Impatient governments push corporate supply chain due diligence

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct. This article was originally published on oecdonthelevel on 24 November 2017.

At the OECD’s Global Forum earlier this year, I was asked to talk about the state of play on the uptake of supply chain due diligence. To back up my talk with some killer stats, I turned to the recently published Corporate Human Rights Benchmark. This is the best available overview on human rights due diligence that also includes labour rights and, for example, standards concerning child and forced labour.

As often happens, I found good news and bad news. The good news is that a small group of companies, including BHP Billiton, Marks & Spencer Group, Rio Tinto, Nestlé, Adidas and Unilever, is taking a leadership role. They deserve praise for their efforts, despite the many challenges. The bad news is that only three companies scored more than 60% for their due diligence efforts, with the average score being 28.7%. If this were a school test, it would be classed as a ‘big fat fail’. The failure is even fatter when it comes to embedding respect for human rights in due diligence, with an average score of only 16%.

These disappointing findings are complemented by the recent Economist Intelligence Unit’s ‘No more Excuses’ study which reveals ‘a worrying degree of complacency’ within companies. Four out of five business executives responding to the Economist survey agreed or strongly agreed that their company’s supply chain was responsible, with just 2% disagreeing. The vast majority of respondents stated that their firms’ responsible supply chain standards were compliant with, or even more stringent than, government regulations and industry standards (94% and 97%, respectively). The physically closer a firm to its suppliers, the more likely respondents were to believe that its supply chains were responsible. However, the study shows that a sizeable proportion of businesses have actually allowed supply chain responsibility to slide as a priority in the past five years.

The study also reveals just how few companies are paying attention to key issues such as child labour (only 22%), climate change and carbon footprints (only 23%), and gender equality (only 28%). These results are a cause for concern, both with respect to the severity of these issues and their relevance to Asia where a majority of the companies surveyed are based. According to UNICEF estimates, for example, 150 million children are engaged in child labour globally. While the highest levels are in Africa, child labour is also a significant in emerging Asian economies. In addition, given that some of the most prominent exposés of child labour concern mining, it is disappointing to see that only 20% of companies in the raw materials sector address this issue, the worst-performing industrial group.

Governments are getting impatient

While some governments have been complacent in promoting the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, a number of governments are getting more and more impatient.

France took the lead in 2016 by adopting a Due Diligence Law. The EU has adopted a mandatory non-financial disclosure directive that includes reporting on due diligence. Germany’s compromise in its National Action Plan was to state that if more than 50% of all German-based companies with over 500 employees have not taken credible action to integrate human rights due diligence in their operations by 2020, the government will examine further steps, including legislative measures. Some advanced economy regulators are also extending the applicability of their due diligence regulations globally. The US Conflict Minerals Rule (Dodd-Frank Act, Section 1502) and the UK Modern Slavery Act have created a worldwide ripple effect.

The fragmented transition to hard law

The legislative toolbox is much bigger now than it was prior to 2011 when supply chain responsibility was defined for the first time in the revision of the OECD Guidelines. The central concept of supply chain due diligence is a process which can be regulated, whether it is on process, substance or simply reporting.

A very fragmented transition is underway from soft law to hard law in the field of corporate supply chain responsibility at different speeds and different tracks. It is led mainly by OECD countries, and most heavily impacts enterprises in European countries. This creates at times a chaotic and constantly changing regulatory system for multinationals.

Due-Diligence-Transition-Hard-LawThis transition is following different tracks. Some regulations focus on thematic issues, such as the UK Modern Slavery Act, the Supply Chains Act in California (slavery and human trafficking) or the proposed due diligence law on child labour in the Netherlands. Some initiatives have a sector-specific focus, such as the proposal by the EU parliament to adopt a binding regulation for due diligence in the garment sector. Others target a combination of theme and subject, such as the rules on conflict minerals. Other laws, such as the French Due Diligence Law, are much wider in scope, cover all areas of responsible business conduct and apply to all sectors. The pending Swiss referendum on due diligence looks set to follow a similar broad approach.

