2016: CSR is dead! What’s next?

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

A couple of months ago I met an expert in the field of corporate responsibility who asked me the following question: ‘So, are you the guy who killed CSR?’ Normally being labelled a killer can get you behind bars, but in this case it was meant as a compliment. However, I didn’t do it! So why was I a suspect? The reason is likely that I chair the OECD Working Party on Responsible Business Conduct, a group of 46 governments that deal with business ethics issues by promoting and implementing the OECD Guidelines for Multinational Enterprises (OECD MNE Guidelines).

The OECD MNE Guidelines are the world’s most comprehensive multilateral agreement on business ethics and are the only international corporate responsibility instrument with a built-in grievance mechanism.[1] Under the OECD Guidelines – this year 40 years old – the term ‘’CSR’’ is not used, rather they discuss ‘’responsible business conduct “(RBC). Responsible business conduct means that businesses should make a positive contribution to economic, environmental and social progress with a view to achieving sustainable development and that businesses have a responsibility to avoid and address the adverse impacts of their operations. While the concept of CSR is often associated with philanthropic corporate conduct external to business operations, RBC goes beyond this to emphasize integration of responsible practices within internal operations and throughout business relationships and supply chains.

By actively promoting this broader concept, I was caught with a knife in my hands and a motive. However, I am only one singer in the choir of business leaders, journalists and academics that have declared CSR dead.[2]

That being said, nowadays CSR is a global industry. Most companies employ CSR managers, vice presidents, and experts; armies of CSR consultants are on offer and hundreds of CSR awards are distributed every year. In addition, countries are increasingly implementing CSR laws, action plans and even CSR ‘taxes’[3]. Given the widespread recognition of CSR, is it really necessary to bury it six feet under?

The Line of Defence

Let’s be clear: I didn’t kill CSR, nor did the OECD. Ultimately, CSR killed itself! Several characteristics attributed to CSR contributed to its ultimate demise.

CSR as social philanthropy vs. sustainable development

Firstly, CSR is often associated with philanthropy and volunteer work in the social sphere, rather than long-term sustainable development. This is especially true in some regions in the world where CSR activities are limited to companies building schools, or sponsoring local activities. Indeed, company CSR reports are often largely of descriptions of feel-good projects and activities that ‘give back’ to society.

CSR as an optional activity

Secondly, CSR is often understood to be an optional add-on external to core business operations.[4]  For example the scope of a CSR managers’ responsibility is often limited to voluntary initiatives while responsibility for non-voluntary obligations falls to procurement officers, human resources or legal counsel. Therefore corruption issues are often not considered a CSR issue and are not dealt with by CSR managers. Corporate tax responsibility, an integral part of the OECD MNE Guidelines, likewise is most often not on the radar screen of a CSR manager.

This division is problematic for several reasons. For one, the ‘voluntary’ association of CSR severely limits the role of CSR managers within their companies as they often only deal with issues that are viewed as peripheral.  In contrast, responsible business conduct, as promoted by the OECD, provides a more integral perspective; it is a core business function, and as such must be integrated within corporate governance, procurement, finance, and so on.

Additionally, core elements of responsible business conduct as outlined in leading international policy such as the UN Global Compact or the OECD MNE Guidelines are not at all voluntary in most jurisdictions. Bribery is a crime in all OECD states, non-financial disclosure will be mandatory in the EU for large companies, and many issues of competition and consumer interests also covered by the OECD Guidelines are legally binding in most countries.

Lastly the ‘voluntary’ association with CSR also suggests there are no consequences attached to non-compliance. That is also a misconception. Research clearly demonstrates that there is a strong business case for companies to behave responsibly. Responsible business practices can result in positive outcomes such as improved reputation and productivity. On the other hand, irresponsible business practices can lead to significant financial liabilities as well as impact access to finance. Investors who take environmental and social issues into account in their investment decisions today represent a portfolio of at least $59 trillion in assets under management[5].

