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

National Action Plans on Business and Human Rights: Strong support for OECD’s Responsible Business Grievance Mechanism

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct and Froukje Boele, Policy Analyst Responsible Business Conduct, OECD

The year 2017 got off to a good start for business and human rights with a number of prominent National Action Plans (NAPs) finalised last December right in time for Christmas. The fresh German, Italian, Swiss and US NAPs resemble each other by placing the OECD Guidelines and the attached grievance mechanism at the forefront of efforts to promote responsible business conduct for enterprises operating at home and abroad. They also acknowledge the alignment between its Human Rights Chapter and the UN Guiding Principles on Business and Human Rights. Moreover the NAPs uphold and strengthen the National Contact Point (NCP) system of the OECD Guidelines as a means for effective problem solving, thereby supporting the OECD’s globally active grievance mechanism for responsible business as a de facto complaints mechanism for the UN Guiding Principles.

Some highlights:

Responsible Supply Chains and Due Diligence

The concept of adequate due diligence – to identify, prevent and mitigate actual and potential adverse impacts of business operations – centres at the heart of the NAPs with action-oriented language on the different OECD sectoral guidelines. Yet Governments emphasize different aspects, for example the German NAP on Business and Human Rights and the Swiss NAP on Business and Human Rights include a particular focus on helping small and medium-sized enterprises.

The US Government’s National Action Plan on Responsible Business Conduct recognises the OECD Due Diligence Guidance for Responsible Minerals Supply Chains from Conflict and High Risk Areas as a key tool for businesses to help them “respect human rights and avoiding contributing to conflict through their mineral sourcing practices.” In this regard, the German and the Italian NAP on Business and Human Rights also point to their involvement in the process of the elaboration of an EU Regulation for supply chain due diligence in this field. If adopted, the Swiss Government also commits to consider the formulation of similar legislative proposals adapted to the Swiss context.

For agriculture, both Switzerland and Italy commit to active implementation of the OECD-FAO Guidance for Responsible Agricultural Supply Chains.

Moreover, in line with Italy’s active involvement to improve standards in the textile sector, its NAP emphasizes the OECD’s work on the Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector, which will be launched next 8 February.

Sensible to the risks involved in the banking industry, Switzerland has included its support for the OECD work on a guide for due diligence in the financial sector in the NAP.

Not only do the NAPs on the whole indicate a high level of support for implementing the outcomes of the proactive sector projects, they also signal a political commitment to engage in their multi-stakeholder advisory groups going forward.

National Contact Points

The role of the NCPs to promote corporate responsibility and deal with issues relating to business and human rights is prevalent throughout the recent NAPs. Delivering on the G 7 Leaders’ Summit Declaration of June 2016, Italy, Germany and the United States recall their commitments to undergo an NCP peer review in 2017.* The plan for Germany also announces the repositioning and further strengthening of its NCP. Interestingly, the US announces it will implement procedures to ensure that stakeholders outside the US and using other languages than English can engage in the NCP process. The NAPs for Germany and Switzerland also make an operational link between the work of the NCPs and national export credits and guarantees. As such, the German NCP is upgraded as a central complaint mechanism for projects for foreign trade promotion and the Swiss Export Risk Insurance Agency is reported to have to take account of the results and evaluations by the NCP.

Policy coherence on responsible business conduct

At the same time, the national action plans send a clear message on policy coherence on corporate responsibility issues and set an example for other countries in the process of developing a NAP. They are comprehensive efforts to ensure alignment between all policies relevant to responsible business with Governments leading by example on issues such as procurement, exports credits but also responsible retirement plans (US NAP). Beyond the national level, the NAPs make a point about international policy coherence by including corporate responsibility commitments in trade and investment agreements, as well as development finance. These are complemented on an operational level with measures to train German and US diplomats abroad.