Hybrid multi-stakeholder sectoral responsible business agreements provide an innovative way to avoid the eternal dichotomy between voluntary and binding. Germany, Finland and the Netherlands have already signed agreements of this nature and the Swiss government is working on a similar approach with the commodities industry.

While not mandatory, these hybrid sectoral approaches may produce superior corporate responsibility results as many of the mandatory approaches lead to box ticking exercises and ‘empty’ reports. The hybrid sectoral agreements and approaches acknowledge that many supply chain challenges cannot be solved by individual companies on their own, and they are generally geared towards working together to produce real impact.

To conclude, businesses would be wise to dramatically increase their efforts on supply chain due diligence to ensure that society and governments do not get even more impatient. And, in these efforts, it is important that all parties involved – government, business and civil society – stick to the global standards of the OECD and the UN on due diligence. Don’t reinvent the wheel, but reinforce the wheel!

Links and further reading

Corporate Human Rights Benchmark
Economist Intelligence Unit (2017), No more excuses: Responsible supply chains in a globalised world
European Commission, EU Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups
France, Proposition de loi no. 924 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre
Germany, National Action Plan on Business and Human Rights
OECD Guidelines for Multinational Enterprises
OECD sectoral due diligence guidance
OECD report on National action plans on business and human rights to enable policy coherence for responsible business conduct
UN Guiding Principles on Business and Human Rights
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Outcomes from OECD National Contact Point cases: More remedy than you may think!

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct. This article was originally published on WGBizHRs on 10 November 2017.

The successful outcomes of the Heineken, Kinross and Statkraft cases have recently demonstrated that the National Contact Point system for the OECD Guidelines on Responsible Business Conduct can be effective for providing access to remedy in the business and human rights domain. However, management of expectations is needed with respect to a couple of issues.

But first of all, many people have asked me why the OECD countries are much more upbeat about the effectiveness of this state based non-judicial grievance mechanism (terrible jargon for a complaints mechanism) than civil society? Why does OECD Watch, a consortium of NGOs, claim that remedy remains rare in the NCP system, while the OECD Annual Report shows quite positive results?

For example, the 2016 Annual Report on the OECD Guidelines for Multinational Enterprises finds that in 2016 agreement was reached in 60% of all concluded specific instances where mediation occurred. Between 2011 and 2016, approximately half of all cases (47%) which were accepted for further examination by NCPs resulted in some form of agreement between the parties. That is of course good news. Additionally, in some cases which did not result in mediated agreements, recommendations were issued that were followed up on by the companies involved.

The Report by OECD Watch of June 2015 that coined the phrase ‘remedy remains rare’ in relation to the NCP system conveyed, in my perspective, an overly negative impression about the overall success of this system since 2011.

I would nevertheless agree that ‘compensation remains rare’ with respect to outcomes of cases handled by the NCP. That is a legitimate conclusion. It is good to stress that NCPs are a non-judicial grievance mechanism that have their limitations and can never be a substitute for a well-functioning rule of law. NCPs cannot mandate or enforce compensation, they are not a court nor arbitrator, but a problem-solving mechanism. In addition, NCPs often face extraterritorial issues where there is a non-functioning government involved that should have implemented its state duty to protect human rights. So what can NCPs do to encourage compensation? Two things, first they could facilitate mediated agreements which include agreements around compensation. Second, they could recommend compensation if supported by the OECD Guidelines (if there is a situation of an enterprise contributing to or causing the impact at issue).

OECD Watch makes some very valid points within their report that bear paying close attention to. For example, there needs to be more attention to follow-up after a mediation process is concluded to ensure agreements are actually implemented. NCPs should handle cases in an impartial and equitable way, including when deciding whether to accept them. For example, in some cases NCPs have applied an overly high threshold for accepting cases. Already during the revision of the OECD Guidelines in 2011 governments concluded that in assessing whether a case is sufficiently substantiated the measure should be reasonable plausibility, not full proof. And of course there is still a lot of work to be done to ensure a level-playing field among all NCPs. At present, two NCPs do not even exist and 12 do not have published procedures and 11 did not actively promote the OECD Guidelines in 2016. That is why the OECD Ministers this year decided to have all NCPs peer reviewed before 2023. This is a major opportunity for civil society and business to provide input to strengthen this unique business & human rights grievance mechanism.