CSR associated with ‘classic’ social audits

Thirdly, CSR is strongly associated with the ‘old school’ social audit system[6]. While audits are necessary, they are an insufficient means to fulfilling responsible business conduct.  The voluntary, peripheral connotations of CSR has been reflected in the audit system in the sense that often there is little follow-up done to shortcomings identified in social audits unless they have bearing on other, generally economic, aspects of business operations. Systematic research by Prof. Richard Locke, has shown that the audit system is failing to deliver desired results in terms of addressing social and environmental impacts. [7] The best real life example of a failure of the audit system has been the Rana Plaza collapse. Some of the brands sourcing from Rana Plaza had performed audits of the factory prior to its collapse and continued to source from it, despite the clear existence of serious workplace safety issues. Responsible business conduct nowadays goes beyond auditing and stresses the importance of a continuous process of due diligence, which in addition to identifying risks also requires prevention and mitigation as well as addressing negative impacts where they do occur.

CSR as a greenwashing exercise

Finally, CSR has often been used primarily as a PR tool which has contributed to the perception that it is merely a greenwashing exercise. In the words of Michael Townsend[8]: “Corporate Social Responsibility is, at best, only a partial solution — one which can be misused to create an illusion of responsibility.” Indeed, experience has shown that misuse of the concept to create an illusion of responsibility is a common occurrence: Volkswagen, prior to its emissions rigging scandal, used to claim the number one spot on the Dow Jones Sustainability index. Enron has received CSR awards in the past and scores of companies display CSR-logo’s on their website while in practice ignoring major corporate responsibilities. Fortunately, as increasing scandals have exposed the hollowness of some CSR programs more and more companies have begun to move their CSR functions out of their PR or communications departments.

So, what’s next?

“CSR is dead. It’s over!” So declared Peter Bakker, president of the World Business Council for Sustainable Development[9]. Bakker’s key argument was that leading companies are already going way beyond traditional CSR by integrating sustainability into all aspects of their business operations in recognition that business cannot succeed if society fails. He urges us to innovate — to align with facts, to redesign what we mean by good performance and to get inspired by new definitions of success. Indeed what Bakker is suggesting is exactly in line with the responsible business conduct agenda of the OECD: integrating sustainability as a core aspect of business operations[10].

in practice there is no contradiction between corporate sustainability and responsible business; indeed company sustainability is essentially derived from responsible business conduct. Thus, while CSR as a term may be dead, the concepts of corporate responsibility and corporate sustainability are still very well alive and may well live forever!

 

[1] National Contact Points for the OECD MNE Guidelines have a mandate to engage in promotional activities, handle inquiries, and provide a mediation and conciliation platform for resolving issues that arise from the alleged non-observance of the Guidelines. Responsible Business Conduct Matters, OECD.

[2] You can find declarations of the death of CSR in many forms: ‘CSR is dead: long live social enterprise’, ‘CSR is dead, long live social value’, ‘CSR is dead, long live shared value’.

[3] India, Companies Act 2013

[4] As John Morrisson states in ‘The Social Licence’: “The unfortunate reality is that CSR has become a conceptual sideshow and a conceptual ceiling at the same time”.

[5] Recently, Morningstar, a market research company, announced it will soon launch a service comparing environmental and social performance of a large proportion of the 200,000 funds it tracks. This initiative is likely to further raise the profile of these issues amongst investors.

[6] A related misconception is that CSR suggests that ‘social’ is only about labour related issues, and not about the environment, human rights, bribery and other areas of responsible business. Jo Confino, former editor for the Guardian proclaimed CSR dead largely for this reason.

[7] The Promise and Limits of Private Power Promoting Labor Standards in a Global Economy Prof Richard Locke, 2013

[8] CEO of Earthshine

[9] Sustainability Science Congress

[10] This view is also increasingly being reflected by policymakers. For example, the 2011 the EU updated its definition of CSR to be understood as: “The responsibility of enterprises for their impacts on society. To fully meet their social responsibility, enterprises should have in place a process to integrate social, environmental, ethical human rights and consumer concerns into their business operations and core strategies in close collaboration with their stakeholders.” This is a strong definition, despite the fact that the term CSR itself has already been spoiled.

