Content

Editor’s Note: This article is part of a four-piece symposium that examines Kishanthi Parella’s work, “Enforcing International Law Against Corporations: A Stakeholder Management Approach,” featured in Volume 65(2) of the HILJ Print Journal.

*Monika U. Ehrman

 

I. Introduction

Corporate secrecy is not a new phenomenon. Companies routinely take steps to ensure that prized information is secured and kept from competitors. Securing intellectual property as trade secrets keeps the information confidential for as long as the owner employs reasonable measures to guard the information—unlike patents, which offer term protection of certain types of intellectual property in exchange for public registry. Geographical and geological location data are especially lucrative for mining and petroleum companies, which target mineral resources for extraction and production. So, it is not unexpected that space mining companies would want to do the same. But should they be able to do the same is another question.

In December 2023, AstroForge, a private company, announced a proposed launch to surveil an asteroid for commercial mining. Formed from the remains of planetary and other debris following the creation of the solar system over 4.5 billion years ago, asteroids are small outer space objects that orbit the Sun. Not only do they contain insightful information about the birth of our planet and the possible origins of life, but they may also be financially valuable. Some asteroids contain high ore content of minerals that are rare or critical to modern technologies. So, it is not surprising that AstroForge wants to mine an asteroid. Which one? We do not know—the company does not want its competitors to find out.

Why should it matter that AstroForge will not disclose its intended extractive target? Because its target is in outer space—the province of all humankind. As such, does everyone on Earth own what AstroForge and extraction companies like it mine? That part is not clear to everyone. However, what is more clear is that any disputes over these asteroids or other outer space bodies are governed by international law, including such landmark treaties as the Outer Space Treaty and the Moon Agreement. And international law governance prevails where state actors carry out various duties in the international forum. In the case of space, almost all major actions are performed by governmental entities. But that is about to change.

Private entities, such as AstroForge, represent a new brand of space explorer—they are private sovereigns. They hold loyalty not to the nation, but to the investors. And therein lies the challenge with international law as the primary mechanism to govern private sovereign behaviors. Professor Kishanthi Parella explains, “Many corporate actors do not abide by international law because the international legal order lacks adequate mechanisms to ensure their compliance.” So how can one control the behavior of extraction companies in outer space? In her innovative Harvard ILJ article, Enforcing International Law Against Corporations: A Stakeholder Management Approach, Parella proposes we apply principles of corporate stakeholder governance to international law, by using non-state actors as a mechanism to force good corporate behaviors. This innovative approach offers success in challenging hybrid environments such as outer space.

II. Current Authority to Govern Potential Space Mining Activities

Scholars generally analyze outer space governance under the existing rubric of international law, which mainly consists of the: (i) 1967 Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies (the “Outer Space Treaty”), (ii) 1968 Agreement on the Rescue of Astronauts, the Return of Astronauts and the Return of Objects Launched into Outer Space (the “Rescue Agreement”), (iii) 1972 Convention on International Liability for Damage Caused by Space Objects (the “Liability Convention”), (iv) 1976 Convention on Registration of Objects Launched into Outer Space (the “Registration Convention”), (v) 1979 Agreement Governing the Activities of States on the Moon and Other Celestial Bodies (the “Moon Agreement”), and (vi) 2020 Artemis Accords.

While multilateral approaches were once favored as a traditional mechanism to govern outer space, individual state action is on the rise, largely in part because of increased identification of resource potential—namely, the availability of precious minerals. Creation of an international agency or granting the United Nations authority over outer space resources is highly unlikely; and the creation of individual state agencies, while more tenable, does not address the international, cooperative governance required for the global commons. The third option thus prevails as the most likely scenario—states assert that each has the unilateral authority to extract resources. As state actors continue to embrace this strategy, other state actors have little choice but to follow the same approach, decreasing the likelihood of multilateral agreements. Thus, Parella’s framework offers a realistic governance overlay, allowing for oversight and changemaking without the niceties of formal international law.

III. The Necessity for Layered Approaches to Governance

International lawyers often express confidence in the rigor of international law to govern activities in space, but there are high tensions over the acceptance of multilateralism in an era of trending isolationism, exceptionalism, and non-interventionist stances. The political fluctuations of these policies may provide reassurance that multilateralism and international cooperation survive and endure. However, in those multilateral lulls and lows, there is an increased risk of private companies or isolationist States establishing extraction customs in outer space. Once established and ensconced, it becomes difficult to reject those practices and law often evolves around them.

The other major challenge is the physical and temporal distance of outer space regions to the Earth. Outer space resources—hidden resources—are far beyond the sight of Earth-bound observers, a physical manifestation of the saying, “out of sight, out of mind.” Control of outer space resources may still be manageable due to the restricted number of available commercial launch facilities; however, States make independent decisions with respect to launches and the number of space launch sites will only increase. Although commercial launch capabilities are now restricted to a few global centers, the privatization of commercial space transport will no doubt continue as entry costs decrease.

While international law remains an important foundation to govern space mining activities, it should not be the sole mechanism and, indeed, cannot. During a meeting of the SMU Subsurface Resources Research Cluster on April 29, 2024, Dr. Guillermo Garcia Sanchez described the energy legal process as a system of interconnected phases which only partly consist of the laws and contracts that govern exploration, discovery, development, production, and reclamation. These legal processes also include public and private law, in addition to industry customs and practices and other norms. The substantive laws and contracts operate in conjunction with the law of the resource situs—the law of the jurisdiction in which the resource is located. For example, offshore petroleum deposits are generally located in State waters (either in the Continental shelf or Exclusive Economic Zone), where the law of the State applies. In much of the rest of the world, the State, as sovereign, owns all mineral resources. However, States may invite or open resource development to firms outside the State, which then introduces international law to the transaction via the relationship between State and non-State firm(s). But where the resource is located beyond State boundaries, such as the high seas or outer space, international law also applies where recognized by consenting States—like those who are parties to the United Nations Convention on the Law of the Sea and the Outer Space Treaty.

What happens then when space mining actors disregard the law, whether out of principle or for convenience? Yet, that firm belief in the absolute resolve of international law fails to consider the lessons of historical import. Space mining is just an old story in a new realm. During the Gold Rush of the late 1800s, immigrant miners from diverse lands, including England, Germany, Mexico, and South American nations, ventured to the American West to make their fortunes. Most all those ancestral miners came from countries where the sovereign owned all mineral resources and, critically, paid a royalty—the regalian right—to the State. The miners were not fond of such sovereign ownership and payment and had no intention of deliberately instituting the same in these new American mines. So, they borrowed those helpful traditions and customs of their native mining districts, such as free access and the extralateral right, while denying others, such as reporting production and provisioning a royalty. Subsequently, though the Western mineral deposits were primarily located on federal lands, the miners implemented their own desired customs, later codified by Congress into the General Mining Law of 1872—which still applies today.

Why then were these miners able to keep ownership of mines and the produced minerals? Arguably because of a governance vacuum. Though there were applicable laws on ownership of the land—“there was no law governing the transfer of rights to these minerals from public ownership to miners.” The miners took advantage of such regulatory absence.

IV. Governance Vacuums and the Parella Stakeholder Governance Model

Many believe the question of asteroid space mining to be settled—that States may not claim ownership of asteroids, but they can own what they extract. From a property perspective, I contest this distinction. I believe that the action of extraction of the part is by its nature an assertion of ownership of the whole. But while legal uncertainty increases the corporate firm’s transactional risk, it also increases the availability of first mover advantage and, arguably, the opportunity for innovation. High risk-high reward companies, like venture-capital backed space mining companies, may prefer operating in governance vacuums, where property right legal uncertainty abounds. Enter Parella’s stakeholder governance model. Parella’s model provides greater stability where a weak system of ownership exists and some stability where no framework exists.