There are a few differences in approaches with respect to how OECD Watch and the OECD look at outcomes in cases. For example, the OECD tracks cases which result in some form of agreement between the parties while the OECD Watch Report focuses in particular on remedy ‘on the ground’. However, the commentary to principle 25 of the UNGPs states: “The remedies provided by the grievance mechanisms discussed in this section may take a range of substantive forms the aim of which, generally speaking, will be to counteract or make good any human rights harms that have occurred. Remedy may include apologies, restitution, rehabilitation, financial or non-financial compensation and punitive sanctions (whether criminal or administrative, such as fines), as well as the prevention of harm through, for example, injunctions or guarantees of non-repetition.”

Many mediated agreements through the OECD National Contact Points focus for example on improved human rights due diligence or implementing a human rights policy. This is obviously aimed at preventing negative human rights impacts in the future.

The OECD Watch Report also includes cases within the scope of its analysis where ‘remedy on the ground’ was not received, even those cases where remedy on the ground was not requested, but instead a change of enterprise policy or other management change was being sought by submitters. Additionally, in some cases remedy on the ground is not appropriate according to the UN Guiding Principles and therefore the OECD Guidelines. If a company is not causing or contributing to a negative impact itself, but is directly linked to it through a business relationship it is not expected to provide compensation itself or on the ground remedy with respect to the impacts, but to use its leverage to push the company that causes the impact to change its behaviour or to provide remedy.

In its analysis and statistics with respect to outcomes OECD Watch also includes cases which have not been accepted for further examination by NCPs. However many cases filed with NCPs are dismissed for valid reasons, such as a lack of reasonable substantiation, parallel legal proceedings (related to forum shopping) and because they concern issues outside of the scope of the OECD Guidelines. OECD analyses success rates with respect to cases accepted by the NCPs and excludes those not accepted for further examination.

Lastly the OECD Watch Report looks only at cases filed by NGOs, whereas the OECD looks at all cases reported to it by the NCPs. Historically cases filed by trade unions with NCPs tend to be more successful than cases by NGOs. In such cases, remedy can for example concern a restoration of dialogue between social partners or the recognition of a trade union. This is at times less complex than complicated value chain business relationships with regard to human rights violations.

My conclusion on the effectiveness of NCPs as a non-judicial grievance mechanism on business & human rights is that the glass is half full, but we must take active steps to fill it to the brim. Functioning NCPs which currently have strong track records with respect to outcomes in cases can serve as mentors to those lagging behind. Furthermore all NCPs can look to recent successes for lessons learned to ensure that remedy in the context of cases handled by NCPs is routine, rather than rare.

Ever heard of SDG washing? The urgency of SDG Due Diligence

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct. This article was originally published on Development Matters blog on 25 September 2017.


September 25, 2017 marks World SDG Action Day.


SDG-dayA couple of months ago during the OECD’s Global Forum on Responsible Business Conduct,1 I heard a new term: SDG washing. After green washing and blue washing – using a UN logo to signpost sustainability without doing much – the term SDG washing points to businesses that use the Sustainable Development Goals to market their positive contribution to some SDGs while ignoring their negative impact on others. For example, a car company may market their electric cars as saving the climate (SDG 13↑). Yet, the cobalt in their batteries may be mined by five-year old kids in Congo (SDG 8 ↓).

It is clear that the world will never reach the SDGs without businesses. While businesses can make positive contributions, such as creating jobs, finding innovative solutions for climate challenges or contributing to human capital development, they can also cause or contribute to negative impacts, such as exploiting labour in supply chains, damaging the environment or engaging in corrupt practices. Businesses should pay due attention to ensure that they avoid undermining the SDGs by causing or contributing to negative impacts.

