A/HRC/8/5 page 11 employees or officers. These principles may be invoked at the liability stage, or during sentencing and in exercising prosecutorial discretion.28 Both incentivize companies to have appropriate compliance systems. 32. In principle, inducing a rights-respecting corporate culture should be easier to achieve in State-owned enterprises (SOEs). Senior management in SOEs is typically appointed by and reports to State entities. Indeed, the State itself may be held responsible under international law for the internationally wrongful acts of its SOEs if they can be considered State organs or are acting on behalf, or under the orders, of the State. Beyond any legal obligations, human rights harm caused by SOEs reflects directly on the State’s reputation, providing it with an incentive in the national interest to exercise greater oversight. Much the same is true of sovereign wealth funds and the human rights impacts of their investments. B. Policy alignment 33. The adverse effects of domestic policy incoherence were repeatedly raised at a recent consultation held by the Special Representative: “vertical” incoherence, where governments take on human rights commitments without regard to implementation; and “horizontal” incoherence, where departments - such as trade, investment promotion, development, foreign affairs - work at cross purposes with the State’s human rights obligations and the agencies charged with implementing them.29 Consider two instances of this latter pattern: the first from host States, the second from home States. 34. To attract foreign investment, host States offer protection through bilateral investment treaties and host government agreements. They promise to treat investors fairly, equitably, and without discrimination, and to make no unilateral changes to investment conditions. But investor protections have expanded with little regard to States’ duties to protect, skewing the balance between the two. Consequently, host States can find it difficult to strengthen domestic social and environmental standards, including those related to human rights, without fear of foreign investor challenge, which can take place under binding international arbitration. 35. This imbalance creates potential difficulties for all types of countries. Agreements between host governments and companies sometimes include promises to “freeze” the existing regulatory regime for the project’s duration, which can be a half-century for major infrastructure and extractive industries projects. During the investment’s lifetime, even social and environmental regulatory changes that are applied equally to domestic companies can be challenged by foreign investors claiming exemption or compensation. 36. The imbalance is particularly problematic for developing countries. A study conducted jointly for this mandate and the International Finance Corporation shows that contracts signed 28 For examples of the former, see section 12.3 of Australia’s Criminal Code Act 1995 (Cth) and article 102 of the Swiss Penal Code. For an example of the latter, see chapter 8 of the United States Federal Sentencing Guidelines Manual: (2006) §8C2.5(b)(1). 29 See Addendum 1 to this report.