 

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Cutting the links to ‘blood oil’ from Islamic State

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

The terrorist attacks of November 13th in Paris caused shock and sorrow globally and also heightened global interest in the Islamic State (IS), raising the questions around how IS is funding its operations and how these sources of funding can be cut off?

The answer to the last question appears to be, at least in part, oil revenues. IS is said to control about half a dozen producing oilfields in Iraq and Syria. The value of illegal oil exports to IS has been valued starting at 200,000 USD[1] to more than 1,000,000 USD a day. [2] Prior to air strikes this number was estimated at more than 2 million USD a day.[3] Oil from these locations is said to be smuggled through Iraqi Kurdistan. Much of it is sold locally but some of is believed to end up in neighbouring countries including Turkey, Jordan and Iran.[4]

By financing their operations with revenue from oil production the IS has joined scores of other groups globally using natural resources for conflict financing.

Cutting off this source of funding to IS has been an identified as an important strategy to weaken the organisation and the international community has taken steps to achieve this. Earlier this year Resolution 2199 [5] was unanimously adopted by the United Nations Security Council. The resolution condemns trade with the IS and emphasises obligations of Member States to take steps to prevent access to financing for terrorist activity through trade in oil, antiquities and hostages, and donations. Furthermore a United Nations panel has urged the Security Council to order all countries to seize oil trucks coming in and out of territory controlled by terrorist groups in Iraq and Syria.[6]

According to a report released by the Financial Action Task Force, “There have been efforts to suppress the sale of oil and oil products of the Islamic State on regional markets, such as enhanced counter smuggling efforts of the Turkish authorities in the past two years, as well as recent steps taken by the Kurdistan Regional Government (KRG) and Iraqi Government authorities to seize suspected IS-related shipments of oil and oil products. This has reduced oil’s importance relative to other sources of revenue.”

However the report also cautions that “there is still a need to better identify the origin, middlemen, buyers, carriers, traders and routes through which oil produced in IS-held territory is trafficked.”’[7]  The below market rates for oil produced by IS have been credited as part of the reason why there continues to be a market for it despite international pressure to block its sale.

Tools and policies are available to help companies respect human rights and avoid contributing to conflict through mineral sourcing practices. For example, the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High Risk Areas has become the international standard for due diligence implementation in conflict.

This Guidance helps combat the illegal exploitation of natural resources in conflict zones by providing the tools to cut the link between mineral extraction and trade, and conflict financing. Companies and industry programmes – overseen and monitored by governments and civil society – implement the Guidance through mineral supply chain due diligence, risk assessments, traceability and chain of custody procedures.

In the area of conflict minerals (e.g. gold, tin, tantalum and tungsten), this approach has been effective. According to the UN Group of Experts on the Democratic Republic of the Congo (DRC), as a result of the implementation of due diligence and the OECD Guidance “the security situation at tin, tantalum and tungsten mine sites has improved and trade in tin, tantalum and tungsten has become a much less important source of financing for armed groups”.[8]

It is important to know that this standard extends beyond gold, tin, tantalum and tungsten and is applicable to all minerals. This includes ‘conflict-jade’ from Myanmar and ‘conflict-sapphires’ that finance the Taliban. Moreover, it can even serve as a relevant standard for dealing with ‘conflict-art’ and ‘conflict-oil’ from IS.

In addition to the export of oil it has been reported that IS imports energy infrastructure and equipment from neighbouring countries used to maintain local refiners processing IS oils. The Associated Press has reported that international actors in the region were intentionally or unintentionally aiding these imports and exports and called IS management of its oil fields “increasingly sophisticated.”[9]

Under the OECD Guidelines for Multinational Enterprises enterprises have a responsibility to seek to prevent or mitigate an adverse impact when the impact is directly linked to their operations, products or services by a business relationship. Thus far these expectations have focused on conducting top-down due diligence on business relationships through supply chains. In other words, companies conduct due diligence on the products they source and suppliers that they work with. However what this responsibility entails with respect to companies conducting due diligence of potential buyers or end users of their products and services has received less attention and may warrant further exploration in this context.