 

Civil society organisations have asserted that business responsibility for respecting human rights is too often viewed only as a matter of compliance and risk management… [which] underestimates the hugely positive development impacts that will be achieved through improved treatment of the millions of workers and communities affected by business activities around the world.”2 Indeed, I have seen companies use the following excuse: We may have forced labour in our supply chain, but we have a great scholarship programme for girls. That is a no go. People have criticised companies for cherry picking — basically profiling certain positive effects on a particular SDG and ignoring any negative impacts. Companies cannot compensate for doing harm on one SDG by doing well on another SDG. How, then, should companies proceed?

On the one hand, risk-based due diligence processes grounded in the UN Guiding Principles for Business and Human Rights and the OECD Guidelines for Multinational Enterprises can help define expectations. Companies should prioritise their efforts on where their negative impacts on the SDGs are most severe.

On the other hand, profiling positive contributions to certain SDGs is fine and good, and where business can make a lot of money. In other words, in doing well by doing good, business can deliver significant value to the SDGs. The Business and Sustainable Development Commission report Better Business, Better World stated: “Achieving the Global Goals opens up US$12 trillion of market opportunities in the four economic systems examined by the Commission. These are food and agriculture, cities, energy and materials, and health and well-being. They represent around 60% of the real economy and are critical to delivering the Global Goals. To capture these opportunities in full, businesses need to pursue social and environmental sustainability as avidly as they pursue market share and shareholder value. If a critical mass of companies joins us in doing this now, together we will become an unstoppable force. If they don’t, the costs and uncertainty of unsustainable development could swell until there is no viable world in which to do business.”

Ultimately, companies should do their due diligence on all SDGs to avoid undermining these goals. This is the essential baseline. Just think about what not having child labour in the supply chains would mean for the SDGs. A focus on managing the negative impacts on the SDGs is most urgent. This approach, taken together with the focus and positive impacts on certain SDGs, is a recipe for businesses to maximise their contribution to the SDGs.


1.See also: Contributing to the Sustainable Development Goals through responsible business conduct, 2017 Global Forum on Responsible Business Conduct, Session Note.

2. Excerpt from an open letter to UN Secretary-General António Guterres and UN Private Sector Forum 2017 Participants by Business & Human Rights Resource Centre, the Danish Institute for Human Rights, the Institute for Human Rights and Business, the International Corporate Accountability Roundtable, Oxfam International, and Shift

 

Beer, conflict and compensation: Heineken-Congo agreement

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). This article was originally published on OECD Insights on 15 September 2017.

Heineken’s agreement with Congolese workers sets excellent example of dispute settlement on responsible business conduct.

Doing business in conflict areas is challenging for everyone, whether you are talking about mining or even brewing beer. In 2015 a group of 168 former workers of Heineken’s subsidiary Bralima in the Democratic Republic of Congo submitted a complaint to the Dutch National Contact Point (NCP), a grievance mechanism set up under the OECD Guidelines for Multinational Enterprises, about the company’s conduct during the civil war in that country (1999-2003). The complaint concerned allegations of Bralima unjustly dismissing its workers and co-operating with the rebel movement in RCD-Goma, and the negative consequences this had for the firm’s workers and their families.

The complaint was successfully resolved recently. Details of the agreement between Heineken and the former Congolese workers, facilitated by the Dutch NCP, are confidential, but the overall outcome is public. All parties describe it as satisfactory and civil society even hailed it as “historic”.

This is good news. Heineken, their former workers and the Dutch NCP deserve praise for solving this highly complex corporate responsibility issue. Why?

One key reason lies in the fact that monetary compensation was awarded, according to reports. Although there have been many different sorts of remedy through the NCP system, monetary compensation has been rare.

Still, it is important to manage expectations. For a start, NCPs are a non-judicial grievance mechanism, meaning that the NCPs cannot legally enforce remedy. However, the NCP process can facilitate remedy, including compensation, as part of a mediation or conciliation process. NCPs can also recommend remedy, including financial compensation, in their final statements. The Heineken agreement illustrates that NCP processes are not exclusively forward-looking, but can also function retroactively.

