Drilling down and scaling up in 2015

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

After the development of new global standards on responsible business conduct (RBC = beyond CSR…) in 2011[1] it was time to get down to business and work on making these standards a reality. The implementation process has been hard, complex and slow, however the good news is that this has not deterred companies and governments from taking new standards seriously. In 2014 we saw some important developments and we saw many demonstrated leaders being proactive in trying new approaches.

Global players made significant advances in RBC policy. For example, China demonstrated exciting and encouraging efforts on RBC including the development of guidelines on corporate social responsibility for outbound mining investments.[2] Follow closely how this is implemented; it could have a huge impact. Canada likewise introduced a tough new CSR policy for international mining operations guided by the OECD Guidelines and promoting the NCP grievance mechanism.[3]

Companies also stepped forward to address ongoing challenges in their sector. For example the Accord and Alliance initiatives were established through company networks after Rana Plaza to inspect and remediate fire and safety problems in garment factories throughout Dhaka, Bangladesh. In 2014 both programs completed the bulk of their inspection programs.

Additionally we saw civil society and companies collaborate together and reach solutions on RBC through mediation. A good example of this was a case mediated by the UK NCP and brought by the World Wild Life Fund (WWF) which resulted in pledge by Soco, an oil company, that it would cease oil exploration in a treasured national park in DR Congo.

Despite some advances and important resolutions there remains a lot of work to do, by companies, by governments and by civil society. The field of RBC is changing rapidly and will be shifting to an even higher gear in 2015. In preparation for this gear shift I have prepared a list of top 5 RBC developments to watch in 2015.

Responsible Business Conduct in 2015: Top 5 issues to Watch

  1. Hardening of soft law

Over the past few years we have increasingly been seeing a shift of CSR standards from the voluntary domain into the hard law domain. This year a couple of important developments will be concluded further reinforcing this trend.

Legislating due diligence

In the UK, Switzerland, and France there are proposals in the pipeline to make due diligence regarding aspects of RBC mandatory. The broadest scheme is this sense is the proposal being considered in France which would mandate supply chain due diligence in accordance with the OECD Guidelines for Multinational Enterprises, thus covering a comprehensive range of RBC issues.[4] The Prime Minister of France Manual Valls publically endorsed this proposal in December and it will be discussed in end of January in French parliament.

The UK[5] and Swiss[6] laws being proposed have a more narrow focus, forced labor and human rights and the environment respectively, but likewise oblige companies to avoid such impacts throughout their supply chains. These laws will follow suit of several existing policies. For example, California mandates supply chain due diligence to avoid modern slavery[7]. Last year the ILO adopted the Protocol to Convention n. 29 which calls on companies to take measures to prevent forced or compulsory labour through supporting due diligence to prevent and respond to risks of forced or compulsory labour. [8]

Binding International Treaty: will it fly?

In June of 2014 a UN Working Group was established to discuss the development of a binding treaty which would hold transnational corporations accountable for human rights violations. Such a treaty would be the first international human rights instrument with legal enforceability against transitional corporations. We will soon see whether this will prove to be a serious effort t or just a distraction. There are still many flaws in the setup, for example in that it excludes national companies. One early indication of the seriousness of the initiative will include who will be asked to chair the working group. Will it be someone from a pragmatic country who could act as a bridge builder between countries that have supported the treaty on the one hand and the US and EU on the other? If that is the case, the treaty might fly, with a potentially huge impact. However if a more dogmatic representative from a country with rigid views is selected, my prediction is that we can ignore the development in the future.

 

  1. Specific due diligence recommendations in high risk sectors

While expectations of companies to conduct due diligence to avoid certain impacts are beginning to be regulated, practical guidance will be launched in 2014 across a range of sectors to help guide companies in meeting these expectations.

Textile and Garment Sector

In the wake of the Tazreen and Rana Plaza tragedies, the textile and garment industry experienced a wake-up call. Old CSR models simply have not been working and executives and civil society alike have agreed that returning to business as usually is simply unthinkable.

To be sure some important advances have been made in the sector over the past decade. However, a multitude of challenges continue to exist in the sector. The fast paced and unreliable nature of the business, reliance on unskilled labour, strong downward price pressures and complex global supply chains all heighten the risk of adverse impacts and make supply chain management difficult.

The OECD is currently developing guidance on tackling some of these issues and practicing responsible business conduct in the face of ongoing challenges. This guidance will be finalized and released this year and we can only hope that it will have the transformational impact on the industry that the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals of from Conflict-Affected and High-Risk Areas has had on the extractives sector.