In any case it is clear that cutting off funding to conflict financing is a crucial step to weakening organizations such as IS. This involves both avoiding purchase of conflict oil as well as avoiding supplying IS with the equipment and resources it needs to support its operations. In order to stop the flow of blood oil from IS, businesses should carry out due diligence to ensure that they are not financing these activities through their sourcing or export practices.

 

[1] Drying up ‘Islamic State’ sources of financing, November 18, 2015. Deutche Welle  http://www.dw.com/en/drying-up-islamic-state-sources-of-financing/a-18858811

[2] Push in U.N. to Intercept Jihadists’ Oil, November. 17, 2014 New York Times http://www.nytimes.com/2014/11/18/world/middleeast/push-in-un-to-intercept-jihadists-oil.html?partner=rss&emc=rss&_r=2

[3] Where Islamic State gets its money , Jan 4th 2015, The Economist,  http://www.economist.com/blogs/economist-explains/2015/01/economist-explains

[4] Inside Islamic State’s oil empire: how captured oilfields fuel Isis insurgency, Nov. 19. 2014. The Guardian.  http://www.theguardian.com/world/2014/nov/19/-sp-islamic-state-oil-empire-iraq-isis

[5] Unanimously Adopting Resolution 2199 (2015), Security Council Condemns Trade with Al-Qaida Associated Groups, Threatens Further Targeted Sanctions, UN Security Council, February 12, 2015 http://www.un.org/press/en/2015/sc11775.doc.htm

[6] Financing of the Terrorist Organisation Islamic State in Iraq and the Levant (ISIL), Financial Action Task Force

February 2015; http://www.fatf-gafi.org/media/fatf/documents/reports/Financing-of-the-terrorist-organisation-ISIL.pdf

[7] Id.

[8] Annual Report on the OECD Guidelines for Multinational Enterprises 2014, p. 168

[9] Despite US Led Campaign, Islamic State Rakes in Revenues, Hamza Hendawi and Qassim Abdul-Zahara, October 23, 2015  http://bigstory.ap.org/article/061e7a83299644868c920bed0667eb9c/despite-us-led-campaign-islamic-state-rakes-oil-earnings

Evolving Expectations: The role of Export Credit Agencies in promoting and exemplifying responsible business practices

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

This article was originally published on January 11th, 2016 on the website of the Institute for Human Rights and Business (IHRB).

Export Credit Agencies are a significant source of global financing and insurance, specifically with regard to financing of large scale projects and business opportunities in developing countries.

For example the Economist Intelligence Unit estimates that the nine largest foreign ECAs provided approximately $488 billion in export financing support in 2013. In 2012 the Berne Union, a union of state and private export credit insurers, covered over 10% of all global trade.

Given the prevalence of ECA financing, as well as its importance for large scale projects which are prone to significant social and environmental impacts, it is important to ensure that responsible business conduct, as recommended by the OECD Guidelines for Multinational Enterprises (‘’the OECD Guidelines”) is viewed as a priority among ECAs.

In a recent publication, Prof. John Ruggie, former U.N. special representative for business and human rights, acknowledged that “[e]xport credit is an obvious governmental source of leverage for compliance with the Guidelines.” Indeed the role of ECAs in promoting the Guidelines has been explicitly recognised in other OECD Instruments. In 2012 the OECD Council of Ministers, the governing body of the OECD, adopted the Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (“the OECD Common Approaches”). This instrument provides that “[m]embers should… [p]romote awareness of the [the Guidelines] among appropriate parties involved in applications for officially supported export credits as a tool for responsible business conduct in a global context.”

The unique grievance mechanism that is attached to the implementation of the OECD Guidelines, known as National Contact Points (NCPs), exists in 46 countries. National Contact Points are agencies tasked with promoting the Guidelines and considering issues (or ‘specific instances’) arising from alleged non-adherence to recommendations of the Guidelines. The OECD Common Approaches likewise  provide that members should “consider any statements or reports made publicly available by their NCPs at the conclusion of a specific instance procedure under the OECD Guidelines when undertaking a review.’’  This helps to reinforce the impact of NCP statements regarding company behaviour.

