally considered a characteristic of general principles of law (such as “good faith”),⁷⁶ had already been abandoned by the time the principles were enshrined in the 1992 Rio Declaration. The concise language of many Rio principles foresees the most important function of general principles of international environmental law, namely to initiate and facilitate the emergence of international rules on the basis of which legal environmental obligations can be determined without the need to identify corresponding State practice and opinio iuris.⁷⁷

Whether or not a principle of general international law evolve into a rule depends on many factors, not only as to the principle’s language in terms of the level of abstraction but also as to its function (e.g. driving legal development or providing political orientation).⁷⁸ Principle 2 of the 1992 Rio Declaration phrased the principle of prevention in distinct normative language (“State have … the responsibility to ensure, that”), whereas when elucidating the polluter-pays principle, Principle 16 gives political guidance at best (“National authorities should endeavour to promote the internalization of environmental cost…, taking into account the approach that the polluter should, in principle, bear the cost of pollution, with due regard to the public interest and without distorting international trade and investment.”). The choice of language in 1992 has had an enduring impact as it still resonates today when the polluter-pays principle is invoced by States and discussed in academic writing.

Despite the omnipresent invocation of the polluter-pays principle in international, regional and national instruments, the principle’s legal implications are far from clear.⁸² The arbitral tribunal in the 2004 Rhine Chlorides case supports this view by observing that “(the polluter-pays) principle features in several international instruments, bilateral as well as multilateral, and that it operates at various levels of effectiveness. Without denying its importance in treaty law, the Tribunal does not view this principle as being a part of general international law.”⁸³ On this basis, the tribunal refused to consider the principle under Article 31(3)(c) VCLT, which allows for the systemic interpretation of a treaty by taking into account “any relevant rules of international rules of international law applicable between the parties”. Although, it is worth noting that the arbitral tribunal in the 2005 Iron Rhine case considered the principle of prevention as falling within the ambit of Article 31(3)(c) VCLT (¶ 33 et seq).⁸⁴

Given that the polluter-pay principle serves as a label, rationale and guiding principle for a vast variety of instruments concerned with the allocation of environmental costs, it appears to lack the necessary legal precision to support an obligation for States to implement a specific cost-allocation model. By way of example, one can ask the question of who can be classed as a ‘polluter’? Is it only those who directly cause the environmental damage or does it also include those who contributed indirectly, such as consumers? The answer here is not obvious from the principle itself but is determined by the relevant rules which give expression to the polluter-pays principle in one way or another.⁸⁵ In addition, there is more than one environmental liability model available for States to choose from (Chap. 5) with some of the better-known being centred on:

The variety of legal options under the conceptual umbrella of the polluter-pays principle does not diminish its legal status and value as a general principle of international environmental law⁸⁶ which, according to ICJ Judge Cançado Trindade, justify, inspire, inform and conform to the legal system’s rules.⁸⁷ In addition, the polluter-pays principle is one of many widely-recognised principles of international environmental law, all of which are interrelated and complementary as they mutually reinforce their legal and conceptual clout.

An integrated approach to international environmental principles brings the polluter-pays principle within the scope of the prevention principle the ultimate goal of which is the avoidance of environmental harm.⁸⁸ From this perspective, it can be argued that the polluter-pays principle’s aim is not only to remedy environmental damage and internalise environmental costs but also to contribute to harm avoidance. The consequence of this understanding is that the polluter-pays principle does not support environmental liability models that effectively shield the actual polluter from recourse and responsibility.⁸⁹

From this, it follows that it only requires a small step to establish an ‘emerging principle’ that combines the polluter and preventive principles into the following new rule: The polluters’ ultimate⁹⁰ responsibility and liability shall not be excluded invariably, indiscriminately⁹¹ and arbitrarily⁹².