The main benefit of applying Parella’s model to space mining ventures is that it applies to both public and private companies. A central challenge in space extraction companies is a lack of transparency due to their often-private nature. Five of the largest companies—AstroForge (U.S.), Karman+ (U.S.), TransAstra (U.S.), Origin Space (China), and Asteroid Mining Company (U.K.) are all privately-held companies backed by venture capital. Before it was acquired by blockchain company, ConsenSys, Planetary Resources was a U.S. privately-held company, whose backers included billionaires Ross Perot Jr., then Google Chief Executive Officer Larry Page and Chairman Eric Schmidt, and former Goldman Sachs Group Inc. Co-Chairman John Whitehead. Neither corporation nor unincorporated publicly-traded company, these private companies have lesser built-in corporate accountability measures, like traditional shareholder governance. Further, there is not systematic financial reporting and mandatory disclosure of metrics like those on environmental, social, and governance goals; there may not be rigorous oversight for investors by federal agencies, such as the U.S. Securities and Exchange Commission. Here is where Parella’s framework shines. Instead of relying on formal mechanisms to govern or shape company behavior, Parella looks to stakeholder management to pressure corporate actors to:  “frequently align their behavior to conform to the values and expectations of a range of non-state actors—corporate stakeholders—such as consumers, employees, insurers, financial institutions, investors, industry organizations, and NGOs, among others.” She theorizes that “[t]hese stakeholders can address important gaps in the international legal order by offering incentives that nudge corporate actors toward compliance with international law.”

Moreover, Parella’s model is also practical, relying on enforcement by a variety of norm entrepreneurs and not just on a single State actor. Of particular interest to me is her meticulous, tabular identification of various stakeholder enforcement mechanisms, one of which is “monitoring.” Monitoring that is akin to an audit function will be crucial to space mining governance due the physical distance of potential mining sites from Earth observation—the main asteroid belt (between Mars and Jupiter) lies between 111.5 and 204.43 million miles from Earth. Because of the lack of physical visual site and a (cost-effective) method to visit the operation, the distant extraction community of miners, subcontractors, and other support tools/machines, can conduct operations without actual, observable oversight. Even the transmission of data to and from the mining site requires time, as a function of the distance. Although many missions and operations are conducted at great physical distances—for example, China’s recent unmanned mission to the far side of the Moon, the opportunity to disregard international law and custom or for malfeasance or misconduct increases without monitoring and the ability to audit.

Mining on planetary or lunar bodies is more complicated. As opposed to the Outer Space Treaty, there are fewer signatories to the Moon Agreement, and even fewer to the Artemis Accords. Notably, the major space exploring States, Russia and China, have signed neither. But whereas the potential for asteroid mining is great due to the millions of bodies surveyed, Martian and lunar mining sites are arguably more difficult—the property rights are more complicated. The difficulty arises with respect to the resource location. Minerals are not scattered among planetary crust in even fashion. They accumulate due to varying geologic and geomorphologic conditions and events over great periods of time. If one company establishes a mining location on Mars or the Moon, that location may preclude others from economically accessing the resource without disturbing the original company’s operations. Establishing, protecting, and defending mining operations could easily accelerate into risky, geopolitical situations. Parella’s model can diffuse future tensions by establishing cooperative frameworks, best practices in supply chain and operational management, and provide labeling of sourced minerals to help purchasers and end-users identify those minerals that are “conflict-free” or ESG compliant. The possibilities to apply Parella’s model are endless; and the potential to reduce threats is significant.

V. Conclusion

Natural resources are beset with antiquated legal doctrine. The lumbering laws governing mining arose from customs that primarily benefited the mining communities who formed them. Current congressional tensions hinder the passage of new natural resource legislation, though the Biden Administration has made good efforts to identify possible reforms to the 1872 General Mining Law. The incoming Trump Administration is likely to advance mining and space resource extraction, as it previously did during its first term. As always, science and technology has advanced far faster than the law and policy to govern them. And therein lies the power of Parella’s stakeholder management approach—it relies on an existing discipline that has had great success influencing corporate behaviors. International law is still the foundation of outer space activities. Applying stakeholder management principles, in addition to private contract and insurance, adds security to the business and mitigates the risk of failure.

 

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Cover image credit 

Editor’s Note: This article is part of a four-piece symposium that examines Kishanthi Parella’s work, “Enforcing International Law Against Corporations: A Stakeholder Management Approach,” featured in Volume 65(2) of the HILJ Print Journal.

*Carla L. Reyes

 

Introduction

Recent attempts to enforce law in an era of decentralized digital activity have supplied some surprising results. For example, a regulator places open-source software on the list of sanctioned nationals. A settlement agreement requires the “destruction” of immutable digital assets. Digital art is targeted as unlawful offerings of investment contracts. Centralized entities that create front-end websites for decentralized exchange technology become targets of enforcement for activity they did not actually undertake. These represent just some of the many announcements of regulatory activity that permeate the news cycle, documenting attempts by governments around the world to enforce domestic and international law against actors operating through decentralized technology. Meanwhile, developers and other actors in the decentralized software community file lawsuits claiming government overreach and challenging the applicability of traditional enforcement mechanisms.

In particular, an ongoing debate exists as to the extent to which certain software constitutes an entity, and whether and to what extent existing law binds such entities. This debate offers a fertile arena in which to consider the applicability of Professor Kish Parella’s stakeholder management approach to enforcing international law against corporations in the context of alternative business governance models—namely, governance models adopted by decentralized business entities. Governments have entered an era in which many voice concerns about how to detect, prevent, and punish legal violations committed by entities operating entirely through decentralized computer code. Further, governments find themselves lacking credible tools—both in terms of the law and in terms of enforcement—to address these rising concerns systematically. If Professor Parella’s framework can be adapted to the era of decentralized entities, it might offer public law—both domestic and international—a clearer path toward legal and enforcement clarity. This short Essay considers this possibility in the context of decentralized business entities. In doing so, the Essay uncovers a surprising opportunity: stakeholder enforcement of international law in the decentralized era is more about questioning whether state legal enforcement itself upholds international law—seeking to claw back fundamental rights quietly lost to digital architecture as it developed over the last half-century.

I. Decentralized Business Entities: Disrupting Your Average Corporation

Decentralized entities operate through decentralized computer code, commonly implemented via a blockchain protocol. Many people refer to such entities as “decentralized autonomous organizations” or “DAOs.” However, not all DAOs are entities, and even when they are, only some are decentralized business entities. A full review of the varied and extensive landscape of decentralized, blockchain-based entities is beyond the scope of this short Essay. Instead, this Section discusses the subset of DAOs that best fit the object of Professor Parella’s international law enforcement framework—namely, decentralized business entities (“DBEs”). This Section first summarizes the technical aspects of DBEs and then examines their social context.

What make a business a DBE? Answering that question first requires (an extremely) brief discussion of the technology that powers DBEs—blockchain protocols and smart contracts. Initially, blockchain protocols were designed to track transactions in specific units of digital value without relying upon a single third-party intermediary to maintain account balances. Later, other blockchain protocols enabled additional software to operate in a layered technology stack. One type of software frequently layered on top of blockchain protocols are smart contracts—computer code that says “if data is received that X has occurred, execute Y.” Smart contracts, or a group of smart contracts, can be designed to functionally approximate the operations of an entity by allowing widely disperse, highly fluid, and pseudonymous individuals to coordinate productive activity. When such widely disperse, highly fluid, and pseudonymous individuals use interlocking smart contracts to coordinate a profit-seeking business, they operate a DBE—the subject of this Essay.

