Regulating the Environmental Impact of Direct Investment in Developing Countries: The Need to Shift from a Command-andControl Mechanism to a Multi-stakeholder Approach

Abstract

Investment promotion occupies a prominent place in the development policies of
developing and least developed countries. Yet it poses challenges to the achievement
of sustainable development by undermining social development and exposing the
environment to degradation. This article discusses the links between investment and
the environment and the dilemma facing developing countries in their efforts to
regulate the environmental impacts of investment more strictly. More specifically, it
explains how countries‟ interest in remaining competitive in attracting investment
affects the integrity of the environment. It also indicates a lack of institutional
capacity to regulate investment, and the existence of a power imbalance between
developing counties and companies (particularly multinationals) as factors
jeopardizing the environment. It highlights the importance of effective policy
measures to reap the benefits of investment and protect the environment at the same
time. Finally, the article argues that countries need to introduce environmental
regulatory systems that give room for different actors—governments, NGOs, the
community, and business enterprises—to work together to control the environmental
impacts of investment, presenting an alternative to the conventional command-andcontrol approach. It elaborates how stakeholders‟ involvement, and specifically that
of companies, is vital to ease developing countries‟ anxiety about losing the inflow of
direct investment due to strict environmental regulation.