The 1941 Trail Smelter Award carefully noted that “no State has the right to use (…) its territory” and thereby addressed public activities. Any State, acting through its organs (Article 4 ASR), can directly cause damage to the environment of the neighbouring State by engaging in a variety of activities, such as weapons tests or public infrastructure projects.⁹⁴ By way of example, in the 2015 Certain Activities and Construction of a Road case, the ICJ had to assess Nicaragua’s and Costa Rica’s environmental duties linked to Nicaragua’s dredging activities and Costa Rica’s road construction.⁹⁵

When acting in their official capacity, State organs represent the State irrespective of whether the act is of a sovereign or commercial legal nature.⁹⁶ Proceeding from the preventive obligations under the no-harm rule that applies to both public and private harmful activities (¶ 21), one may conclude that it does not matter whether a State is responsible for a failure to prevent harmful private activities or whether it is directly responsible for an environmentally harmful outcome arising from its pubic activities due to attribution. However, this conclusion would be premature because, with regard to private activities, customary international law acknowledges that a State has limited knowledge of what happens on its territory in the private economic sphere (e.g. the illegal use of CVC-11 gas in Eastern China⁹⁷).⁹⁸ Obviously, if the harmful activities are attributable to the State it is not accepted under the rules of State responsibility for the State to exonerate itself by claiming it had no control over or knowledge of the activities. This fact, however, does not turn the State’ obligation under the no-harm rule into an obligation of result in the sense that the occurrence of significant transboundary harm caused by State organs necessarily triggers the State’s responsibility. Rather, the State’s obligation remains a due diligence obligation of conduct because the State does not necessarily have full control over transboundary environmental impacts when implementing governmental projects. Nevertheless, a State has considerably more courses of action available to prevent transboundary environmental damage when such damage is of its own making.

The flexible standard of care in international environmental law draws attention to State-owned enterprises (SOEs) and State-controlled entrepreneurial activities. In many industrialised States (OECD States), private producers and private consumers cause the vast majority of environmental damage with SOEs playing a relatively minor role as there are so few of them.⁹⁹ By way of contrast, in emerging economies such as China, India and Brazil, as well as post-transition economies such as Russia, Hungary and the Baltic States, governments are still significant shareholders in many large companies carrying out important domestic activities, for example, in the mining and energy sectors as well as in telecommunications, banking and transport.¹⁰⁰ When this is the case the State has, in one way or another, influence on the decisions and activities of the SOE.

Generally speaking, the ILC commentaries on the ASR’s rules of attribution are of little help as far as the acts of SOEs are concerned. In the context of Article 4 ASR, which deals with the conduct of the organs of a State, the commentaries do not address the question of whether SOEs can be considered as State organs. Even the commentary to Article 8 ASR, dealing with the private conduct directed or controlled by a State, avoids explicitly mentioning SOEs. In contrast, the ILC commentary to Article 5 ASR does provide some insight into this matter, as seen in the box below.

According to the ILC commentary to Article 5 ASR, the fact that (1) a company is classified as public in the domestic legal system, (2) a State participates in a company’s raising of capital or (3) the State has ownership of company assets are not decisive criteria for attribution of the company’s conduct to the State under Article 5 ASR.¹⁰¹ Rather, every company, be it State-owned or not, empowered by domestic law to exercise governmental authority falls within the scope of Article 5 ASR. To this end, domestic law has to clearly recognise certain activities of any company in question as having public purposes, in contrast to having private for-profit purposes, to attribute any acts undertaken in performing these functions to the State.¹⁰² Having said that, Article 5 ASR does not rule out that under specific circumstances SOEs can be considered de facto organs which, according to the ICJ, fall under the scope of Article 4 ASR (see ¶ 47).¹⁰³ The ICJ considers any entity in a relationship of complete dependence on the State as a de facto organ, even if it does not enjoy organ status under domestic law.¹⁰⁴ If this complete dependence is established, the legal nature of the act, i.e. whether it was undertaken with governmental authority or as a commercial act, is of no consequence for attribution. In this respect, it is important not to paint all SOEs worldwide with the same brush but to have a closer look at the particulars and traditions of specific States. For example, the author Ji Li considers the relationship between the Chinese government and Chinese SOEs as quite different from that of their western counterparts.¹⁰⁵ In any case, special relevance in the context of Article-4 attribution is the dual function of SOEs’ executives as both State organs and chief executive officers (CEOs). In addition, the State’s authority to give comprehensive and binding instructions to an SOE’s management is also of relevance.¹⁰⁶

