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.

 

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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