Corporate Accountability and the UN Sustainable Development Goals: How Responsible Business Conduct could and should play a decisive role

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

This article was prepared as a background document for the  2015 Independent Research Forum Retreat ‘Towards a Transformative Post 2015 Development Agenda’, which took place in New York, May 17th 2015 with UN Post 2015 and SDG negotiators. and for the the UN ESCAP OECD Regional Conference on Aligning Corporate Sustainability with SDG’s, taking place in Bangkok May 20th 2015.

Currently, the UN is in the process of developing the Sustainable Development Goals, a set of 17 goals which will define the post-2015 development agenda. It is recognised that the private sector has an important role to play in economic and social development. Private sector growth can create income opportunities, contribute to human capital development and lead to technology transfers, among other positive economic and social effects. For example, in Bangladesh the apparel sector has been credited in lowering the official poverty rate from 70% to less than 40%.[1]  Today it employs tens of millions of workers globally, predominantly women, which has contributed to empowering women from poor communities.

However, as we have also witnessed in Bangladesh in the context of the apparel sector, in order to avoid other negative impacts, businesses must behave responsibly. Not just within their direct operations but throughout their supply chains and business relationships. This is particularly important in weak regulatory contexts. Given that a significant portion of global manufacturing takes place in such contexts, if multinationals would commit to promoting sustainability and responsible business conduct throughout their supply chains this would have a decisive impact on the success of the SDGs.

The OECD Guidelines on Responsible Business Conduct

The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct currently represent the most comprehensive set of government-backed recommendations on responsible business conduct. They are an important tool for promoting responsible business conduct globally, and therefore for supporting global development.

The OECD Guidelines state as an overarching objective that enterprises should contribute to economic, environmental and social progress with a view to achieving sustainable development.[2] Furthermore under the Guidelines enterprises are expected to avoid causing or contributing to adverse impacts (social, environmental, human rights, etc.), through their own activities, and address such impacts when they occur. Therefore the Guidelines promote a concept of responsible business conduct which includes both the idea that business should do no harm and that they can do well by doing good. This applies to an enterprise’s direct operations as well as products, operations and services throughout its supply chain.

Currently 46 countries adhere to the Guidelines, and therefore make a binding commitment to promote RBC amongst businesses operating in or from their territories. Adherent countries represent diverse geographies and include OECD member states as well as 12 non-OECD member countries (Argentina, Brazil, Colombia, Costa Rica, Egypt, Jordan, Latvia, Lithuania, Morocco, Peru, Romania and Tunisia). These 46 countries account for around four-fifths of outward FDI and two-thirds of inflows and are home to the majority of multinational enterprises. This means that the Guidelines are relevant even for non-adherent nations looking to attract investment or home to companies operating abroad.

Linkages amongst the OECD Guidelines and SDGs

Given the instrumental role that business has to play in sustainable development the OECD Guidelines directly support many of the aims of the SDGs. Some of the main complementarities amongst the OECD Guidelines are outlined in the table below.

 

Sustainable Development Goals

 

OECD Guidelines for Multinational Enterprises

Promoting sustainable business practices
Ensure sustainable consumption and production. (SDG 12)

Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle. (SDG 12.6)

Ensure sustainability in :

·         agricultural (SDG 2.4)

·         fisheries ( SDG 14)

·         tourism ( SDG 8.9)

·         infrastructure (SDG 9)

Enterprises should contribute to economic, environmental and social progress with a view to achieving sustainable development. (OECD Guidelines, General Policies)

Chapter III of the OECD Guidelines deals with Disclosure. Provisions 33 and 34 of the Commentary promote integrating sustainability information in their reporting cycle. Biodiversity and greenhouse gas emissions and other environmental impacts are mentioned as examples.

OECD and FAO are developing specific guidance for supply chains responsibility for the agricultural sector. OECD is developing due diligence guidance for garment and footwear supply chains.