Conclusion

The high level of commitment to the OECD Guidelines, the NCP system and the OECD sector due diligence instruments will greatly contribute to their visibility and implementation worldwide. They also present promising building blocks for the 2017 German G20 efforts to address RBC and sustainable global supply chains and the Italian G7 Initiative on sustainable global supply chain management. Finally, these 2016 Christmas gifts are full of inspiration for Governments that are in the process of developing a national action plan, for example in Latin America.

*               The peer review of the Swiss NCP is ongoing.

Responsible Algorithms in Business: Robots, fake news, spyware, self-driving cars and corporate responsibility

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

This article was originally published on OECD Insights on 13 January 2017.

algorithmsWhy is the topic of robots frequently being raised at recent conferences on responsible business conduct? For example, October last year the Polish Deputy Prime Minister noted the connection between robotisation and corporate responsibility during the opening of the Conference in Warsaw celebrating the 40 years anniversary of the OECD Guidelines for Responsible Business.

The potential negative impacts of robots or automated systems have proved cause for concern. In May 2010 there was a trillion dollar stock market crash, a ‘Flash crash’, attributed to algorithm trading or in other words: robot investors. And let’s not forget the mathematical models that contributed to the financial crisis of 2007 and 2008. Recent events surrounding fakenews, with Pizzagate as the most extreme example, are also contributing to these concerns.

What is the common denominator of these automated systems? Algorithms! These rule-based processes for solving mathematical problems are being applied to more and more areas of our daily lives. Likely, we are only at the beginning of the era of algorithms and their widespread application is raising many ethical questions for society and businesses in particular.

For example ‘Killer robots’, weapons systems that select and attack targets without meaningful human control raise questions about dehumanisation of killing and who is responsible? In December the United Nations decided to set up an expert group, in order to look into this issue following a campaign ‘Stop Killer Robots’ by Human Rights Watch and other NGOs. While self-driving cars will never be at risk of driving while intoxicated they can make decisions that might pose moral dilemmas for humans. Online face recognition technology raises concerns around privacy.  These are just a few examples.

The pervasiveness of the use of algorithms may result in many unintended consequences. In her book ‘Weapons of Math Destruction’ Cathy O’Neil describes how algorithms in combination with big data increase inequality and threaten democracy. She provides examples of the financial crisis and the housing market, but also of a college student who does not get a minimum wage job in a grocery store due to answers provided on a personality test, people whose credit card spending limits are lowered because they shopped at certain stores, etc. She also discussed predictive policing models such as those that predict recidivism and algorithms that send police to patrol areas on the basis of crime data, which can have a racist effect because of harmful or self-fulfilling prophecy feedback loops.

Scholars and practitioners in this field are beginning to consider the ethical implications of application of algorithms. Julia Bossmann of the Foresight institute described her top 9 ethical issues in artificial intelligence. Prof Susan Leigh Anderson of the University of Connecticut stated: “If Hollywood has taught us anything, it’s that robots need ethics.” Cathy O’Neil proposes a ‘Hippocratic oath’ for data scientists. Recently a group of scholars developed Principles for Accountable Algorithms. In the private sector Elon Musk, SpaceX CEO and other business leaders have founded OpenAI, an R&D company created to address ethical issues related to artificial intelligence. Amazon, Facebook, DeepMind, IBM and Microsoft founded a new organisation called the Partnership on Artificial Intelligence to Benefit People & Society. The partnership seeks to facilitate a dialogue on the nature, purpose of artificial intelligence and its impacts on people and society at large. It is encouraging that certain industry efforts are being undertaken in this area. Additionally one thing should be clear for businesses that create and use these technologies: when things go wrong, using algorithms as a scapegoat won’t do the trick.

What guidance on these issues can be found in the most important instrument on business ethics, the OECD Guidelines for Multinational Enterprises (MNE), a multilateral agreement of 46 states on corporate responsibility. Cases brought to National Contact Points, the globally active complaints mechanism of the Guidelines, provide a good illustration of what the Guidelines recommend with respect to these issues. For example, in February of 2013 a consortium of NGOs led by Privacy International (PI) submitted a complaint to the UK National Contact Point (NCP) alleging that Gamma International had supplied a spyware product – Finfisher – to agencies of the Bahrain government which then used it to target pro-democracy activists.

