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 

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