Managing environmental impacts
Reduce the number of deaths and illnesses from hazardous chemicals and air water and soil pollution and contamination. (SDG 3.9)

Improve water quality by reducing pollution, eliminating dumping and minimizing release of hazardous chemicals.  (SDG 6.3)

Prevent and signi­ficantly reduce marine pollution of all kinds; sustainably manage and protect marine and coastal ecosystems to avoid significant adverse impacts. (SDG, 14.1 & 14.2)

Ensure the conservation, restoration and sustainable use of terrestrial and inland freshwater ecosystems […] in line with obligations under international agreements. (SDG, 15.1)

Promote the implementation of sustainable management of all types of forests. (SDG, 15.2)

Take urgent and significant action to reduce the degradation of natural habitats, halt the loss of biodiversity and, by 2020, protect and prevent the extinction of threatened species. (SDG, 15.5)

Establish and maintain a system of environmental management (OECD Guidelines, Chapter VI. 1)

Enterprises should assess, and address in decision-making, the foreseeable environmental, health, and safety-related impacts associated with the processes, goods and services of the enterprise over their full life cycle with a view to avoiding or, when unavoidable, mitigating them. (OECD Guidelines, Chapter VI. 3)

Enterprises should continually seek to improve corporate environmental performance, at the level of the enterprise and, where appropriate, of its supply chain. (OECD Guidelines, Chapter VI. 6)

Contributing to resource efficiency  
Increase renewable energy and improvement of energy efficiency (SDG 7.2&3)

Improve global resource efficiency in consumption and production and endeavour to decouple economic growth from environmental degradation. (SDG 8.4)

Enterprises should encourage activities such as development and provision of products or services that have no undue environmental impacts; are safe in their intended use; reduce greenhouse gas emissions; are efficient in their consumption of energy and natural resources; can be reused, recycled, or disposed of safely. (OECD Guidelines, Chapter VI. 6(b))
Combatting discrimination and violence against women  
End all forms of discrimination against all women and girls everywhere; eliminate all forms of violence against all women and girls in the public and private spheres, including trafficking and sexual and other types of exploitation. (SDG 5.1 and 5.2) Enterprises should respect human rights, which means they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved. (OECD Guidelines, Chapter IV.1)

Enterprises should not discriminate against their workers with respect to employment or occupation on such grounds as race, colour, sex, religion, political opinion, national extraction or social origin, or other status. (OECD Guidelines, Chapter V.1(e)).

Promoting labor rights and employment
Achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value. (SDG 8.5)

Protect labour rights and promote safe and secure working environments for all workers. (SDG 8.8).

Generally:

OECD Guidelines, Chapter V on Employment and Industrial Relations, aligned with the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.

Specifically:

Enterprises should take adequate steps to ensure occupational health and safety in their operations. (OECD Guidelines, Chapter V, 4(c)).

Enterprises should encourage local capacity building through close co-operation with the local community. (OECD Guidelines, Chapter II.A.3).

In their operations, to the greatest extent practicable, enterprises should employ local workers and provide training with a view to improving skills, in cooperation with worker representatives and where appropriate relevant government representatives. (OECD Guidelines, Chapter V. 5).

Take immediate and effective measures to secure the prohibition and elimination of the worst forms of child labour, eradicate forced labor.  (SDG 8.7) Enterprises should contribute to the effective abolition of child labour, and take immediate and effective measures to secure the prohibition and elimination of the worst forms of child labour as a matter of urgency. (OECD Guidelines, Chapter V.1(c)).

Enterprises should contribute to the elimination of all forms of forced or compulsory labour and take adequate steps to ensure that forced or compulsory labour does not exist in their operations. (OECD Guidelines, Chapter V.1(d)).

Respecting human rights
End abuse, exploitation, trafficking and all forms of violence against and torture of children (SDG 16.2) Enterprises should respect human rights, which means they should avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved. (OECD Guidelines, Chapter IV.1)
Combatting corruption and illicit financial flows
Substantially reduce corruption and bribery. (SDG 16.5)

Reduce illicit ­financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime. (SDG 16.4)

Generally:

OECD Guidelines, Chapter VII on Combating Bribery, Bribe Solicitation and Extortion.

Enterprises should comply with both the letter and spirit of the tax laws and regulations of the countries in which they operate. (OECD Guidelines, Chapter XI, 1)

 

National Contact Points promote corporate accountability

Perhaps the most important feature of the Guidelines is the National Contact Point mechanism, the built in grievance mechanism of the Guidelines. Countries adhering to the Guidelines are obligated to establish NCPs which are tasked with promoting the Guidelines as well as providing a platform for mediation and conciliation of alleged non-observance by the Guidelines. Given the substantive overlap between the RBC recommendations of the OECD Guidelines and the SDG’s the NCP system can serve as an important tool in advancement of the objectives under the SDGs.