The NCP concluded that Gamma had not acted consistently with the provisions of the OECD Guidelines requiring enterprises to do appropriate due diligence, to undertake a policy commitment to respect human rights and to remediate human rights impacts. Furthermore the company’s approach did not meet with the OECD Guidelines’ standards to respect human rights and the engagement of the company with the NCP process was unsatisfactory, particularly in view of the serious nature of the issues. The NCP recommended that the company engage in human rights due diligence.

What is human rights due diligence and what does it mean for companies developing algorithms? Under the Guidelines due diligence is a process that should be carried out by corporations as part of a broader range of actions to respect human rights. The right to privacy, freedom of speech, freedom from torture and arbitrary detention are examples of the many potential human rights that could be impacted. Due diligence is the process of identifying, preventing and mitigating actual and potential adverse human rights impacts, and accounting for how these impacts are addressed. If there is a risk of severe human rights impacts a heightened form of due diligence is recommended. For example, significant caution should be taken with regard to the sale and distribution of surveillance technology when the buyer is a government with a poor track record of human rights. Due diligence should be applied not only to a company’s activities but across its business relationships. In the context of a company producing algorithms therefore it is not sufficient that they behave responsibly in the context of their own operations but due diligence should also be applied to ensure buyers of the technology are not using it irresponsibly. In instances where this is the case, the company that created and sold the technology is expected to use its leverage in the value chain to prevent or mitigate the impact.

A number of valuable tools to respect human rights and implement the ’know your client’ principle have been developed in the context of ICT business operations. For example, the European Commission has developed a useful guide for companies on respecting human rights in the ICT sector. TechUK, an industry association of ICT companies in the UK, in partnership with the UK government has published a guide on how to design and implement appropriate due diligence processes for assessing cyber security export risks. Additionally the Electronic Frontier Foundation has developed a guide on How Corporations Can Avoid Assisting Repressive Regimes and the Global Network Initiative has developed Principles on Freedom of Expression and Privacy.

Beyond the human rights related recommendations, the OECD Guidelines make other relevant recommendations for companies developing algorithms. For example the Environment Chapter recommends environmental, health and safety impact assessments.[1] The Consumer Chapter advises companies to provide accurate, verifiable and clear information to consumers.[2] In addition companies should respect consumer privacy and take reasonable measures to ensure the security of personal data that they collect, store process or disseminate.[3]

Businesses that create algorithms should do their due diligence on potential human rights impacts. Companies should also carry out due diligence on labour, environmental and health and safety impacts. They should provide accurate verifiable and clear information about their algorithms and take measures to protect personal data. Collaborative industry efforts on responsible algorithms are highly needed to shape these expectations in concrete terms. Responsible algorithms will not only generate profit, but protect the rights of individuals worldwide while doing so.

 

[1]               OECD Guidelines for Multinational Enterprises, Chapter VI.3

[2]               OECD Guidelines for Multinational Enterprises, Chapter VIII.2

[3]               OECD Guidelines for Multinational Enterprises, Chapter VIII.6

Dirty Diesel and Corporate Responsibility

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

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Around 500,000 premature deaths per year is the shocking cost of dirty diesel.[1] In September, a Public Eye investigation entitled Dirty Diesel, How Swiss Oil Traders Flood Africa with Toxic Fuels exposed how international oil companies, traders and port companies are involved in deliberately lowering the quality of fuels to sell to West-African countries causing damaging health effects. The study has placed this issue higher on the international agenda and complements the report released one month earlier by the International Council on Clean Transportation and UN Environment on Cleaning Up the Global On-Road Diesel Fleet – A global strategy to introduce low-sulphur fuels and cleaner diesel vehicles.