Another reason why this is a historic agreement is that it shows that longstanding issues such as the Heineken case, that took place 15 years ago, can still be solved by an NCP process today. NCPs are known to get a lot of complex cases that often have already been in courts for years. This case demonstrates that even human rights issues that go back many years can still be solved if the conditions are in place.

The case is also a landmark because it shows that NCPs, when properly organised, can deal with human and labour rights issues in conflict areas. Indeed, Heineken has committed to improving its policy and practices on doing business in volatile and conflict-affected countries. Other companies should now follow Heineken’s example.

Make no mistake: a critical factor in this case was that Heineken and the complainants engaged fully and responsibly with the process. In many cases, using this problem-solving approach is more effective in addressing corporate responsibility issues than legalistic ones. Another reason for success was that the NCP was positioned to handle the case professionally. As the NCP is an adequately resourced, independent responsible business authority, which made it possible to be accessible and equitable towards all parties in a remote area ravaged by civil war. The mediation could rely on government support too, as it was facilitated by Dutch embassies in France and Uganda.

In short, several lessons on different levels can be drawn from the resolution of this business and human rights case. Above all, it should inspire other governments and NCPs, and businesses too. It shows that with the right mind-set, companies can successfully turn human rights issues into opportunities for improving corporate responsibility.

See also:

OECD Guidelines for Multinational Enterprises

Olivier van Beemen (2017), En RDC, une poignée d’ouvriers fait plier le géant Heineken, Le Monde

Olivier van Beemen (2017), Heineken betaalt Congolezen na klacht mensenrechtenschending, NRC

Living up to expectations on Responsible Business Conduct

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct

The OECD Guidelines for Multinational Enterprises (OECD Guidelines) and the National Contact Points (NCPs) through which NGOs, unions and communities can submit complaints about corporate behaviour, are often mentioned in the context of the backlash against globalisation and the call for responsible supply chains. They have been considered as a concrete and unique instrument on corporate responsibility to deal with the downsides of globalisation by creating an international level playing field for inclusive and sustainable trade and investment. In this regard, the network of 48 NCPs play an important role to promote responsible business conduct but also as a globally active mechanism to deal with cases of alleged non-observance of the Guidelines. Recently, a number of noteworthy developments have taken place inside and outside the OECD that have created a new momentum on responsible business conduct worldwide, confirming the prominence of the OECD Guidelines and its in-built implementation mechanism, the NCPs.

First of all, on 7-8 June OECD Ministers met in Paris to discuss “Making Globalisation Work: Better Lives for All”. The resulting Ministerial Statement which guides the work of the OECD in the next year, places great emphasis on responsible business conduct as a concrete tool to promote good globalisation. Ministers recognised the OECD Guidelines as the leading international instrument for this purpose. Ministers encouraged the OECD to develop a general due diligence guidance for responsible business conduct to provide practical support to companies on the implementation of the OECD Guidelines. They also committed to “fully functioning and adequately resourced NCPs, and to undertake a peer learning, capacity building exercise or a peer review by 2021, with the aim of having all countries peer reviewed by 2023.” In two years, at the occasion of its Ministerial meeting in 2019, Ministers expect a report on progress made on these commitments. Equally, peer pressure in the OECD Council and the OECD Working Group on Responsible Business Conduct has also increased to ensure that all governments implement the obligations they committed to when adhering to the OECD Guidelines.

On 17 May, the OECD Council decided to incorporate the OECD Due Diligence for Responsible Supply Chains in the Garment and Footwear Sector in an OECD Council Recommendation. While companies themselves are the audience of OECD due diligence guidance, the Recommendation represents a common position by the 47 Government Adherents to the OECD Guidelines expressing their commitment and political will to promote the use and implementation of the due diligence guidance, including through their NCPs. There are now four OECD Council Recommendations on sector-specific due diligence guidance.*

The reach of the Guidelines was further enlarged on 20 June, when Kazakhstan became the 48th Adherent. As such, Kazakhstan has committed to promoting and enabling responsible business conduct and to establish a NCP to function as a problem-solving mechanism to deal with possible adverse impacts of corporate behaviour.