Some member states have taken these recommendations seriously and begun to internalise them within their domestic policy. Canada has been a leader in policy coherence by including (dis)incentives by way of withdrawal of government support in foreign markets for companies that do not embody CSR best practices and refuse to participate in the NCP dispute resolution processes. Furthermore, Canada has demonstrated that it is serious about implementing this policy. In a recent case brought to the Canadian NCP regarding a Canadian gold company’s activities in China, the company refused to engage in the process, which prompted the NCP to conclude that   “the Company’s non-participation in the NCP process will be taken into consideration in any applications by the Company for enhanced advocacy support from the Trade Commissioner Service and/or Export Development Canada (EDC) financial services, should they be made.” This was the first time that an NCP decision imposed direct economic consequences on a company for its refusal to engage in the process.

However, beyond simply promoting the OECD Guidelines through consideration of responsible business conduct as a criterion of financing decisions, ECAs have an obligation to espouse good corporate behaviour themselves. Some ECAs are commercial entities operating internationally; therefore some of them fall under the aegis of the OECD Guidelines themselves. Furthermore, the ECAs are not exempt from these expectations in spite of their being government-controlled entities. The Guidelines are clear about the fact that the ownership structure of an multi-national enterprise (public, private or mixed) has no bearing on the relevance of the applicability of the recommendations of the OECD Guidelines.

Recently there was an attempt to recognise the applicability of the OECD Guidelines to ECAs and to align the OECD Common Approaches by introducing expectations of human rights due diligence at the level of ECAs.  In the end, the proposal was not successful due to lack of consensus and some ECAs continue to maintain that the OECD Guidelines do not apply to them. However, having made the legally-binding commitment to implement the OECD Guidelines, it would be inconsistent with the objectives and purposes of the Guidelines if government or quasi-government entities were to exempt their own commercial activities from the standards.

In 2012 a complaint was brought to the NCP system against major Norwegian and Dutch pension funds. The final statement of the Dutch and Norwegian NCPs made clear that in their opinions the Guidelines are applicable to government entities engaged in commercial activities.  A potentially analogous development is now unfolding in the context of ECAs.

In June of this year the NCP system received a complaint alleging that Dutch export credit agency, Atradius DSB, had failed to comply with the OECD Guidelines in the context of its financing of a dredging project in north-eastern Brazil which has resulted in severe human rights and environmental impacts.

The complaint has very recently been assessed by the Dutch NCP. The ground breaking outcome of this initial assessment is that Atradius DSB itself is considered to be a multinational enterprise and consequently is covered by the OECD Guidelines and the NCP system. The Dutch NCP has offered mediation to the parties to the complaint. This is a process to be monitored carefully as there could be important lessons to be learned. In the first place, the outcome of the complaint may serve to make clear how ECAs should promote the OECD Guidelines amongst their clients.  Additionally the complaint may elucidate how some ECAs themselves are expected to behave in the context of the OECD Guidelines.

Rather than await the outcomes of this specific instance, ECAs should be proactive and promote the OECD Guidelines with their clients, integrate the NCP statements in their policies, and internalise the recommendations of the OECD Guidelines within their own commercial activities. This will bring expectations regarding the conduct of ECAs in line with what is expected of as responsible behaviour by all companies.

Promoting inclusive business through responsible business

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

This article was originally published in two parts on the OECD Insights website  on September 9th, 2015 and September 10th, 2015.

Inclusive business and inclusive growth have of late become powerful buzz words in the realm of international policy. Inclusive business is a private sector approach to providing goods, services, and livelihoods on a commercially viable basis to people at the base of the pyramid by making them part of the value chain of companies’ core business as suppliers, distributors, retailers, or customers.[1] Several years ago the G20 launched a challenge to find the best examples of inclusive business in developing countries which resulted in the identification of various innovative and effective business schemes. While some business models are purposefully ‘inclusive’, i.e. they specifically target poorer populations, the nature of global commerce today has also resulted in inclusivity without necessarily intending to do so. For example in Bangladesh the apparel sector has been credited in lowering the official poverty rate from 70% to less than 40%. Today the sector employs tens of millions of workers globally, predominantly women, which has contributed to empowering women from poor communities.