When do businesses choose to become DBEs? Businesses may opt to become a DBE for any number of reasons, sometimes business-related and sometimes value-related. For example, some entrepreneurs seek the benefits of extremely disperse ownership made possible by a corporation, without sacrificing  the flatter governance structure of a partnership or member-managed LLC. Others want to experiment with new ways to economically incentivize production. Still others hope to democratize access to participation in major capital investments, or to democratize industries with traditionally high barriers to entry. Whatever the goal, businesses choose to become DBEs over traditional entity forms when they hope to eliminate one or more layers of management and engage in productive activity that can be highly automated. In light of the choice DBEs make to operate differently—through decentralized technology—in contrast to using more centralized and hierarchical operating mechanisms, exploring the impact of Professor Parella’s stakeholder management approach to international law enforcement in the DBE context requires considering the stakeholders that impact DBEs and how they functionally compare to corporate stakeholders.

II. Stakeholders Look Different in an Era of Decentralized Business Entities

Many DBEs functionally approximate—or, better stated, attempt to functionally improve upon—traditional corporate governance mechanisms. That said, many corporate governance functions are performed by different stakeholders than those found in traditional corporations. Professor Parella’s typology of non-state stakeholders with the power to enforce international law against corporations includes: states, consumers, employees, shareholders, insurers, financial institutions, benchmarking organizations, industry organizations, and multi-stakeholder institutions (Parella, pp. 289). In DBEs, the users represent the functional equivalent of consumers. In particular, users have the power to influence DBE approaches to social issues important to DBE communities by migrating from the services of one DBE to another, calling for what amounts to a blacklist of certain DBEs and their code, or initiating lawsuits. Smart contract developers may approximate the function of founders or employees depending upon the structure of the DBE, while protocol developers often functionally approximate employees by implementing policy choices made by the consensus of the broader stakeholder community.[1] Layer 1 consensus contributors (often referred to as nodes or miners, depending upon the blockchain protocol in question) may also fill the role of employees for DBEs operating at Layer 2 of the blockchain technology stack by simply providing core data processing services for the venture.[2]

Other corporate stakeholders have functional equivalents in certain DBEs as well. For example, some DBEs are managed through a community of individuals who hold “governance tokens.” When such governance token holders receive remuneration in proportion to their governance tokens holdings—and, importantly, not all governance tokens entitle their holders to a stream of profits—they may functionally approximate investors. Furthermore, many Layer 1 open-source protocols are related, even if only indirectly, to a foundation that funds community research and development. Such foundations loosely approximate the work that Professor Parella describes as the role of industry organizations in the realm of traditional corporations (Parella, pp. 315-17). Finally, standards organizations such as IEEE and W3C provide the same opportunities for monitoring and reputational benefits and sanctions that benchmarking organizations provide for traditional corporations (Parella, pp. 313-15).

Lastly, without needing to find a functional equivalent, three corporate stakeholders in Professor Parella’s typology directly play important stakeholder roles in the DBE context: financial institutions, multi-stakeholder initiatives, and NGOs. In addition to naming the conditions of obtaining financing more broadly, in the DBE context, financial institutions play a more basic and perhaps more significant role of gatekeeping the bridge between decentralized finance readily available to DBEs and traditional finance. It can be difficult to operate a business at scale without access to a traditional bank account, no matter how fancy the smart contracts powering the decentralized business are. In the DBE context, NGOs serve an education and advocacy role both similar and dissimilar to the corporate context. Blockchain-related NGOs, such as Coin Center, the DeFi Education Fund, and the Satoshi Action Fund, seek to educate the public about the technical mechanics of and important rights-preserving features embedded in blockchain protocols and the decentralized entities, including DBEs, operating via blockchain protocols. This represents somewhat of a departure from the role of NGOs that act largely as a mechanism of legal sanctions through litigation against corporations as discussed in Professor Parella’s framework for traditional corporations (Parella, pp. 319-21). Although blockchain-related NGOs do participate in litigation, they usually do so in defense of fundamental rights belonging to other stakeholders in the DBE context, as a mechanism for standing against government overreach that violates domestic and international legal norms. Finally, multi-stakeholder initiatives exist in the DBE context, but can be fraught with complexity and competing interests because they frequently attempt to unite an often unwieldy number and variety of stakeholders (Parella, pp. 317-19).

 

Table 1: Decentralized Stakeholder Enforcement Strategies [3]

Actor	Mechanism	Incentive	Examples
Users	Blacklists Migration/Exit Litigation	Market pressure Legal sanction	Blacklist: LCX Hacker Migration: Hardforks Litigation: TerraForm; Sarcussi
Developers	Improvement Proposals Leave project Start new, competing project Social media activism	Reputational sanction Community pressure Community consensus	Core Developer Protest Exit Hardforks such as Litecoin Explain proposals via X, Reddit, Discord, Medium
Nodes	Voting Social media activism	Technical implementation Reputational Sanction	Softfork Implementation Hardfork Implementation
Governance Token Holders	Voting Social media activism Market exit	Market pressure Reputational sanction Financial incentive	DASH Conversion to Business Trust Cardano Constitution Process
Financial Institutions	Access to TradFi Conditions of Financing	Financial incentive	Operation Chokepoint Operation Chokepoint 2.0
Standards Organizations	Develop and standardize technical norms	Reputational benefit/sanction	IEE W3C
Foundations	Monitoring Protocol Development Standard Setting	Recruitment Costs Retention Costs Reputational Benefit/Sanction	Ethereum Foundation Cardano Foundation Solana Foundation
Multi-stakeholder Initiatives	Monitoring Censorship	Reputational Benefit	Digital Chamber of Commerce
NGOs	Activism Litigation Education	Reputational Benefit Legal Enforcement	Congressional Testimony Amicus Brief Public-Private Partnerships: Lionsgate Network

 

Ultimately, then, Professor Parella’s typology of non-state stakeholders that may impact a corporation’s compliance with international law is helpful for identifying similar stakeholders in the DBE context. Importantly, the function performed by each stakeholder in the typology is more important in the DBE context than the label of the stakeholder. Indeed, further consideration of the basic challenges of enforcing international law against DBEs and the tools available to DBE stakeholders reveals that while functionally equivalent to corporate stakeholders and applying functionally similar incentive mechanisms as those used by corporate stakeholders, stakeholders of decentralized entities pursue different reputational, strategic, and organizational goals than their traditional corporate counterparts.

Notably, the obvious missing stakeholder in the decentralized entity context is the one that Professor Parella contends could be the most effective if it only chooses to act: the state (Parella, pp. 302-04). The state does not feature prominently in the decentralized entity context as a stakeholder with enforcement power. Instead, it serves as an object of enforcement focus for the stakeholders in DBEs. Although stakeholders have enforced sanctions against bad actors in the decentralized entity context, the same stakeholders just as frequently seek to protect DBE stakeholders from the loss of fundamental rights like privacy and free speech at the hands of state actors.

III. Decentralized Business Entity Stakeholders Engage in Similar Enforcement Activity for Different Ends

Traditional critiques regarding the effectiveness of international law focus on the enforcement challenge (Parella, pp. 283). As Professor Parella puts it, “how do we convince corporate leaders to comply with international law when they may not be bound to do so?” (Parella, pp. 287) Decentralized entities compound these traditional problems by further insulating the object of regulation from the reach of the state. Indeed, both states and decentralized entities are actively engaged, in the first instance, in simply determining the appropriate relationship between domestic law and computer code.      Resolving those basic issues seems like a pre-requisite to determining how to apply and enforce international legal norms in a fully decentralized context. Law, policy, and DBE stakeholders simply are not yet concerned with questions of enforcing international legal norms in the decentralized era. Instead, for the moment at least, the era of decentralized entities more regularly creates space to question whether commonly accepted state action complies with core fundamental rights guaranteed by international law.

Ultimately, even though the specific actors and the mechanisms of action at their disposal differ significantly from those of traditional corporate stakeholders, they exert pressure through functionally equivalent enforcement activity. Professor Parella explains that corporate stakeholders undertake four forms of enforcement activity: direct, predicative, facilitative, and amplification (Parella, pp. 323-32), and that they do so in order “to change the: (i) preference of corporate actors to comply with international law, (ii) preferences of other corporate stakeholders to enforce international law, or both.” (Parella, pp. 323) Decentralized entity stakeholders also engage in these four forms of enforcement activity, but they do so to effect entirely different reputational, strategic and operational goals. Two very different examples of how this plays out in the era of decentralized entities can be found in DBE stakeholders’ private enforcement against the LCX exchange hacker and DBE stakeholders’ efforts to call the U.S. government to account for violation of privacy and free speech rights in the context of the Tornado Cash software.