Recently, I was invited to discuss the corporate responsibility angle of the issue of Dirty Diesel. What do international standards such as the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles for Business and Human Rights  say about responsible business in this regard? In broad strokes, they provide a lens to discuss dirty diesel: the State duty to protect and the corporate responsibility to respect. The damaging health impacts of sulphur in diesel in West-Africa is first and foremost an issue of the state duty to protect its citizens from negative impacts on their health. Does that mean that companies, in this case Swiss oil traders and oil companies are off the hook? No. Independent of the state duty, there is a corporate responsibility to respect the human rights of citizens. In other words: companies cannot hide behind a government failure. This is a key point of departure in the discussions on corporate responsibility in the dirty diesel issue.

What are lessons learnt from the implementation of the OECD Guidelines and UN guiding principles in the system of National Contact Points (NCPs), the globally active grievance mechanism for responsible business conduct? The Environment chapter of the OECD Guidelines sets out clear expectations: enterprises should take due account of the need to protect the environment, public health and safety, and generally conduct their activities in a manner contributing to the wider goal of sustainable development. This means in practice collecting and providing the public with adequate information about the environmental, health and safety impacts of enterprise activities. They should carry out impact assessments if activities have significant environmental and health impacts. The Enterprises should also continuously seek to improve corporate environmental performance and contribute to the development of environmentally meaningful public policy.[2]

Interestingly, in 2011 the OECD reached a multilateral agreement on corporate value chain responsibility, building on the work of Professor Ruggie implementing the UN “Protect, Respect and Remedy” framework. This means that a company is not only responsible for avoiding causing or contributing to harm, but it is also expected to use its leverage in the value chain if that impact is nevertheless directly linked to its operations, products or services through a business relationship. This principle applies throughout the supply and distribution chain, in other words it concerns not only from whom you buy, but also to whom you sell, taking into account the potential end use.

Several NCPs have dealt recently with complaints concerning impacts that arise in the value chain ‘downstream’. For example in the Mylan case, the Dutch NCP dealt with the human rights impacts of pharmaceuticals that were used for the death penalty. In the Alsetex case, the French NCP considered a complaint relating to the sale of teargas to authoritarian states. In both cases: not only did the parties reach an agreement following the ‘good offices’ by the NCP, it was also pointed out that companies have their own responsibility regardless of the state duty to protect. Both NCPs made recommendations to the companies to strengthen due diligence in the value chain. According to the Guidelines, if negative impacts occur, companies are expected to use their leverage to influence the entity actually causing the harm to prevent or mitigate its impact. If – acting alone – they do not have the ability to effect change, they are expected to co-operate with other entities, for example in multi-stakeholder initiatives.

Companies have worked together to ensure responsible business conduct across sectors and industries, for example: in the textiles sector after the Rana plaza tragedy (to join the Accord on Fire and Building Safety in Bangladesh or the Alliance for Bangladesh Worker safety) and to get rid of child labour and forced labour in the cotton fields of Uzbekistan.

What does all of this this mean for addressing Dirty Diesel?

First and foremost the governments in West-Africa should raise national standards to require clean diesel. Following the roadmap set out in the UNEP report is the way forward. Dirty refineries are part of the underlying problem as governments do not want to close their own state-owned refineries and rely fully on import. Governments outside of Africa could help targeting development assistance to raise investments to upgrade the refineries in the African countries.

Second, major oil companies, such as Total, Shell and BP, and oil traders such as Vittol and Trafigura, as well as port companies should individually and collectively use their leverage on the African governments to improve the standards for diesel. How? For example, by joining forces to address relevant ministers and set up industry initiatives to initiate investment, and share knowledge and innovation for clean production practices.

Should they stop selling the diesel immediately? No. Cut and run is seldom the right answer. Other players will keep on supplying and responsible companies will lose all leverage. The companies are expected to make reasonable efforts to influence West-African governments to raise the standards. Only if they are not successful after a reasonable period of time, should they consider stopping sales. Yet prior to taking such a decision they will need to assess the socio-economic and human right impacts.