Although the NCP mechanism does not have legal authority and thus cannot impose sanctions nor mandate that parties participate in the process, it has nevertheless proven to be an effective tool in promoting RBC. Utilizing the NCP mechanism provides a venue for enterprises to discuss and explore issues regarding responsible business conduct in a low-cost, non-adversarial manner, which can avoid further escalation of disputes.  The OECD NCP mechanism has a growing track record of agreements resulting through mediation.  For example in 2014 the UK NCP resolved a complaint brought by the World Wildlife Fund based on the activities of Soco, an oil exploration company, in Virunga national park, a world heritage site in the Democratic Republic of the Congo (DRC). The mediation resulted in Soco agreeing to cease its operations, to never again jeopardise the value of another world heritage site and to conduct environmental impact assessments and human rights due diligence in line with international standards. Such a result directly supports the environmental agenda of the SDGs.

A complaint submitted by UNI Global Union and the International Transport Workers Federation against DHL also led to a useful agreement at the German NCP. The complainants and the company agreed to respect the rights of workers to establish and join trade unions in Turkey, India, Colombia, Indonesia and Vietnam.  In another case concerning the Tazreen factory fire in Bangladesh, the complainant, Uwe Kekeritz, member of the German Bundestag, and Karl Rieker, a garment company, reached an agreement in which Karl Rieker committed to improve the fire and building safety standards in its supplier factories. Measures included reducing of the number of supplier factories, establishing long-term supplier relations, close supervision by local staff, and signing the Bangladesh Accord on Fire and Building Safety. The conclusion of these cases supports the SDG goal of protecting labour rights and promoting safe and secure working environments for all workers.

Many NCP cases tackle multiple issues and thus can contribute to several aspects of the SDGs.  For example in a complaint by several NGOs against the Cameroon palm oil giant Socapalm and its owners (France’s Bolloré) the French NCP brokered an agreement in which Socapalm agreed to improve workers’ conditions in Socapalm and its suppliers, improve stakeholders engagement with local communities, and reduce environmental damage.

Although non-binding, this soft law mechanism can have hard consequences. If mediation in the context of an NCP procedure fails an NCP may issue a statement with recommendations, sometimes including a statement on whether a company did or not act in adherence with the recommendations of OECD Guidelines. While such determinations may cause significant reputational damage to a company they can also protect a company’s reputation in instances when conduct is found to be consistent with the recommendations of the OECD Guidelines. Furthermore in some contexts governments consider NCP statements with regard to economic decisions, e.g. in the context of public procurement decisions or in providing support to international operations.  For example, export credit agencies of OECD member countries must take into account the final statements of NCPs when they make decisions on export credit guarantees. Additionally, some countries have taken NCP decisions and processes into account with regard to their commercial diplomacy.

Beyond government related commercial consequences, increasingly financial institutions are conducting human rights due diligence. This process is being conducted to avoid ethical and commercial risks associated with being linked to such operations. Likewise institutional investors have increasingly started to apply pressure in situations where human rights issues are identified and in some cases have been known to pull their investment where adverse impacts are not adequately addressed. For example in 2010, investors withdrew from mining company Vedanta following an upheld NCP complaint. All this can increase the cost of capital.

Conclusion

The private sector has an important role to play in realizing the SDGs and in this respect, the OECD Guidelines provide a strong existing framework for corporate accountability complementary to the aims of the SDGs. Specifically, where the SDG address behaviour of enterprises the NCP mechanism of the Guidelines will continue to function as a strong tool for encouraging responsible behaviour. Governments should take a whole of government approach to this tool and strengthen the NCP system with the SDG’s in mind. For countries with an existing NCP this means strengthening the mechanism and providing it with adequate resources to fulfill its tasks.  Finally, multinationals should play their role by behaving responsibly within their direct operations as well as throughout their supply chains.

[1] Sarah Labowitz and Dorothée Baumann-Pauly, Business as Usual is Not an option, New York University Stern School of Business (April, 2014), 16 http://www.stern.nyu.edu/sites/default/files/assets/documents/con_047408.pdf

[2] OECD Guidelines for Multinational Enterprises, 2011, II A.1 General Policies

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s