However, beyond the OECD itself, the commitment to responsible business conduct also featured high on the G20 agenda in Germany this year. “In order to achieve sustainable and inclusive supply chains”, the G20 leaders on 7-8 July vowed, “to fostering the implementation of labour, social and environmental standards and human rights”. The G20 recognised the important role of the OECD Guidelines, to promote responsible business conduct, as well as the NCPs as a non-judicial grievance mechanism for access to remedy. The call echoed the Ministerial Declaration by the G20 Labour and Employment Ministers of 18-19 May, which re-affirmed commitments to the OECD Guidelines, the responsibility of business to exercise due diligence, and strengthen and increase the visibility of NCPs.

The impetus provided by the G20 and recent developments in the OECD have further strengthened the position of the OECD Guidelines as a concrete instrument to promote responsible supply chains globally. This heightened recognition comes with expectations. The network of NCPs has a key role to play to realise the full potential of its reach.

*                  The Recommendation of the Council on Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, Recommendation of the Council on the OECD-FAO Guidance on Responsible Agricultural Supply Chains, and Recommendation of the Council on the Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractive Sector. For the full text of the Recommendations please consult the OECD legal instruments database.

 

Smartphones are child’s play, but what about the child labour?

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). This article was originally published on OECD Insights on 27 April 2017.

Digital technology depends on energy, and that energy depends on minerals. Take cobalt, for instance. Use of this ferromagnetic metal can be traced back to Ancient Egypt when it was used to taint ceramics. Today cobalt is an integral part of rechargeable lithium-ion batteries that go into smartphones, lap tops and electric vehicles. The market for rechargeable lithium-ion batteries is expected to more than double to USD 77 billion by 2024. Hence, for the “fourth industrial revolution” to succeed and to meet our important climate goals, we need cobalt–but at what cost?

Recent press reports decry children, sometimes as young as 5 years old, working in cobalt mining under terrible conditions in the Democratic Republic of the Congo (DRC). These mines operate outside legal frameworks, without formal social, health or worker protection.

If your company operates in this sector, whether making or using cobalt-dependent batteries, or the digital products they go into, and no matter where that cobalt enters in your supply chains, you cannot afford to take these press reports lightly. So, what can you do? The DRC produces more than 60% of the world’s cobalt. Of this, most comes from large scale industrial mines, but around 30% comes from illegal mines where there is a marked risk of child labour being used. Given the DRC’s huge market share, it is likely that some of its cobalt is present in your supply chain.

But how can you be sure? It is not easy. True, the OECD Guidelines for Multinational Enterprises call on companies to scrutinise their supply chains for human rights, labour, environmental and corruption impacts, but these supply chains are incredibly complex and long. How to know where the cobalt comes from? After all, the buyer of the Congolese cobalt affected by child labour, may in this case be a Chinese cobalt smelter, which would be several links up the supply chain and completely unknown to your firm: a sub-sub-sub-sub-supplier, if you like.

To be fair, the OECD’s due diligence standard acknowledges that companies on the end of long supply chains cannot realistically know the mine of origin for all the metals in their product, but they should at least try to identify the smelters. But even if you manage to identify this smelter, what can you do to reduce your risk?

There are several avenues to consider. You could join an industry association that, collectively, as the largest buyers of lithium batteries, has leverage over the cobalt smelters, pushing them to use international standards to source cobalt responsibly and prevent child labour; an example is the Responsible Cobalt Initiative. The industry association may reach out to government officials in China, for instance, to get their support in aligning the cobalt smelters with responsible international standards.

However, the main responsibility for due diligence regarding supply chains rests with your firm. The OECD can help, with a set of practical actions due to be published in 2017, which will explain in simple terms how to tackle the risks of the worst forms of child labour in the minerals supply chain.