Fortunately, for addressing Dirty Diesel there is hope. The Nigerian Minister of Environment Amina Mohamed, the Dutch Minister of Trade and Development Liliane Ploumen and the Government of Ghana are taking a leading role in this debate and are taking action. Companies and other governments should follow their lead.

[1]              See Preface, Cleaning Up the Global On-Road Diesel Fleet- A global strategy to introduce low-sulfur fuels and cleaner diesel vehicles.

[2]              OECD Guidelines Chapter VI Environment: Chapeau; paragraphs 1a), 2 a), 3 and 8.

 

Responsible Business is key for the Baltic Rim Economies

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

This article was originally published on 30 November 2011 in Baltic Rim Economies (BRE) Review 

For the Baltic Rim Economies it is important to tap into Global Value Chains, to attract investments and export to the EU and OECD countries. In order to position the economies well, responsible business conduct is key. Responsible business conduct (RBC) means that businesses should make a positive contribution to sustainable development and that businesses have a responsibility to avoid and address the negative impacts of their operations. In simple terms, RBC implies that businesses should do well by doing good and should not do harm. While the concept of corporate social responsibility (CSR) is often associated with philanthropic corporate conduct external to business operations, RBC goes beyond this to emphasise embedding responsible practices  in the ‘corporate DNA’, i.e. within internal operations and throughout business relationships and supply chains. This extends beyond philanthropy and implies that responsible business practices should be integrated in all corporate activities.

Responsible business is also good and profitable business as it allows for efficient ways to manage risks, diversify portfolios, and increase productivity. Understanding, addressing, and avoiding risks linked to business operations beyond financial risks – can often lead to a competitive advantage. Examples such as Volkswagen and BP clearly highlight the business case for corporate responsibility. Business can generate economic value by identifying and addressing human rights, labour and environmental issues that intersect with their activities. To achieve this it is important to continuously engage with key stakeholders, be it workers, local interest groups or NGOs. The consequences of irresponsible business behaviour can be significant. Beyond actual legal liabilities poor business conduct can also result in opportunity costs for companies. For example, issues as resource depletion and worker unrest can cause major delays and financial costs. Additionally, reputational costs stemming from poor business conduct can hurt and scare off investors. Today divestment campaigns from companies with poor environmental and social records are a common tool to encourage better behaviour. Responsible business practices, in addition to avoiding costs, can help to build a positive corporate culture and image. This in turn can influence the retention of employees, help increase productivity as well as boost brand appeal and thus increase market strength. However, in order to ensure that responsible business practices are embedded in all corporate activities, a move towards organisational and incentive structures prioritising long term growth over short term gains has to be made.[1]

The OECD Guidelines for Multinational Enterprises are a multilateral agreement by 46 governments setting out specific recommendations and guidelines on corporate responsibility in areas ranging from labour and human rights to environment and corruption. Each government that signs up firmly expects that its businesses will follow the Guidelines. Celebrating its 40th anniversary this year, the Guidelines are the leading instrument on RBC worldwide and have become a benchmark for respect of social and environmental standards in international trade and investment.

Observance of the Guidelines are an important tool for the Baltic States to attract responsible investment which is sustainable and comes with due consideration of its environmental and social impacts. At the same time, buyers from OECD countries nowadays often demand responsible sourcing and actively stimulating RBC will open market access opportunities for the export of its products. As adherents to the Guidelines, the Baltics have committed to promote RBC for multinational enterprises operating in or from their territories. Furthermore, the Guidelines have also been integrated in the trade and investment strategy for the European Union, which encourages “the EU’s trading partners to comply with [..] international principles and in particular the OECD Guidelines for Multinational Enterprises”[2] and as such are explicitly referenced in its trade and association agreements, see for example the EU-Georgia Association Agreement and the Association Agreement with Ukraine.