If the prerequisites of neither Article-4 nor Article-5 attribution are given, an SOE must be considered as a private actor. As a rule, any unlawful conduct of private individuals and companies within a State’s territory does not lead to the international responsibility of the State for the private conduct unless the conduct is attributable to the State under the strict conditions of Article 8 ASR.¹⁰⁷

Most importantly, it does not suffice for the purpose of attribution under Article 8 ASR that a private actor has committed an environmentally harmful act on a State’s territory or that the State holds a certain percentage of ownership that goes hand in hand with structural control (voting rights) and oversight responsibilities. Unquestionably, a State’s voting rights are important factors in the context of Article-8 attribution, together with the right to nominate and dismiss upper management, the right to give specific instructions and to exercise veto powers.¹⁰⁸ However, the ICJ made it plain that for Article-8 attribution it does not suffice that the State has overall control concerning the entity’s activities; the State must have instructed or exercised effective control over the harmful act, for example, the introduction of toxins into the transboundary river. This degree of effective control exercised by State organs can be difficult to establish as far as the day-to-day business of an enterprise is concerned, even if it is State-owned. Most importantly, if the management of an SOE acts contrary to instructions issued by the company’s oversight bodies in which the State is represented, the State can be deemed as having no effective control over the SOE’s acts. As a result, these acts, e.g. clandestine toxic emissions, are not attributable to the State under Article 8 ASR.¹⁰⁹

The above considerations focused on the responsibility of a State of origin for transboundary environmental damage caused by a local public or private actor. Even though the legal conditions of the no-harm rule and the responsibility triggered by its violation are relatively clear-cut as far as the State of origin is concerned, they appear too narrow to effectively address environmental harm caused by transnationally operating companies. One aspect that appears unaddressed by the no-harm rule is the responsibility of the home State of a transnational corporation (TNC)¹¹⁵ whose international subsidiaries operate in other States (so-called ‘host States’) and where they cause environmental damage. The transboundary aspect here is not the environmental damage but rather the managerial control of the parent company over its subsidiaries.

The academic debate about home-State responsibilty for environmental damage in the host State is split along three legal avenues: the direct international responsibility of the parent company and/or subsidiary (Chap. 4), the liability of the parent company under the laws of the home State (Chap. 7) and the responsibility of the parent company’s home State, which is the focus of this Chapter. As discussed below (Chap. 7) a home State has the right to regulate the activities of its corporations outside of its territory as long as the home State has some accepted basis for jurisdiction, such as the active personality principle linked to the corporation’s nationality (Sect. 7.​7). It is, however, a completely different matter whether home States are obliged under international law to diligently take appropriate measures to prevent TNCs from damaging their host State’s environment either directly or through their subsidiaries.

Considering the reluctance of the overwhelming majority of home States to force their TNCs into compliance with environmental norms in their foreign operations, it is difficult to establish that there is State practice and opinio iuris. (¶ 15 et seq) indicating the conviction of home States that they are legally obliged to regulate their TNCs’ worldwide environmental conduct. This creates an obvious problem as such a conviction would be the basis of the home State’s possible international duty to prevent harm caused by a TNC abroad. That said, there is no denying that the harm-prevention rule has the potential to evolve in this direction, as past developments of the traditional no-harm rule illustrate:¹²¹ Whereas in 1941 the Trail Smelter award’s focus was on reparation, Principle 21 of the 1972 Stockholm Declaration shifted the emphasis of the rule to States’ positive duty to prevent. In addition, Principle 21 extended the no-harm rule to the global commons, which was declared a part of customary international law by the ICJ in the 1996 Nuclear Weapons Advisory Opinion.¹²² Fourteen years later, the ICJ identified in the 2010 Pulp Mills case definite procedural obligations as part of the no-harm rule. All of this gives rise to legitimate expectations that the no-harm rule has not yet reached the end of its legal development. Most importantly, the nexus between human rights and a healthy environment may mean that customary environmental due-diligence obligations of a TNC home State may develop in the wake of extraterritorial human rights obligations (Chap. 10; Sect. 10.​2).¹²³