Not all informality is bad per se. Roughly a fifth of the DRC’s population relies on this type of mining, despite the terrible conditions. So walking away from the DRC is not the answer either, even if it were feasible given the DRC’s share of production and the limited control you can hope to have over upstream suppliers. Clearly, the aim of any upstanding digital firm, both for moral and business reasons, is to work towards the prevention of child labour. Achieving this requires a collective effort to formalise and legalise the informal mining sector, remove children from the mines, and develop schools instead. This requires a herculean effort, and while companies can show intolerance to child labour and encouragement to tackle it, they cannot achieve change without working closely with the DRC government, local civil society and communities, as well as donors, to address the root causes of child labour. Only then can the cobalt supply chains be cleaned up for good.

Meanwhile, international organisations like ours can help put in place the conditions for progress. For instance, the China-OECD joint programme of work includes co-operation on responsible mineral supply chains. Indeed, the OECD has helped the China Chamber of Commerce of Metals Minerals and Chemicals Importers and Exporters (CCCMC), a Chinese industry association, set up the Responsible Cobalt Initiative. This includes international technology companies, battery manufacturers and Chinese smelters, working alongside the new Inter-ministerial Commission on Child Labour of the Congolese government, using the OECD Due Diligence Standards for Responsible Mineral Supply Chains.

It shows how crucial engagement with governments and players across the spectrum can be to prevent risks, improve welfare and protect integrity and human rights.

The digital revolution is so promising in many ways, and is a harbinger of a cleaner world. The onus is on us all to work ever harder together to ensure what goes into our technology respects the highest standards. Our technology will be even smarter, and fairer, as a result.

Links and further reading

By the same author:

Corporate leaders: Your supply chain is your responsibility”, in OECD Observer No 299, Q2 2014

Responsible Algorithms in Business: Robots, fake news, spyware, self-driving cars and corporate responsibility, in OECD Insights, 31 January 2017.

See also:

Frankel, Todd (2016), “The Cobalt Pipeline: Tracing the path from deadly hand-dug mines in Congo to consumers’ phones and laptops”, in The Washington Post, 30 September

A Responsibility Revolution in the Fashion Industry: How OECD’s new Due Diligence Instrument can transform the global garment industry

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). This article was originally published on OECD Insights on 31 January 2017.

218px-sri_lankan_garment_workers

The collapse of the Rana Plaza factory in 2013 with a loss of over 1,130 lives was a jarring reminder that though much has been accomplished to improve working conditions in global supply chains, more is needed. Following the tragedy, stakeholders worldwide, ranging from industry to labour organizations and civil society, mobilised to respond to this need. The breadth of initiatives launched to tackle these issues is impressive. Perhaps most visible are the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety. Together, these initiatives have joined over 250 brands, retailers and their suppliers to inspect and upgrade shared factories, demonstrating that a sector-wide approach to building safer supply chains is not only feasible but effective. During my last trip to Bangladesh, I witnessed the great progress these initiatives have made. The Accord and the Alliance are only two responses amongst many since the Rana Plaza tragedy.

A common understanding of company responsibility in an age of globalization

Rana Plaza was a subcontractor to many garment companies, meaning that in many cases global brands did not place their orders directly with factories operating out of Rana Plaza. Furthermore, in some cases the subcontracting was illegal. While there was already general agreement in the sector that companies should identify and address risks with direct suppliers, the complexities of Rana Plaza raised the question, whose responsibility is due diligence when we look beyond direct contractors and further up the supply chain?

The OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights are clear: companies have a responsibility to identify, prevent, mitigate and account for adverse impacts in their supply chains. In June 2015 the G7 promoted international efforts to promulgate industry-wide due diligence standards in the textile and ready-made garment sector.

On 8 February 2017 the OECD will launch a Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector which responds to this call. This Guidance, developed through an intense multi-stakeholder process, supports a common understanding of due diligence and responsible supply chain management in the sector.

The Guidance is a global instrument

This is really a global instrument, contributing towards a level playing field for responsible business conduct. The OECD Guidelines apply to all companies operating in or sourcing from the 46 adhering countries, but they are likewise relevant for any company operating in their global supply chains. The Guidelines are relevant for a Bangladeshi factory that sells to companies in the US, even while Bangladesh itself is not an Adherent, just as they are relevant for cotton producers in Pakistan exporting to EU markets. OECD , demonstrating the global reach of the OECD Guidelines in the garment sector alone.