Additionally, the Guidelines are equipped with a unique problem-solving mechanism – known as the National Contact Points for responsible business (NCP). The main role of NCPs is to promote the Guidelines and to help companies to prevent getting in trouble and help them solve corporate responsibility issues. This globally active mechanism allows civil society; trade unions and other interested parties to submit complaints regarding non-observance of the Guidelines by companies. Over 360 cases, related to mostly human rights, labour and employment and the environment have been brought to the NCP mechanism since 2000 addressing impacts from businesses in over 100 countries and territories. From 2011 to 2015 about 50% of all accepted complaints resulted in an agreement between the parties and 36% resulted in an internal policy change by the company in question, contributing to potential prevention of adverse impacts in the future. This grievance mechanism covers global value chains with a link to companies from adherent territories and as a result it covers a large part of the Asian export industry as well.

As signatories to the Guidelines, the Baltic States are under an obligation to set up a NCP that has the confidence of the social partners and other stakeholders; and to make human and financial resources available to their NCP to fulfil their responsibilities.[3] To this effect all three states have set up a NCP,[4] yet they have not dealt with any complaints so far. While both Estonia and Latvia are OECD Members – Latvia as recent as July 2016 -, Lithuania is currently in the process of accession to the OECD. As part of this procedure, the Government will have to show evidence of a commitment to implement the Guidelines and in particular the existence of a credible well-functioning NCP.

[1]                  See also: Can Companies Really Do Well By Doing Good? The Business Case for Corporate Responsibility, by Roel Nieuwenkamp https://friendsoftheoecdguidelines.wordpress.com/2015/11/02/can-companies-really-do-well-by-doing-good-the-business-case-for-corporate-responsibility/

[2]                  European Commission (2015), Trade for All: Towards a more responsible Trade and investment policy, European Commission Publishing 2015, accessible at http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf .

[3]                  Decision of the Council on the OECD Guidelines for Multinational Enterprises (2011).

[4]                  Estonia NCP: https://www.mkm.ee/en/objectives-activities/economic-development

Latvia NCP: http://www.mfa.gov.lv/en/policy/economic-affairs/oecd/latvian-national-contact-point-for-the-oecd-guidelines-for-multinational-enterprises

Lithuania NCP: http://ukmin.lrv.lt/lt/veiklos-sritys/investiciju-veiklos-sritis/nacionalinis-koordinacinis-centras-nkc

 

OECD Guidelines for Multinational Enterprises

Baltic Rim Economies (BRE) Review 

Landmark human rights cases show value of OECD grievance mechanism for responsible business

Landmark human rights cases show value of OECD grievance mechanism for responsible business

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

This article was originally published on OECD Insights on 11 November 2016.

Compensation for indigenous people for adverse impacts of business activities, companies agreeing to carry out human rights due diligence concerning products in their value chain, authoritative statements that set the standard for the garment industry worldwide in the aftermath of Rana plaza – these are just some examples of achievements by the National Contact Points (NCPs) for responsible business in recent months.

In the run up to the 2016 UN Forum on Business and Human Rights it is good to highlight the importance of the NCP mechanism for business and human rights. Five years ago the OECD Guidelines for Multinational Enterprises were revised and the UN Guiding Principles were embedded in its human rights chapter. This way the OECD’s globally active grievance mechanism for responsible business became a de facto grievance mechanism for the UN Guiding Principles on Business and Human Rights.

The complaints mechanism is globally active as it covers global value chains with a link to companies from the 46 adherent territories. Over 360 cases have been brought to the NCP mechanism since 2000 addressing impacts from business operations in over 100 countries and territories.

What has been the experience thus far?

Since the 2011 addition of a human rights chapter 54% of all complaints brought to the NCP mechanism concern human rights and business.

From 2011 to 2015 about half of all complaints brought which were accepted for mediation, resulted in a mediated agreement between the parties.

Concrete results were for example ending forced and child labour in supply chains, improved health and safety for agricultural workers and better human rights due diligence for mega sport events. I would like to highlight a couple of landmark business and human rights cases that are worth looking at.