Having already moved ahead of general environmental law in this regard, human rights law cautiously embraces a duty of the home State to ensure that a parent company uses its corporate influence over its international subsidiaries to ensure that the latter respect human rights standards in host States. The Human Rights Committee in its recent General Comment No. 36 (2018) on Article 6, which deal with the right to life, elucidated that States parties to the ICCPR must “take appropriate legislative and other measures to ensure that all activities taking place in whole or in part within their territory and other places subject to their jurisdiction, but having a direct and reasonably foreseeable impact on the right to life of individuals outside their territory, including activities taken by corporate entities based in their territory or subject to their jurisdiction, are consistent with Article 6 (…).”¹²⁴ In communication No. 2285/2013 (Yassin v Canada) of 2017, the Human Rights Committee took a more cautious tone by observing that “human rights obligations of a State on its territory cannot be equated in all respects with its obligations outside its territory”. Nevertheless, the Committee pointed out that there are situations where a State party has an obligation to ensure that rights under the ICCPR are not impaired by extraterritorial activities conducted by enterprises under its jurisdiction, particularly in cases where violations of human rights are very serious.¹²⁵

In the same General Comment No 36 (2018), the Committee underlined that the right to life has an environmental dimension, noting that environmental degradation and climate change constitute some of the most pressing and serious threats to the ability of present and future generations to enjoy the right to life. The Committee thus concluded that the obligations under international environmental law should conform to the content of Article 6 of the International Covenant on Civil and Political Rights (ICCPR).¹²⁶ When considering all of these elements of the Human Rights Committee’s interpretation of Article 6 ICCPR as a whole, the obligation of the home State to respect the environmental aspects of the right to life by regulating its TNC’s transnational operations begins to take on a more substantive shape. Nevertheless, a word of caution is due: in contrast to human-rights courts, the Human Rights Committee lacks the legal power to authoritatively interpret the ICCPR as a ‘living instrument’. Even though the international community, including the ICJ, ascribes great weight to the interpretations of the Committee,¹²⁷ progressive developments of obligations under the ICCPR require either the explicit or implicit acceptance of States parties over a certain period (cf. Article 31(3)(b) VCLT).¹²⁸ States parties have predominantly refrained from commenting on Draft Comment No. 36 before its adoption by the Human Rights Committee,¹²⁹ however, this silence does not necessarily mean that all States parties share the Committee’s views. This is also evidenced by the heated debate involving the earlier Zero Draft on a “legally binding instrument to regulate (…) the activities of transnational corporations and other business enterprises”, published by the UN Human Rights Council’s intergovernmental working group on 16 July 2018.¹³⁰ Draft Article 9 of the Zero Draft stipulated home-State obligations comparable to those described in General Comment No 36 and had provoked harsh criticism by industrial States, most notably the European Union and its Member States (Chap. 4 ¶ 40 et seq (Sect. 4.​2.​3)).¹³¹ Despite this dissent, the Human Rights Committee’s extensive interpretation of the States parties’ obligation vis-à-vis transnationally operating corporations is the first small step towards an internationally recognised responsibility for a home State if it fails to do all in its power (due diligence) to prevent its companies from causing environmental damage and human suffering in host States.