In January 2022, the cryptocurrency exchange LCX suffered a loss of around $8 million from what is commonly referred to as a “hot” wallet. The term “wallet” refers to software that holds private keys that allow a user to transact in cryptocurrency, and a “hot wallet” refers to an Internet-connected wallet in which keys are readily accessible. Using algorithmic forensic analysis, LCX traced the stollen funds to various wallets belonging to the hacker. Once identified, monitoring entities such as Etherscan and Elliptic marked and flagged the wallets to enable further monitoring of transactions initiated from those wallets—effectively blacklisting the wallets. Further, some of the stollen funds ended up in wallets connected to technology operated by Circle Financial Services, a financial technology provider that froze the stolen funds until LCX could further recover them through additional legal process. Finally, LCX pursued legal action against the hackers in a New York District Court, serving them on-chain with the first ever NFT legal process airdrop. The media later amplified the actions of these many cryptocurrency stakeholders to recover the stolen cryptocurrency via on-chain means. The recovery of the LCX funds not only reflects an innovative combination of law and technology, but also serves as an example of Professor Parella’s stakeholder framework for enforcement of legal norms at work in a blockchain context.

Notably, the LCX exchange is a centralized entity, and not a DBE, but the example shows how such an entity used technology—both decentralized and centralized—and engaged with the stakeholders in the technology community to privately enforce laws prohibiting theft against a hacker that sought to hide legal violations behind a veil of decentralized technology.

In a separate context all together, a DBE offered individuals protection against perceived government overreach. The Tornado Cash open-source software offered a technology-enhanced path for protecting financial privacy in the digital era. The existence of the software acted as a form of predictive enforcement of international legal norms that declare privacy as a fundamental right. The software even provided a regulatory compliance tool to incentivize direct private enforcement of competing regulatory regimes. When a regulator blacklisted the software and effectively quashed the privacy-enhancing tool, NGOs produced educational reports and offered congressional testimony, users filed lawsuits, and industry organizations filed amicus briefs—all serving a facilitative function even as media amplified the issue. Although the blacklist remains in place for now, the collective effort of the DBE stakeholders led to a national debate about the extent to which the current trajectory of law upholds international legal norms that preserve the right to privacy, and invited a reevaluation of what privacy means in the decentralized digital era.

In considering why corporations obey international law, Professor Parella frames the question as “why do corporate managers comply with international law?” (Parella, pp. 332) DBEs, however, typically do not feature a board of directors or managers per se—not having them is a big part of the point of using the DBE form to coordinate productive activity. So, the question becomes: what will motivate the various DBE stakeholders to build sufficient consensus to enforce international legal norms via the enforcement mechanisms available to them? In other words, DBE stakeholders enjoy more direct input into compliance questions than their corporate stakeholder counterparts. To date, DBE stakeholders, including actors at each layer of the blockchain technology stack, are motivated to protect the fundamental rights that form the very fabric of the community and the technology the community built—sometimes to enforce law against individual bad actors, and sometimes to combat illegal enforcement of law by the state itself.

Conclusion

One of the key contributions that may emerge from applying Professor Parella’s typology of stakeholders and enforcement mechanisms to decentralized entities lies in the pervasively disruptive nature of the ethos that permeates the underlying technology. One of the core motivators for decentralized, encrypted, and open-source technology use derives from a desire to claw-back core rights from perceived government overreach. If the Tornado Cash fight is about anything, it is not money laundering. At its core, the fight over the Tornado Cash software is a fight to claw-back privacy rights that have been eroded in an era of infinite digital intermediation. Decentralized blockchain technology itself stands as a call to reclaim personal autonomy and individual freedom—key norms in international law.

In the era of decentralized entities, stakeholder mechanisms convert a decentralized entity’s alleged violation of certain domestic and international legal norms (such as the theft in the LCX hack or individual privacy in the case of the Tornado Cash software) into reputational, strategic and operational goals that incentivize stakeholders to examine whether the state complies with international law and, indeed, questions whether the legal rules themselves actually uphold international norms. The decentralized era is not about enforcing international law in a boardroom; it is about empowering users—individuals—to claw-back rights on their own terms. Ultimately, then, even as private actors work to govern decentralized entities in ways that align with international and domestic laws, decentralized entities seek to hold states themselves accountable to international legal norms. In other words, decentralized entities are intuitively flipping the script of international law enforcement through stakeholders from “provid[ing] important incentives for corporate actors to comply with international law” (Parella, pp. 340) to “empowering entities and individuals to internalize norms that states must respect.”

 

[1] Arvind Narayanan Et Al., Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction 171 (2016) (discussing that protocol developers “can urge the community on, but they don’t have the formal power to force people to follow them if they take the system in a technical direction that the community doesn’t like.”).

[2] Id. at 68-71 (explaining the role of Simplified Payment Verification (SPV) and fully validating nodes (including miners) in blockchain protocols for validating transactions and providing data processing services).

[3] Table 1 is an adaptation of Table 1: Stakeholder Enforcement Strategies in Parella, p. 322. It has been adapted to show the functional equivalence of stakeholders in the decentralized entity context to corporate stakeholders.

 

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*Carla L. Reyes. Associate Professor of Law, Southern Methodist University Dedman School of Law; Faculty, Institute for Cryptocurrency and Contracts (IC3); Research Associate, University College London Blockchain Research Centre; Affiliated Faculty, Indiana University Bloomington Ostrom Workshop on Internet Governance and Cybersecurity.

I would like to thank Professor Kishanthi Parella for her brilliant work and the invitation to respond to it in the context of my area of expertise. I also want to thank the Harvard Journal of International Law editors for making this symposium possible.

Cover image credit 

Editor’s Note: This article is part of a four-piece symposium that examines Kishanthi Parella’s work, “Enforcing International Law Against Corporations: A Stakeholder Management Approach,” featured in Volume 65(2) of the HILJ Print Journal.

Shannon Raj Singh

Any credible discussion on the future of the social media industry must reckon with its history of spectacular failures. Chief among those are the instances where social media has fueled or contributed to the commission of mass atrocities around the world. A wealth of examples is on the tip of our tongues: Leaked Facebook documents betray internal warnings that the company was not doing enough to prevent spiraling ethnic violence in Ethiopia, inaction that is now the subject of litigation in Kenyan courts. The Taliban deftly navigated Twitter’s content moderation rules to spread propaganda amidst its takeover of Afghanistan in 2021, in an effort to add a veneer of legitimacy to a brutal and oppressive regime. And in the sprawling refugee camps of Cox’s Bazar, Bangladesh, close to one million Rohingya remain displaced after unrestrained hate speech on social media played a significant role in inciting ethnic violence in neighboring Myanmar.

But amidst the rubble, we can find evidence of surprising successes, too—moments when social media companies have acted in broad alignment with international legal frameworks and standards on the prevention and punishment of mass atrocities. In select cases, platforms have agreed to share data that could be used to investigate and prosecute mass atrocities, or have acted rapidly to modify their products or policies to prevent them from contributing to atrocity crimes. In the context of Afghanistan, for example, Facebook released an innovative feature aimed at civilian protection: its “locked profile” feature allowed Afghan civilians to rapidly lock down their privacy settings to prevent information on their profiles from being used to target them in a rapidly devolving security situation. Amidst the Russian invasion of Ukraine, Twitter released a content moderation policy prohibiting depictions of prisoners of war, specifically referencing alignment with the Geneva Conventions. In several instances, platforms have developed war rooms and operations centers to respond to emerging dangers posed by their products in conflict and crisis settings. And at various points over the past few years, platforms have released human rights policies, hired human rights teams, and invested in human rights impact assessments to address risks related to their products, policies, and operations. Certainly, these initiatives can help buttress platforms’ reputations as they are being otherwise battered for their failures in conflict settings. But calling them mere PR stunts may obscure the investment, time, and effort of those working to steer platforms toward international law in moments of atrocity risk. What accounts for these bright spots, and how can we replicate them?