Value chain responsibility concerning the death penalty

Most attention has been paid to supply chain responsibility of business. Yet it is largely unknown that with the 2011 revision, the scope of the OECD Guidelines was extended to cover the entire value chain, meaning that they apply to the supply and distribution chains, or in simple words: it matters from whom you buy and to whom you sell taking into account the potential end use. The far reach of the Guidelines has been illustrated in a number of instances.

Last year a case was brought to the Dutch NCP involving Mylan, a pharmaceutical company, for possible human rights abuses associated with the production and sales of rocuronium bromide to prisons in the United States for use in lethal injections. The Dutch NCP concluded that the Guidelines are applicable to the value chain and in particular to the distribution chain. The case is also noteworthy as it demonstrated the force of finance used by the shareholders to exert their influence to hold the company accountable for responsible business conduct. In parallel to the specific instance proceeding, several investors entered into dialogue with Mylan to persuade the company to ensure that its products are not used to carry out lethal injection executions. One pension fund even decided to sell its shares in the company, whereas others continued the dialogue. The parties in the case concluded a mediated agreement and Mylan has taken active steps to prevent rocuronium bromide from being used in US prisons for executions.

Value chain responsibility concerning sales of teargas

In another case the French NCP also considered the distribution chain. The complaint concerned the sale of tear gas by Alsetex to the government of Bahrain allegedly used by security forces in the pro-democracy protests in 2011 and thereafter to violate human rights. The consideration of the case demonstrated that the Guidelines go beyond enterprise compliance with the export control regulations for strategic goods and require companies to take risk-based due diligence measures. With due consideration to the State duty to protect human rights, the French NCP concluded that Alsetex complied with the Guidelines, however recommending the company to formalise in-house due diligence procedures particularly in order to increase the traceability of its exports. The parties agreed with the conclusions of the NCP.

Indigenous people’s rights

Indigenous people’s rights have also been addressed by the NCP mechanism in the context of a complaint by the Saami village alleging that Statkraft AS, a Norwegian multinational enterprise, had breached human rights chapter of the Guidelines by planning to build a wind power plant on reindeer herding ground in Sweden. The case reveals the possible tensions between environmental concerns for sustainable energy production and the indigenous peoples’ rights for their community’s economic and cultural survival. The Swedish and Norwegian NCPs applied the principle that enterprises are expected to carry out consultations with a view to obtaining from the parties Free, Prior and Informed Consent (FPIC consultations) based on the UN Declaration on the Rights of Indigenous Peoples. While the NCPs found that the company had not failed to comply with the OECD Guidelines, some areas for improvement were identified. Following the conclusion of the NCP case, the parties have subsequently themselves reached an agreement last August on compensation for the impact and negative effects of the windmills.

Supply chain responsibility regarding the Rana Plaza tragedy

In practice a lot of human rights cases under the NCP system concern labour rights issues. The collapse of the Rana plaza factory has symbolised poor working conditions in global textile supply chains. The responsibility of global brands has also been brought to the attention of the NCPs. The Danish NCP for example 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 which was located in the Rana Plaza building. The case confirms the importance of the Bangladesh Accord on Fire and Building Safety which includes inspection of building structures as part of occupational safety and health. Under the OECD Guidelines, companies cannot hide behind the industry practice that risk-based analyses did not include the inspection of building safety. Following the Rana Plaza tragedy, the OECD has convened governments, business, civil society and trade unions to develop a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations to support a common understanding of due diligence and responsible supply chain management in the sector. This Guidance is expected to be finalised soon. 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.

Delivering important results

This year marks the 40 years anniversary of the OECD Guidelines. Five years ago the Guidelines were dramatically revised, increasing the scope to global value chains and embedding the UN Guiding Principles into the human rights chapter. Five years down the road the OECD’s globally active grievance mechanism for responsible business has proven its potential added value for reinforcing the UN Guiding Principles on business and human rights, delivering important results.

Useful links

OECD Guidelines for Multinational Enterprises

Implementing the OECD Guidelines for Multinational Enterprises: The National Contact Points from 2000 to 2015

2016 UN Forum on Business and Human Rights