Financial Sector

As expectations of RBC in the financial sector continue to be shaped, increasing evidence is emerging demonstrating the positive business impact of social and environmental due diligence in the financial sector. For example a recent study by the University of Oxford and Arabesque Partners suggests that investment strategies that incorporate environmental and social governance (ESG) issues outperform comparable non-ESG strategies. [9]

This past year we made some advances in clarifying the expectations of the financial sector in the context of responsible business conduct. A few cases at the NCP level found a lack of adherence to the OECD Guidelines where environmental and social due diligence processes of certain financial institutions were not strong enough. In response to these cases the OECD and UN provided statements and explanatory notes exploring how the expectations of the OECD MNE Guidelines and UN Guiding Principles for Business and Human Rights (UNGPs) should apply in the context of the financial sector. [10]

This year the OECD will launch a project on responsible business conduct in the financial sector. Along with other leaders in this field such as the Equator principles, Principles for Responsible Investment, Thun Group of Banks, the OECD is now getting down to business and drilling down to the complex details of how financial institutions should actually conform to the expectations of the OECD MNE Guidelines and UNGPs. The financial sector represents relatively unchartered territory in the context of RBC. Ongoing work on these issues will lead to emerging good practices, which can be scaled up across the sector.

Extractives

For years now the OECD has been articulating best practices in responsible mineral sourcing. This year the OECD will release a User Guide on Stakeholder Engagement and Due Diligence in the Extractive Industries, contributing guidance on another crucial area of RBC in the extractives sector.

Effective stakeholder engagement is crucial to both communities as well as well as extractive enterprises themselves. Extractive operations often contribute to severe environmental and social impacts. Thus special attention on engagement with communities to avoid such impacts is crucial.   A lack of good community relations can also be critical from the perspective of maximizing profitability of operations. For example, a recent study found that the cost of community conflict amounts to a loss of approximately 20 million USD a week in NPV on average for major mining operations. [11]

The OECD User Guide on Meaningful Stakeholder Engagement is being developed in consultation with a multi-stakeholder advisory group and when finalized will represent the first authoritative multilateral guidance on this issues. Despite its political clout, the aim of the User Guide will be to provide practical, site level guidance and serve as a practical tool for practitioners.

Agriculture

Agriculture represents another high-risk sector due to high fluctuations in commodity markets, at times dangerous and laborious working conditions. As global demand for food continues to rise, developing countries represent new sources for agricultural markets. Agricultural operations in contexts of weak governance and land rights raise additional risks and challenges with regard to responsible business conduct.

This January a public consultation will be launched on a guide to responsible business conduct in agricultural supply chains developed in partnership with the OECD, FAO and a multi-stakeholder advisory body. This guide brings together various authoritative guidance on this issue and will help provide guidance to all actors throughout the supply chain on avoiding salient risks and operating ethically in this sector.

  1. UN Convention on Climate change: how can companies contribute to solutions?

The 21st session of the Conference of the Parties (COP 21) to the United Nations Framework Convention on Climate Change (UNFCCC) will take place in Paris, December 15th. This is set to be a historic event.  The announced objective of the 2015 conference is to reach a binding and universal agreement on climate, from all the nations of the world. This would be the first such agreement to be reached in over 20 years of UN negotiations.   While this will certainly prove to be an ambitious and challenging goal, certain developments provide promise that such a goal may be achievable. Notably, in late 2014 China and the US announced a plan to cap and lower emissions levels. The deal represents the first time that China has agreed to peak its carbon emissions signalling to the world that China is ready to come to the table to combat climate change.

Climate negotiations and policy have historically focused on government commitments and this continues to be the case today. Currently little guidance exists on the obligations and expectations of companies in climate change mitigation, but given that central role industry plays in production of global emissions, businesses should also be brought to the table. Applying the RBC agenda to the climate debate can help can contribute to adding dialogue on corporate responsibility in the context of GHG emissions to COP 21 and raising engagement from business and corporate stakeholders on these issues in the lead up to the event.

Several concrete areas where business responsibility and climate impacts have already been seen are in the context of transparency and finance. Increasingly countries are requiring greenhouse emissions reporting from companies. The OECD is currently developing a study analysing such reporting obligations amongst G20 countries. Additionally, climate risks are becoming a significant factor of consideration in investment strategies. We are already seeing many institutional investors divesting from industries such as coal due to heightened financial risk. Investment strategies incorporating climate risk may provide additional impetus to companies to report on emissions and climate impacts as well as to mitigate any such impacts.

  1. National Action Plans: will the US use its ‘Soft Power’?

This year several countries will develop and launch their National Action Plans (NAPs) on Responsible Business Conduct or more focused on business and human rights. NAPs for business and human rights are strategy documents that States are encouraged to develop as part of the State responsibility to disseminate and implement the UNGPs.  Although non-binding, NAPs will represent important reflections of countries’ policies on human rights and business and could prove useful in scaling up commitments to RBC as well as detecting best practices.