Kishanthi Parella’s article, Enforcing International Law Against Corporations: A Stakeholder Management Approach, illuminates how international law is at work in the private sector in “non-obvious ways” (Parella, p. 338). Nowhere is this more true than in the realm of social media, where platforms developed and operated by the private sector play a central role in modern political dialogue, breaking news, armed conflicts, demonstrations, revolutions, and social movements the world over.

Parella’s article offers a thorough landscape assessment of how various stakeholders interact with one another to inform and influence corporate conduct. In her conception, corporate stakeholders—ranging from states to consumers, shareholders, employees, benchmarking organizations, civil society organizations, and others—use an array of strategies to serve as modern enforcers of international law in the private sector. Its core contribution lies in both recognizing the aggregate effect of stakeholder actions as a form of international law enforcement, and mapping their enforcement strategies onto a typology so this work can be done more intentionally going forward.

Although it would seem to apply to a range of issue areas governed by international law, a stakeholder management framework may offer particular promise in pushing social media companies to better align with international legal frameworks relating to atrocity crimes: namely, genocide, crimes against humanity, and war crimes. While these legal frameworks face widespread enforcement challenges in courts of law, they may derive particular power in the corporate context specifically because they relate to the gravest crimes on earth. Indeed, the ability of mass atrocities to shock our collective conscience may well serve stakeholders’ ability to convert corporate violations of international law into reputational, strategic, and operational risks that can incentivize action and change.

There are legal frameworks regarding the role of corporate actors in mass atrocities, but they are notoriously difficult to enforce. While individuals (including corporate executives) can be prosecuted in either domestic or international legal systems for the commission of genocide, war crimes, and crimes against humanity, the Rome Statute does not provide for the prosecution of legal persons before the International Criminal Court. And despite a series of legal efforts that have sought to hold corporations to account for their role in atrocity crimes, enforcement is plainly the exception, not the rule. Indeed, asserting that social media companies should be held responsible for the dissemination of content, posted by an array of actors that can in the aggregate contribute to mass atrocities, can make for a challenging legal argument. Although the law certainly imposes responsibilities in this space, neither violations nor causations are easy to prove.

We must also distinguish obligations to prevent mass atrocities from obligations restraining actors from contributing to their commission. States, for example, are not only prohibited from committing mass atrocities, but also are obligated to help prevent them. These state obligations to prevent derive from distinct legal sources: the 1948 Convention on the Prevention and Punishment of the Crime of Genocide, for example, holds states to a due diligence standard that requires them to act according to their capacity to influence a situation at risk of genocide, wherever it occurs. Common Article 1 of the Geneva Conventions imposes a similar obligation for war crimes, obligating High Contracting Parties to both “respect and ensure respect” for the Conventions — meaning states must not only refrain from committing war crimes themselves, but are also obligated to take measures within their power to prevent war crimes by other states.

But there is no question that these treaties bind states, and not social media companies. And while the UN Guiding Principles on Business and Human Rights—widely recognized as the authoritative global framework on corporate obligations relating to human rights—requires companies to “[a]void causing or contributing to adverse human rights impacts through their own activities, and . . . [s]eek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or services,” their nonbinding nature presents significant roadblocks to consistent enforcement.

Amidst these legal obstacles, and in an age where social media companies wield as much influence—if not more—over the risk of mass atrocities as many states, how can we encourage platforms to act more responsibly in atrocity risk settings? And what promise does a stakeholder engagement model hold for encouraging social media companies to reflect and uphold norms relating to mass atrocities?

Although Parella’s model of stakeholder management anticipates many of the core players in the social media context (such as shareholders, employees, civil society organizations, and states), it perhaps fails to adequately capture the unique nature of the social media user. As powerfully stated by technology ethicist Tristan Harris, social media users are simultaneously the “consumers” and the “products.” User data is packaged and sold to drive profit through a business model premised on targeted advertisement, rendering individuals both consumers of social media platforms and part of what is being sold. In addition, unlike most industries within the private sector, social media stands apart because the range of relevant “consumer” stakeholders encompasses literally billions of people. Meta has acknowledged this challenge explicitly, noting that its “stakeholder base includes every person or organization that may be impacted by [its] policies,” while being clear that it “can’t meaningfully engage with billions of people.”

So while stakeholder engagement in other sectors brings to mind outreach to a set of fairly clear-cut communities, social media tests the boundaries of what the category of “stakeholder” even means. In the mining industry, for example, stakeholder management may be premised on engagement with local communities directly affected by the sourcing of minerals, vendors throughout the supply chain, and a set of downstream consumers. But in the realm of social media, both every individual who has a social media account and every individual who may be affected by developments on social media platforms are veritable stakeholders of this industry. Social media has become so central to democratic processes, to peace, stability, and the risk of armed conflict, that it is difficult to envision who would not want to have the ability to shape its development and governance. Who, among us, is not a stakeholder in the way that our modern “public squares” organize, amplify, censor, and present purported information?

But as Parella recognizes, not all stakeholders have equal power. The sheer volume of social media stakeholders dilutes individual power, a fact which implicitly suggests the potential for stakeholder alliances to shift corporate conduct. Should those billions of stakeholders organize into meaningful blocs or groups that can articulate risks related to atrocity prevention, imagine the aggregate power they could wield to influence platform resourcing and decision-making. The fact that a stakeholder management model makes this so evident is valuable in itself—but it does not necessarily provide a ready answer to the modalities of “managing” such an extraordinary volume of stakeholders. In the social media industry in particular, this warrants further consideration.

At the same time, a stakeholder management model can be illuminating in demonstrating the array of enforcement opportunities open to actors in the social media space. One such actor—and a unique stakeholder with little direct precedent—is the Oversight Board. Established by Meta in 2020, the Oversight Board is mandated to make principled, independent decisions on selected cases about how digital content is handled by Facebook and Instagram, and now Threads as well. While created by Meta, the Board is funded by an independent trust (funded by Meta), and, pursuant to its Charter, Board members exercise independent judgment on Meta’s decisions and operations.

While skepticism about its ability to drive long-term change has been plentiful, the good news is that, from the outset, the Oversight Board seems to have accepted the relevance of international law as a core part of its mandate. Its decisions on cases selected for review regularly reference international law, including the Geneva Conventions, the International Covenant on Civil and Political Rights, Human Rights Committee jurisprudence, and the UN Guiding Principles on Business and Human Rights. In a world where the international legal community has largely failed to effectively wield the law as a sanction for social media companies’ conduct in conflict zones, the Oversight Board is “augment[ing] the architecture of international institutions that detect and punish violations of international law” (Parella, p. 341).

To date, the Oversight Board has (consciously or unconsciously) engaged in a range of strategies to enforce international law. Some of its work can be considered predicative enforcement: conduct that does not directly engage a corporation but creates the conditions for another stakeholder to do so. In 2021, for example, the Board issued a decision recommending that Facebook “[m]ake clear in its corporate human rights policy how it collects, preserves and, where appropriate, shares information to assist in investigation and potential prosecution of grave violations of international criminal, human rights and humanitarian law.” Serving a somewhat similar (if more toothless) function to mandated disclosure laws, its calls for transparency can push Meta to share information that it might not otherwise disclose, providing a foundation for other stakeholders to directly engage the platform on policies and practices that impact the prevention and punishment of mass atrocities.