In 2018, the ICJ had the opportunity to adjudicate for the first time in its existence on a claim for compensation for environmental damage (Wetland Compensation Case).¹³² The case concerned compensation owed by Nicaragua to Costa Rica brought about by Nicaragua’s excavation activities in a wetland border area protected under the Ramsar Convention. Highly anticipated by international environmentalists, the judgment is indicative of the general reluctance of the international judiciary to depart from an economy-centred view on redress for environmental harm. This general observation is valid irrespective of whether a State caused the environmental harm (Wetland Compensation) or a corporation (Trail Smelter).¹³³

The Wetland Compensation case illustrates the dilemma in which the ICJ finds itself: on the one hand, the Court acknowledged the value of an intact environment but, on the other hand, it struggled to properly quantify environmental damage due to its economy-centred value system. Having developed into an important international environmental court for inter-State disputes, the ICJ begins with a promising statement on the intrinsic value of the environment: “(…) it is consistent with the principles of international law governing the consequences of internationally wrongful acts, including the principle of full reparation, to hold that compensation is due for damage caused to the environment, in and of itself, in addition to expenses incurred by an injured State as a consequence of such damage.”¹³⁴

With regard to the valuation of the lost or impaired environmental goods and services, the ICJ took the view that international law does not prescribe specific methods of valuation and thus opted for a holistic approach by considering the ecosystem as a whole rather than attributing monetary values to specific categories of environmental goods and services with different recovery periods.¹³⁵ Despite this auspicious point of departure, which may have an important impact on future environmental law cases before other international courts and tribunals, the ICJ judgment itself did not live up to the expectations of many. Besides stating the fact that the ecosystem should be treated as a whole, the Court abstained from outlining the parameters of any possible overall valuation. After discussing the methods proposed by Costa Rica as the applicant (‘ecosystem approach’) and Nicaragua as the respondent (‘cost of replacement approach’), the Court ultimately settled on what it considered a “reasonable” amount of damages.¹³⁶ That said, the Court deemed that the removal of approximately 300 trees to be the most significant damage. In this respect, the ICJ awarded Costa Rica a moderate sum (US$120,000) in direct relation to the costs and expenses incurred in preventing irreparable prejudice to the wetland which was degraded by Nicaragua’s excavation activities.¹³⁷ Most importantly, the Court did not make any equity considerations, such as the character of the affected terrain and the implications of deforestation for climate change.¹³⁸ In relation to this, Judge Bhandari’s criticism is hardly surprising when he noted in his separate opinion that “(o)nly if those causing harm to the environment are made to pay beyond the quantifiable damage can they be deterred from causing similar harm in the future.”¹³⁹

Another prominent issue in environmental litigation, the causal nexus between damage and unlawful activity, was only shallowly addressed by the ICJ in the Wetland Compensation case and even then, it was provided without any legal guidelines of practical value apart from the observation that it is within the Court’s discretion to determine whether the causal nexus is sufficiently proven:

“In cases of alleged environmental damage, particular issues may arise with respect to the existence of damage and causation. The damage may be due to several concurrent causes, or the state of science regarding the causal link between the wrongful act and the damage may be uncertain. These are difficulties that must be addressed as and when they arise in light of the facts of the case at hand and the evidence presented to the Court. Ultimately, it is for the Court to decide whether there is a sufficient causal nexus between the wrongful act and the injury suffered.”¹⁴⁰

In the given case, the Court had no problems establishing a causal link between the four categories of environmental goods and services for which Costa Rica claimed compensation (trees, other raw materials, gas regulation and air quality services, as well as biodiversity) and Nicaragua’s excavation activities in the area. It considered the impairment and loss without further ado a direct and certain consequence of the activities.¹⁴¹ As such, the Wetland Compensation case can be regarded as an example for a rather conventional causal nexus determination and is therefore unrewarding for cases of cumulative damage or long-standing damage to the environment not attributable to a single entity or State but to a sector or types of hazardous and harmful activities that are at the core of an increasing number of environmental litigations.