Several states have already developed and submitted NAPs, while others are now in the process.

One NAP of special importance and impact will be that of the United States. President Obama announced last year the development of a U.S. National Action Plan (NAP) to promote responsible and transparent business conduct overseas. The US NAP will address ways in which the U.S. government can promote, encourage, and enforce established norms of responsible business conduct with respect to human rights, labour rights, anti-corruption, and transparency. The plan will be consistent with the UNGPs and the OECD MNE Guidelines.

Consultations on the US NAP are currently ongoing. The potential impact of the document is significant. The EU CSR communication released several years back proved to be highly influential. My hope is that the US action Plan will be successful in projecting the ‘soft power’ of the US in the field of RBC.

  1. Sustainable Development Goals (SDGs): what can businesses do?

The SDGs grew out of Rio+20 conference and are meant to build off and replace the Millennium Development goals as the leading global framework for development. This summer the  UN General Assembly’s Open Working Group on Sustainable Development Goals released the first draft of the SDGs— 17 proposed goals accompanied by 169 targets. The goals cover a broad range of sustainability issues centred on poverty eradication, environment and development and are designed to be “action-oriented, concise and easy to communicate.’

What role will businesses play in the implementation of the SDGs?

Some of the goals, notably Goal 12 which is ‘’ensuring sustainable production and consumption patterns’’ have direct implications for business conduct. However on a general level, my guess is that the SDG’s will provide a rallying point for progressive businesses to contribute to reaching these goals and as well as to manage their operations to avoid undermining the SDGs. In this way the SDG’s will support the ‘do good’ as well as the ‘do no harm’ part of the RBC agenda. The SDG’s will also shape RBC risk profiles of certain sectors, particularly those with high environmental impact.

2015 will surely prove to be an exciting year for RBC. The hardening of voluntary principles into legal obligations, the availability of a range of practical guidance for business on RBC due diligence along with historical policy developments through the upcoming climate conference, development of NAPs and the SDGs will all contribute to raising the bar on RBC. Personally, I am looking forward to watching these initiatives unfold and predict it will indeed be a happy new year.

[1] Including the OECD Guidelines for Multinational Enterprises (revised in 2011); the UN Guiding Principles for Business and Human Rights   (2011) and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration) (2011).

[2] Available here: http://www.srz.com/files/upload/Conflict_Minerals_Resource_Center/CCCMC_Guidelines_for_Social_Responsibility_in_Outbound_Mining_Operations_English_Version.pdf

[3] Available here: http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/Enhanced_CS_Strategy_ENG.pdf

[4] See Proposition de Loi 1897 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre.

[5] Modern Slavery Bill (proposal), UK (2014) Available at: https://friendsoftheoecdguidelines.files.wordpress.com/2014/11/modern-slavery-bill-15051.pdf See particularly Part 6, section 51 Transparency in Supply Chains

[6] Parliament Motion 14.3671 Umsetzung des rechtsvergleichenden Berichtes des Bundesrates über die Verantwortung von Unternehmen bezüglich Menschenrechten und Umwelt. Prof Ruggie on Motion 14.3671 Available at: http://business-humanrights.org/en/swiss-foreign-affairs-committee-calls-for-mandatory-human-rights-due-diligence-for-companies-0#c106965

[7] California Transparency in Supply Chains Act of 2010; Available at https://friendsoftheoecdguidelines.files.wordpress.com/2014/11/california-slavery-in-supply-chain-act-164934.pdf

[8] Protocol to Convention 29 – Protocol to The Forced Labour Convention, 1930, Adopted by the Conference at its one hundred and third Session, Geneva, 11 June 2014. Available at: http://www.ilo.org/ilc/ILCSessions/103/reports/committee-reports/WCMS_248900/lang–en/index.htm

[9] Oxford University and Arabesque Partners, ‘’From the Stockholder to the Stakeholder’’ (2014)

[10] See Expert letters and statements on the application of the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights in the context of the financial sector, 2014; Scope and application of ‘business relationships’ in the financial sector under the OECD Guidelines for Multinational Enterprises, 2014 ; Due diligence in the financial sector: adverse impacts directly linked to financial sector operations, products or services by a business relationship, 2014

[11] Source: Daniel M. Franks, et al.  ‘’Conflict translates environmental and social risk into business costs’’)

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One thought on “Drilling down and scaling up in 2015

  1. Pingback: Legislation on responsible business conduct must reinforce the wheel, not reinvent it | Friends of the OECD Guidelines for Multinational Enterprises

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