It is undeniable that the private sector has an important role to play in economic development and that the globalization of supply chains has provided important growth opportunities for developing countries. However in order to be beneficial to local populations, particularly those at the base of the pyramid, business must act responsibly. For example, workers employed by apparel factories in developing countries are notoriously paid below a living wage, forcing them to work excessive hours and limiting their agency in refusing to work in unsafe conditions. Indeed the link between wages and working conditions was put in stark relief in the wake of Rana Plaza. However payment of living wages contributes to raising populations out of poverty, can result in increased retention of staff and productivity and can lead to improved workplace health and safety by increasing worker agency.

The OECD Guidelines on Multinational Enterprises represent the most comprehensive set of recommendations by governments to companies on responsible business conduct. Under the OECD Guidelines business are expected to make a positive contribution to economic, environmental and social progress with a view to achieving sustainable development. They are also expected to avoid and address adverse impacts through their own activities and prevent or mitigate adverse impacts directly linked to their operations, products or services by a business relationship. In other words businesses are not only responsible for the impacts and conditions of their direct operations but throughout their supply chains. Under the framework of the Guidelines companies can outsource their production but not their responsibility. The OECD Guidelines are accompanied by a unique grievance mechanism – the National Contact Points – that contributes to their effectiveness and implementation. This system exists in 46 countries and recently received prominent support from G7 Heads of State.

Staying Engaged and Continuous Improvement

This two fold obligation of doing good in addition to doing no harm has important implications with regards to promoting inclusive growth. Most importantly, this expectation means that business are encouraged not to simply disengage at the first sign of potential environmental or social risks within their supply chain but are rather urged to engage in risk mitigation efforts and to take into account the potential social and economic adverse impacts related to a decision to disengage from a certain business relationship.[2] This is important because industries which feature the most severe risks are often also those which the poorest and most vulnerable segments of the population rely on for their livelihoods. One area where the benefits of continued engagement have clearly been demonstrated is in the context of responsible mineral sourcing.

Since 2011, the OECD has helped lead a global movement to prevent the production and trade of minerals used in everyday products from benefiting armed groups and perpetrators of serious human rights abuses. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas was developed in response to the ongoing humanitarian crisis in the great lakes region of central Africa where illegal mineral exploitation has been linked to support of armed groups engaging in human rights abuses in the region. The Guidance however is more broad-based than that, applying to any minerals being sourced from any high-risk or conflict affected areas globally.

Related legislative efforts, most famously the US Dodd-Frank Act, Section 1502 have also been developed to address this problem but have faced criticism suggesting that such initiatives result in de facto trade embargos, further harming local populations that rely on the mining sector for their livelihoods. The OECD Guidance for Responsible Mineral Sourcing however rejects the suggestion of disengagement except in extreme circumstances and provides strategies to create economic and development opportunities in high-risk contexts.

For example, in the context of artisanal and small scale mining (ASM), initiatives to promote formalization and legalisation efforts of ASM activity are encouraged, in the DRC this has resulted in special legal zones for ASM activity. The implementation programme also encourages finding solutions for workable cohabitation of ASM and large scale mining activities. Such efforts have resulted in impressive results. In the three years since the implementation program for the OECD Guidance for Responsible Mineral Sourcing was launched, market access has been achieved for approximately 70,000 artisanal miners in the DRC and Rwanda, which in turn support approximately 350,000 dependants, with better prices, better conditions, and secure long-term opportunities.

The apparel sector also provides a good example of the strong relationship between inclusive business and responsible business. As noted, the apparel sector has served as an important economic driver for Bangladesh as well as other developing countries. However, in the wake tragedies such as Rana Plaza and the Tazreen factory fires many global brands were put under fire for not adequately managing risks at the manufacturer level of their supply chains. Many of the risks of the textile sector are systemic— they are imbedded in the nature of the industry and exacerbated by the development challenges and weak rule of law in the countries where production is often based. Thus these risks cannot be addressed overnight and an approach of continuous improvement in which buyers encourage improved standards within supplier factories over time is preferable to those which recommended cutting off business relationships or boycotts. Under an approach of continuous improvement sourcing from countries with weak regulatory frameworks, where often populations are most in need of employment opportunities, is not discouraged but rather strengthened.