The Oversight Board can also engage in action that “magnifies the impact of action taken by other stakeholders” (Parella, p. 329). This “amplified enforcement” (Parella, p. 329) strategy can play an important role in raising the magnitude of a risk for Meta, drawing attention to its actions in atrocity risk settings. Among other avenues, this can occur through the use of the Oversight Board’s “agenda-setting” function (Parella, p. 330) to influence the risks that a platform faces because of its conduct in atrocity risk settings. In December 2023, for example, the Oversight Board announced that it would be reviewing a case related to content depicting the apparent aftermath of a strike on a yard outside Al-Shifa Hospital in Gaza City. The content—which was removed by Meta—depicted “people, including children, injured or dead, lying on the ground and/or crying,” while a caption in Arabic and English suggested the hospital was targeted by Israeli forces. Strikingly, Meta reversed its decision—restoring the post to the platform—not because the Board asked it to, but simply upon learning the Board had taken up the case. In this case, through its agenda alone, the Oversight Board influenced Meta’s actions, causing it to reassess its decision to remove content documenting purported atrocities. This is particularly powerful where the removed content at issue is intended to raise public awareness of the risk of mass violence. To the extent that the media also then picks up on the Oversight Board’s decisions, its enforcement function can be amplified further.

But perhaps most impactfully, the Oversight Board’s decisions on cases—akin to court decisions in some ways—can be regarded as direct enforcement of international law. In a decision on digital content threatening violence in Ethiopia, for example, the Board found that “Meta has a human rights responsibility to establish a principled, transparent system for moderating content in conflict zones to reduce the risk of its platforms being used to incite violence or violations of international law. It must do more to meet that responsibility.” Although other stakeholders may build upon the Oversight Board’s decisions, these decisions are themselves a form of direct engagement with Meta. They often contain recommendations that go well beyond addressing how the platform should respond to an individual piece of content, calling for systemic change in how the platform responds to human rights risks in similar settings. In the Ethiopia decision, for example, the Oversight Board called on Facebook to both “publish information on its Crisis Policy Protocol,” and to “assess the feasibility of establishing a sustained internal mechanism that provides it with the expertise, capacity and coordination required to review and respond to content effectively for the duration of a conflict.”

It is not only significant that stakeholders such as the Oversight Board are calling for changed policies and practices from social media companies in atrocity risk settings—they are also invoking platforms’ international legal responsibilities in the process. Make no mistake: the Oversight Board warrants recognition as an emerging mechanism for the enforcement of international law, drawing on an array of enforcement strategies outlined in Parella’s model. Where the law does not itself represent a persuasive sanction, stakeholders of social media companies may be able to drive more immediate alignment with international law.

At the same time, it is worth bearing in mind Evelyn Douek’s prescient warning that “[t]he indeterminacy of [international human rights law] creates room for its co-optation by platforms, rather than their being constrained by it.” Certainly, the same could be said for legal frameworks relating to mass atrocities. Preventive obligations remain largely undefined even for state actors, and accountability for complicity in the commission of mass atrocities is pursued for only the smallest subset of responsible actors. We do not want social media platforms adopting the “language” of atrocity prevention unless it is accompanied by meaningful conduct to prevent and mitigate atrocity risks. Stakeholder engagement can help here too, but will need to ensure that advocacy is tied to the tracking and monitoring of data-driven indicators of progress by platforms operating in atrocity risk settings.

Perhaps the greatest benefit of a stakeholder engagement model is that it nods to our collective agency and responsibility in shaping a sector that is notoriously opaque. There is much to be said for the noble efforts of trust and safety professionals working to change social media companies from within—the wins referenced above could surely not have occurred without their work and expertise. But we must not forget that we find ourselves today in the midst of a “human rights recession,” a trend that extends to the tech industry. Amidst mass layoffs of teams focused on human rights, trust and safety, and election integrity, Parella’s framework offers us a necessary roadmap for the way forward. There will always be power in identifying opportunities to prosecute and punish those who contribute to atrocity crimes—natural persons and legal persons alike. But in the meantime, a stakeholder engagement model helps us conceptualize how those both inside and outside social media companies can steer platforms toward more responsible conduct in atrocity risk settings, in the moments it matters most.

 

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Cover image credit 

Editor’s Note: This article is part of a four-piece symposium that examines Kishanthi Parella’s work, “Enforcing International Law Against Corporations: A Stakeholder Management Approach,” featured in Volume 65(2) of the HILJ Print Journal.

*Carol Liao

Introduction

Climate change is an intractable, “wicked” problem, in that it resists definition and conventional solutions. Its global effects are systemic and interconnected, acting as a risk multiplier with political, economic, and social ramifications that have the ability to destabilize civilizations. Interwoven in the wicked problem of climate change is the difficulty of curtailing unsustainable and irresponsible corporate behavior, which is hastening the warming of our world. Concern over the drastically changing climate is nothing new, but pressure on corporate actors to proactively address climate change has never been more vital in holding the increase in global average temperatures to “well below 2 °C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C” as set out by the Paris Agreement. Given the transnational harms and importance of international collaboration across jurisdictions and industries, meaningful corporate accountability is needed to reduce greenhouse gas (GHG) emissions in the transition away from fossil fuels toward renewable energy systems, and help resolve the seemingly unresolvable question of climate change.

Kishanthi Parella’s formidable work, Enforcing International Law Against Corporations: A Stakeholder Management Approach, points out that international law can guide corporate managers on how to meet demands for more responsible business practices and address the complex reality of climate change, yet many crises occur because corporations fail to follow international law. As Parella notes, the problem lies in enforcement—the international legal order lacks adequate mechanisms to ensure compliance. It is in that vein, and in the application of Parella’s stakeholder management approach to international law, where one can consider how to incentivize corporations to align their behavior to conform to stakeholder expectations and address gaps in their international legal obligations.

This Article explores Parella’s stakeholder management framework specifically in the context of climate change. First, I provide a very brief history of major developments in climate change–related international legal instruments. Then, I apply Parella’s framework to shifting legalities in corporate climate accountability, reflecting upon how international legal obligations are channeled into mechanisms with localized teeth via various stakeholders. Specifically, I consider the “tidal wave” of climate-related litigation against the backdrop of international legal obligations. Using Parella’s typology of enforcement, I highlight how direct enforcement by stakeholder litigants against states and corporate actors, driven by international law and norms, incentivizes further predicative enforcement (creating conditions for another stakeholder to enforce), facilitative enforcement (limiting actions that could disrupt another stakeholder’s ability to enforce), direct enforcement, and amplified enforcement by other stakeholders. These behaviors induce an interactive process that aims to institutionalize climate governance norms while also pulling jurisdictions toward globalized standards of corporate regulation. I conclude with a comment on the urgency of further advancing corporate accountability across jurisdictions.

I. International Legal Frameworks to Address Climate Change

A web of international legal frameworks to tackle climate change has emerged over time—with progress and integration developing in fits and spurts. The Intergovernmental Panel on Climate Change (IPCC) was first established in 1988 by the United Nations (UN) General Assembly, tasked with researching the science of climate change and creating assessment reports detailing its effects and risks. In 1992, the United Nations Conference on Environment and Development built upon the two-decades-old Declaration of the United Nations Conference on the Human Environment to draft the Rio Declaration and 27 Principles (known as the Rio Principles) meant to guide the behavior of nations toward more environmentally sustainable patterns of development. Notable in these principles were Principle 1—stating that “[h]uman beings are . . . entitled to a healthy and productive life in harmony with nature”—and Principle 15, a precautionary principle which held that “[w]here there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.” A key achievement stemming from the conference was the establishment of the UN Framework Convention on Climate Change (UNFCCC) and later, the Kyoto Protocol.