Adherents to the OECD Guidelines account for over 72% of world imports of clothing

The relevance of the OECD Guidelines globally is no longer hypothetical. The National Contact Points (NCPs), the globally active grievance mechanism of the Guidelines, have already handled several cases related to due diligence in the garment and footwear sector. For example, the Danish NCP recently concluded its consideration of a case involving PWT Group, a Danish retailer, for failing to carry out due diligence in relation to its textile manufacturer in the Rana Plaza building. Both the Guidance and the conclusions of the Danish NCP in this case are significant for the future of human rights due diligence in the textile sector globally.

The Guidance is progressive, realistic and balanced

The Guidance encourages the sector to think differently and to react differently, but does so in a progressive, balanced, and realistic way. Under the Guidance, companies are expected to scope risks across the full length of their supply chain, including risks related to subcontracting and homeworkers. Moreover, this assessment moves beyond auditing to not only identify labour, human rights and environmental impacts, but also understand why they are occurring. This tailor-made approach to risk assessment recognises that risks in the garment and footwear sector are very different and the assessment methodologies should reflect these differences. An assessment for child labour and forced labour should not be the same as an assessment of occupational health and safety or wage compliance. This Guidance also recognises the challenge of ‘audit fatigue’, so it pushes the sector towards harmonised assessments and most importantly effective monitoring.

While the Guidance is ambitious, it is also realistic. Addressing the full range of challenges in the sector all at once is mission impossible for brands with vast supply chains that go several layers deep. So brands will have to prioritise issues where the impacts are most severe. This could be, for example in relation to hazardous chemicals in finishing or forced labour in cotton.

Finally, the Guidance recognises the diversity of actors in this sector and the diversity of sourcing models. It does not prescribe a one-size-fits all approach, seeking rather to provide recommendations for how companies can carry out due diligence given their circumstances (size, context, etc). For example, the Guidance recognises that companies may source materials and products directly from suppliers or indirectly through buying agents and provides tailored recommendations for each. Similarly, it acknowledges the role subcontracting plays and therefore recommendations point more to ‘responsible subcontracting’ than always ruling out subcontracting altogether.

No more neo-colonial top-down system

In November of last year I participated as a panellist in India on responsible garment supply chains. A fellow panellist, a factory owner, called the traditional garment audit model a colonialist approach: ‘Western brands telling the developing country factories what to do’. With the new OECD Due Diligence Guidance we finally say goodbye to this neo-colonialist approach. It appreciates the importance of a partnership between buyers, suppliers and workers in identifying methods to address risks and monitor progress over time.

But just as important as this partnership, is the fact that due diligence is not merely about looking outward; it’s also about looking inward. Another remark made by my fellow panellist is that companies do not align their purchasing policies with responsible business policies. For example, brand purchasing officers often ask the factory to cut prices by 10%, while the brand ethical sourcing team asks for a 20% wage rise. In a study conducted by ETI Norway, Suppliers speak up, suppliers responded that paying legal minimum wage and legal overtime premiums would increase labour costs by 10-20%. However, despite this reality, little science goes into price-setting by brands and retailers. So functional alignment of brand policies needs to be part of due diligence.

Under the OECD Due Diligence Guidance, companies, particularly brands and retailers, are expected to assess their own purchasing practices and determine how their price setting and ordering may be contributing to excessive overtime, low wages, precarious contracts, illegal subcontracting, etc. Personally, I think that embedding responsibility indicators in the bonuses or performance appraisals of purchasing officers should incentivise due diligence; otherwise due diligence and respect for human rights will stay a peripheral issue.

The new global instrument for garment due diligence that will be launched next week at the OECD Roundtable on Due Diligence in the Garment and Footwear Sector can change the fashion industry worldwide. It is global, progressive, and realistic, and assists in more mature supply chain dialogues than the neo-colonialist audit system. Now is the time to implement and make fair fashion the standard.

Useful links

More on the garment industry and on due diligence on OECD Insights