Aside from promoting engagement with suppliers and communities that often include vulnerable populations the OECD Guidelines for Multinational Enterprises also encourage local capacity building through close co-operation with the local community and human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees.[3] While such recommendations do not specifically target base of the pyramid populations, they do promote economic advancement, particularly in the context of industries relying on unskilled labour.

Technology transfer is another important way of creating value and encouraging economic growth. The OECD Guidelines recommend that companies adopt, where practicable, practices that permit the transfer and rapid diffusion of technologies and know-how[4] and that when granting licenses for the use of intellectual property rights enterprises should do so on reasonable terms and conditions and in a manner that contributes to the long term sustainable development of the host country.[5] With regard to technologies that could provide substantial benefits to poor populations (for example medical or agricultural technologies) the expectations of responsible business conduct can have important implications for inclusive growth.

The OECD Guidelines likewise promote community engagement with relevant stakeholders in relation to planning and decision making for projects or other activities that may significantly impact local communities. In the context of large scale agricultural investments and the extractive sector, industries which notoriously posed risks to poor communities in developing countries, the OECD has developed guidance on how to best engage with stakeholders to avoid adverse impacts from operations and to ensure that such activity produces shared value at the level of local communities. [6]

The extractive sector is often pointed to as a sector with limited positive linkages as it is an enclave industry and generally generates minimal direct employment opportunities. However a focus on shared value can ensure that indirect benefits are maximized and that extractive operations are as inclusive as possible. For example an extractive operation could support local enterprises to become competitive, efficient suppliers to the extractive project resulting in a win-win local procurement strategy. Likewise investment in infrastructure that is dual purpose and benefits both the enterprise and local communities can be an important resource for economic growth beyond the lifetime of an extractive operation. Furthermore, as extractive operations usually involve long life-cycles and fixed locations fostering economic opportunities locally can be an important factor in reducing risks and lowering the costs of production.

In the agricultural sector, large agri-food enterprises can benefit from establishing long-term relationships with small-scale farmers thereby supporting their integration into global supply chains. Globally there are around 500 million smallholder farms and agriculture provides income to approximately 70% of the worlds rural poor populations. Stable relationships can improve transparency and traceability and help large enterprises secure access to a reliable supply of agricultural commodities. Such sourcing relationship can also work to enhance capacities of small-scale agricultural producers, share technology and resources, and promote responsible business practices at the base of the supply chain. This is quite important in the case of cocoa whose production is done by numerous smallholders that lack access to finance and technology and for which land productivity should be enhanced to respond to international demand.

No matter what the sector, the link between responsible business practices and inclusive growth is clear. Responsible business conduct encourages continued engagement to improve conditions in high-risk industries which often are the primary employers of populations at the bottom of the pyramid. It encourages capacity development and training which can build skills and encourage advancement of low-skilled workers, technology transfer, and meaningful stakeholder engagement with local communities which may otherwise be disenfranchised. Such approaches not only result in positive impacts for poor communities and workers but also often result in valuable commercial gains. In this regard as inclusive business or inclusive growth continues to be labeled as a policy priority by global leaders, the role of responsible business practices will merit special attention.

[1] See Concept Note of the Turkey hosted G20-B20 Workshop on “Inclusive Business” https://g20.org/turkey-hosted-g20-b20-workshop-on-inclusive-business/

[2] OECD Guidelines for Multinational Enterprises, Chapter II: Commentary, para. 22

[3] OECD Guidelines for Multinational Enterprises (2011), Chapter II, A.3-4

[4]OECD Guidelines for Multinational Enterprises (2011), Chapter IX. para. 2

[5] OECD Guidelines for Multinational Enterprises (2011), Chapter IX. para. 4

[6] See Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractives Sector, p. 48 (forthcoming, winter, 2016).