The implementation of the UNFCCC as a treaty is monitored by the Conference of the Parties (COP), providing a general framework with the main priority being the “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” The UNFCCC is guided by principles of equity in demanding “differentiated responsibilities” based on each country’s respective capabilities. The Kyoto Protocol, adopted at COP3 in 1997, set specific emissions reduction targets for developed countries, subject to an aggregate target flowing from this principle of equity. The Kyoto Protocol was then followed by the 2010 Cancun Agreements at COP16, and the 2012 Doha Amendment at COP18, which set the goal of reducing GHG emissions by 18% compared to 1990 levels for participating countries during the Kyoto Protocol’s second commitment period of 2013-2020.

These international treaties and agreements focused on states, but in 2008, the UN endorsed the “Protect, Respect and Remedy Framework” for business and human rights, which culminated in the UN Guiding Principles on Business and Human Rights (UNGP) adopted in 2011. The UNGP outlines state responsibilities in promoting and protecting human rights, including the duty of states to enact effective laws and regulations to prevent and address business-related human rights abuses, and to ensure access to effective remedies for those whose rights have been abused. The UNGP also specifically addresses the human rights responsibilities of businesses, establishing an overarching framework under which corporations have the responsibility to respect human rights wherever they operate and regardless of their size or industry. This responsibility includes requiring companies to know their actual or potential impacts, prevent and mitigate abuses, and address adverse impacts with which they are involved.

Four years after the UNGP, the UN Sustainable Development Goals (UNSDGs) were established, providing a “shared blueprint for peace and prosperity for people and the planet” with 17 goals emphasizing the interconnected environmental, social, and economic aspects of sustainable development. Goal 13 specifically addresses climate action, mandating that countries “[t]ake urgent action to combat climate change and its impacts.”

In 2016, the Paris Agreement—a binding international treaty established under the UNFCCC framework focused on limiting global temperature increases—came into force. Under the Paris Agreement, accountability is monitored through various structures including a transparency system, a global stocktake process, and recurring five-year assessments. As the intertwining of climate change and human rights grew ever more apparent, the UN Working Group on the issue of human rights and transnational corporations and other business enterprises issued its Information Note on Climate Change and the Guiding Principles on Business and Human Rights in June 2023. Its aim was to assist states and corporate actors in integrating climate change impacts with human rights–related impacts caused by, contributed to, or linked with business activities.

II. Direct Stakeholder Enforcement Through the Lens of Climate Change Litigation

As Parella notes, international law compliance is best guaranteed by the “institutionalization of international law norms”—in other words, internalization socially, politically, and legally. But since international tools do not bind corporations directly, Parella stresses that internalization is the product of interactive processes that occur between both states and nonstate actors, at both the domestic and institutional levels in a variety of fora. Thus, to answer the question of “How do we convince corporate leaders to comply with international law when they may not be bound to do so?”—one answer is that we must convince a particular group of intermediaries (stakeholders) with influence over corporate actors.

Part and parcel of the wicked problem of climate change is that it involves many different stakeholders who have different conceptions of the problem and its ideal solutions. Parella notes that judicial processes may or may not play a central role in the interactive processes that lead to internalization by a state. In climate change, the role of the judiciary in certain jurisdictions has become a fulcrum in establishing international norms as legally binding precedent. In this sense, “[c]limate change profoundly modifies these ancient premises and rattles judges’ comfort zones,” as Justice Antonio Herman Benjamin of the National High Court of Brazil noted in 2020.

International private climate litigation in the past few decades has played a role in shaping corporate behavior with regard to climate change and international law. The relative pace at which climate and human rights litigation has arisen throughout the world is rather remarkable. Across sixty-five jurisdictions around the world including the Netherlands, the United States, the Philippines, Canada, and Switzerland, municipalities, nongovernmental organizations (NGOs), private citizens, and other stakeholders have sued—or threatened to sue—corporations, industries and governments for the environmental and social harms they have inflicted on communities. Advancements in climate attribution science have strengthened tort-based claims, and new corporate legal claims are appearing regarding misleading disclosure of climate change risks and breaches of directors’ duties to identify and manage these risks. These latter claims differ from tort-based claims aimed at redressing past harms in that corporate statutory legal obligations are forward-looking predicative enforcements, tilting the pressure on corporations to change their ongoing governance behavior in relation to climate change, human rights, and potentially other areas related to the UNSDGs.

The landmark 2019 case of Urgenda Foundation v. The State of the Netherlands [Urgenda] involved a claim brought against a state, yet it laid much of the groundwork for climate litigation against private corporate entities. Urgenda is the first case in the world where a court has held that its government has a legal duty to accelerate its response to climate change in order to protect human rights. In the case brought by the plaintiff NGO, Urgenda Foundation, the Dutch Supreme Court recognized that global warming is caused by increased GHGs emitted into the atmosphere, which can be prevented, and that events associated with climate change are foreseeable. In making this decision, the court relied on the climate scientific reports of the IPCC, UNFCCC, and targets set by the Paris Agreement, as well as principles of international environmental law and other forms of soft law. The court found that the Dutch government owed a duty of care to protect its citizens from climate change under Dutch civil law and that it is required to take action to reduce its GHG emissions by at least 25% by the end of 2020 as compared to 1990 levels.

The reasoning in Urgenda has been instructive for corporate climate litigation claims. The case provided evidentiary weight and authority to climate attribution science and to methodologies that use this climate attribution science to calculate the emissions of a particular entity and the reductions required for it to meet its obligations. The court rejected the defense put forth by the Dutch government that its GHG emissions were relatively low on a global scale, even noting that such an argument would mean many could easily evade responsibility by simply pointing to worse actors. Regardless of how small a state’s share of emissions are on a global scale, the court found that the government still has an obligation to do its part to reduce its output of GHG emissions.

Additionally, the Urgenda court employed the “reflex effect” as its interpretative standard to determine the scope of the state’s duty of care and its discretionary power—meaning a standard that considers international obligations and principles when interpreting open standards in national laws. While the international obligations imposed by the UNFCCC and the Kyoto Protocol are binding on the state, these obligations only extend to situations where other states may bring claims against the Netherlands for cross-border harm due to emissions trading. Private citizens such as the Urgenda Foundation cannot find a right of action based on such international obligations. Nevertheless, under Dutch law, international obligations contribute to standards of national law, and the state can be presumed to be following international obligations. In this way, international obligation is said to have a “reflex effect” on national law, and the court applied this analysis to provisions not directly applicable to citizens.

The reflex effect in Urgenda echoes the modes of internalization that Parella outlines in her approach, involving interactive processes between states and nonstate actors that integrate international law domestically. Courts involved in climate change litigation may and likely will employ more generous interpretations of their domestic law doctrines of duty of care. The recently decided 2024 case of Verein KlimaSeniorinnen Schweiz and Others v. Switzerland [KlimaSeniorinnen] serves as evidence of this. In KlimaSeniorinnen, an appeal from the Federal Supreme Court of Switzerland (FSC), the European Court of Human Rights (ECtHR) reversed the FSC’s decision and found that the Swiss government violated the human rights of its citizens by taking insufficient action to combat climate change. This was so because the ECtHR found that Article 8 of the European Convention of Human Rights imposed a positive obligation to put in place relevant legislative and administrative frameworks to provide effective protection of human health and life; this obligation manifested primarily as a “duty . . . to adopt, and to effectively apply in practice, regulations and measures capable of mitigating the existing and potentially irreversible, future effects of climate change.” In the case, the ECtHR repeatedly cited Urgenda, and relied on many of the same international documents, to the same effect, as the Dutch Supreme Court did in Urgenda; importantly, the duty of care reasoning in KlimaSeniorinnen is largely consonant with that of Urgenda.

Thus, Urgenda has direct and amplified enforcement effects on subsequent litigation, as well as predicative and facilitative enforcement of future corporate behavior aimed at mitigating the risk of litigation. Parella’s observations on stakeholder enforcement are significant here. Between 1986 and 2014, 834 climate-related cases were recorded, but since Urgenda and as of June 2024, there are now 2,666 climate change cases filed around the world. In 2023, 40% of cases filed outside of the US named a corporation as a defendant. Landmark cases are increasingly altering the global legal landscape, and perhaps in a continual iterative and/or responsive process between the courts and governments, to date more than 170 countries have introduced national policies and laws on climate change mitigation and adaptation.

Indeed, the case of Milieudefensie et al. v. Royal Dutch Shell plc. [Shell], initiated in 2019, extended the principles from Urgenda to corporations. The NGO Milieudefensie, along with 17,379 co-claimants and six other NGOs, brought proceedings against Shell plc along the same lines as Urgenda, alleging that Shell plc’s contributions to climate change violated its duty of care under Dutch civil law informed by climate conventions and the European Convention for Human Rights. The Paris Agreement played a relevant role in the case, even though the defendant Shell plc, as a nonstate actor, was not a signatory to the agreement. These claimants sought an order from the District Court in The Hague, obligating Shell plc to reduce its GHG emissions associated with its business activities and energy products by at least 45% by 2030, 72% by 2040, and 100% by 2050, as compared to its 2010 emissions, in accordance with the Paris Agreement. The case also specifically referenced the UNGPs and OECD Guidelines for Multinational Enterprises—arguably crystallizing those international soft laws into hard law.

In May 2021, the court ordered Shell plc to reduce carbon dioxide emissions resulting from its operations by a net 45% in 2030, relative to 2019 levels. Shell demonstrates the tort liability that corporations may face not only for emitting GHGs that cause climate change, but also for failing to proactively mitigate climate change in their business activities.

Decisions such as Urgenda and Shell demonstrate that international treaties such as the Kyoto Protocol and Paris Agreement can serve—and have served—as a basis for plaintiffs to argue that states and corporations are violating international obligations.

Similarly, customary international law may influence domestic law. For example, in the landmark ruling of Nevsun Resources Ltd. v Araya [Nevsun], the Supreme Court of Canada affirmed that customary international law forms a part of Canadian common law via the doctrine of adoption, absent conflicting legislation, and that claims alleging breaches of jus cogens (a type of customary international law) can be brought under Canadian common law. Nevsun also determined that customary international law relating to human rights breaches can be applicable to private actors such as corporations, because human rights law has a unique, human-centric nature, primarily concerns individuals, and exists beyond state-to-state relationships. As climate litigation continues to focus on its connection with human rights, and as international legal obligations begin to reflect on these integrated issues, customary international law may increasingly play a role across jurisdictions. These cases also motivate director and officer insurers to improve their monitoring of insured companies’ climate governance.

These international climate cases demonstrate the wide potential range of stakeholders that could bring claims against corporations. Governments, for instance—who are typically defendants in public climate litigation—have an interest in bringing claims against corporations for causing climate-related harms. In the United States, for example, there has been a recent wave of litigation by state and local governments against companies and corporations for climate-related harms. Recently, in City and County of Honolulu, Hawaii v. Sunoco LP [Sunoco], the Supreme Court of Hawaii decided that tort claims brought by the City and County of Honolulu against several oil and gas producers, for allegedly misleading the public about climate-related risks and environmental impact associated with using fossil fuels, could proceed to trial. The defendants are now seeking review at the Supreme Court of the United States.

Municipalities and local governments are most likely to bear the cost of infrastructure to respond to rising sea levels, increased cross-border migration, and other climate-related events and social harms. Enforcement power is dynamic, notes Parella, and “its attributes may be gained or lost.” Thus, “stakeholders can compensate for their own lack of critical attributes by allying with other stakeholders who possess the missing attributes.” Ultimately, it may cost corporations more in the long run if they are unprepared for regulatory, reputational, and litigation risks coming at them from multiple fronts.

Furthermore, the failure or withdrawal of a claim does not necessarily indicate that the claim will not impact the corporations’ operations; rather, even unsuccessful litigation can serve several functions including maintaining pressure on fossil fuel companies and other large emitters, keeping sustainability issues alive in the public mind, and sending strong messages to governments that comprehensive legislation is needed because current statutes are inadequate to address climate change, planetary boundaries, and unsustainable business.

Corporations complicit in climate change must weigh the risks of stakeholders taking future action, along with the likelihood of increased legislation in reaction to constituent upheaval in climate inaction. International private climate litigation against corporations has been much more impactful in recent years given the developing body of legal precedent, advancements in climate attribution science, and the wide range of litigation avenues available for different stakeholders to hold corporations accountable. Not only are claimants using litigation to influence the behavior of target corporations, but they are also using this opportunity to call on government regulators to set clear expectations for corporations in relation to corporate disclosure.

Parella’s astute stakeholder management approach helps reveal the processes in which international law finds itself and reverberates within corporate accountability mechanisms. As theorized by Parella, we are witnessing numerous “interactive” processes including new standards being developed in terms of carbon emissions, materiality measures, and climate-related disclosures. The convergence of sustainability standards around the world and development of the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations as a global benchmark for climate-related reporting signal the strong desire to tie corporate climate-disclosure standards to international norms. The formation of a new International Sustainability Standards Board (ISSB), which has been a years-long culmination of the work of the TCFD seeks to develop—in the public interest—a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. The G7’s endorsement of the ISSB and a wide range of powerful stakeholders calling for greater corporate accountability have mainstreamed the international dialogue on climate governance, reflecting changing expectations and demands for new and sustaining relationships to bind our global community.

Conclusion

As Parella notes, legal risk is only part of the story. Stakeholder mechanisms convert a corporation’s violation of international law into reputational, strategic, and operational risks that incentivize corporate actors to comply with international law. Reputational risk is key, and stakeholders help create these risks. Litigation requires corporations to take responsibility for past harms, but to also proactively manage or mitigate sustainability-related risks because corporations occupy a special position of power in society and have the opportunity and capacity to improve the world’s response to this sustainability crisis. As mentioned previously, tort-based climate litigation is largely backward-looking in that claimants are primarily seeking compensation for injuries caused in the past, while corporate law–based litigation is both backward and forward-looking. Claimants using corporate legal mechanisms will not only seek to hold corporations responsible for omitting information or disclosing false or inaccurate information, but will also seek to require corporations to change their future conduct in relation to international norms on climate change.

The IPCC has provided different emissions scenarios based on the planet crossing various temperature thresholds in the future. An optimistic scenario of limiting temperature increases to the guardrails of well below 2°C and preferably 1.5°C as set out in the Paris Agreement, could contain the most catastrophic impacts of climate change. Attaining that goal will require a rapid and substantial reduction in global GHG emissions: net-zero emissions by 2050 or sooner and negative emissions thereafter. Failing that, a 2°C scenario of global warming would mean a profoundly disrupted climate, and a 4.4°C scenario would mean a vastly different world than we know now. It would be catastrophic. In the face of this wicked problem, states and nonstate actors must urgently respond to obligations under international laws to reduce their GHG emissions. Parella’s “norm entrepreneurs”—the stakeholders in this climate crisis—are all of us, with disproportionate harm facing those emitting the least. Stakeholder enforcement of international law in the context of climate change is reaching a critical juncture in history, and these next years will be especially telling.

 

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*Dr. Carol Liao is an Associate Professor at the Peter A. Allard School of Law, and the UBC Sauder Distinguished Fellow of the Peter P. Dhillon Centre for Business Ethics, University of British Columbia. She is the Chair of the Canada Climate Law Initiative, a national research center advancing director knowledge on climate governance and fiduciary obligations, and the Co-Director of the UBC Centre for Climate Justice. An internationally respected expert in corporate law and sustainability, Carol has been recognized with the Influential Women in Business Award, BCBusiness Women of the Year Award, TELUS Community Service Award, Canada’s Clean50 Award, and was named as one of Canada’s Top 100 Most Powerful Women and Canada’s Top 25 Most Influential Lawyers. She is a lawyer qualified to practice in New York, and prior to academia was a senior associate at a leading global law firm.

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