Breaking the link between exploitative recruitment and modern slavery

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

This article was originally published on OECD Insights on 3 October 2016.

Ahmed, from India, paid over 1,300 USD to a recruiter to accept a position as a driver in Saudi Arabia. However, upon arrival his employer confiscated his passport and refused to pay him although Ahmed worked 12 to 14 hour days. Benny, from the Philippines, invested over 2,000 USD in recruitment fees in exchange for the promise of a well-paid factory job in Taiwan. Upon arrival Benny’s wages were half of what was originally promised to him and after three years of working 12 to 17 hour days he barely managed to save enough to pay off his initial investment, returning home with no savings. These men’s stories are not unique. A quick scan of the website of Verité, an organization committed to promoting fair labour standards and combating exploitative recruitment practices, reveals many shocking histories of migrant workers who have been subject to abuse and fraud.

Exploitative recruitment of migrant workers often results in situations of de facto modern slavery. Recruitment can involve up to seven different middle men all charging a fee which means workers incur debts in the thousands of dollars before they even take up employment. Even in situations where employment is provided as promised, these upfront debts can mean that any wages a worker manages to save simply go back to paying off their debt to the recruiter.

Issues around recruitment of migrant workers have received particular attention in the context of the Gulf countries. In this region use of the Kafala system, a sponsorship-based employment system for migrant workers, is common. Under the Kafala system migrant worker’s legal residency is tied to their employer, giving employers power over working conditions and whether workers can change jobs, quit jobs, or leave the country. This system paired with exploitative recruitment practices leads to situations where workers, thousands of miles from home and severely indebted, are at the mercy of their employers.

However de facto modern slavery is by no means an issue limited to the Gulf region. Recent research produced by Verisk Maplecroft found that almost 60 percent of countries are at high risk of using slave labour.

Source: Modern Slavery Index, Verisk Maplecroft

In previous articles, I have highlighted some of regulatory approaches that nations are taking to combat modern slavery at home and throughout global supply chains, including through the UK Modern Slavery Act, trade regulations in the US prohibiting imports made with forced labour, and more generally regulations promoting increased due diligence and reporting across global supply chains to promote responsible business conduct including the EU Directive on non-financial disclosure. Additionally, earlier this year an executive order was a finalised by the Obama administration which prohibits companies from receiving US federal contracts if they recently violated labour laws. This regulation has provided even more impetus to companies to ensure that they are not linked to exploitative labour practices.

In addition, tools and standards are also being developed to target the issue of exploitative recruitment practices specifically. For example the Dhaka Principles for Migration With Dignity were launched in 2012 and provide a set of human rights based principles to enhance respect for the rights of migrant workers from the point of recruitment, during employment and through to further employment or safe return. The principles align with the UN Guiding Principles for Business and Human Rights and thus also with the OECD Guidelines for Multinational Enterprises.

Verité has developed a Fair Hiring Toolkit which provides targeted guidance around recruitment issues for various actors along the supply chain including for brands, suppliers, governments, advocates, auditors, and investors. This tool kit includes a list of red flags with regard to recruiter-induced hiring traps. For example one red flag is long ‘’supply chains’’ between the worker and employer in terms of intermediaries used in the hiring process and degrees of separation such as language barriers, cultural and social differences, and geographical distances.

Brands are also taking initiative to combat exploitative recruitment processes. Earlier this year five of the world’s largest multinationals, the Coca-Cola Company, HP Inc., Hewlett Packard Enterprise, IKEA and Unilever, launched the Leadership Group for Responsible Recruitment. This initiative focuses on promoting ethical recruitment, specifically through recognizing the employer pays principle. Under the employer pays principle, workers are never responsible for their own recruitment fees.

According to the Ethical Trading Initiative 71% of companies suspect the presence of modern slavery in their supply chains. Thus it is important to promote human rights due diligence that addresses recruitment issues throughout supply chains. In this regard the OECD has developed detailed guidance on carrying out supply chain due diligence in several sectors based off of the general principles of the OECD Guidelines for Multinational Enterprises. For example the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the global standard on mineral supply chain responsibility, provides a 5 step framework for due diligence to manage risks in supply chains of minerals including forced labour in the context of artisanal mining. This Guidance is now the leading standard for avoiding child and forced labour in mineral supply chains and has been integrated as an operating requirement in the DRC, Rwanda and Burundi.

The FAO and OECD recently jointly developed a Due Diligence Guidance for Responsible Agricultural Supply Chains which also provides due diligence recommendations to manage risks related to forced labour in high risk agriculture sectors including palm oil and cocoa. Such approaches could be applied in the context of the Thai shrimping industry as well. Additionally, the OECD is also developing a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations for addressing risks of forced labour. This Guidance will be launched later this year and will be relevant to migrant workers in textiles factories.

Resources to help businesses identify responsible recruitment agencies are also needed. This has been one of the objectives behind the International Recruitment Integrity System (IRIS) an initiative of the International Organization for Migration. As part of its principle activities IRIS is planning to develop an accreditation framework under which members can be recognized as fair recruiters. This will be based, among other criteria, on the fact that no fee is charged to job seekers, worker’s passports of identity documents are not retained and there is transparency in labour supply chains.

A strong relationship exists between exploitative recruitment practices and forced labour. Breaking this link through promoting ethical recruitment will be very important given the vast scope of the issue as well as increasing regulation seeking to prevent these practices.  The initiatives discussed in this article provide promising ways forward. In order to effectively eradicate abusive recruitment practices companies should engage in supply chain due diligence processes which take into account these risks. Commitments to the ‘’employer pays’’ principle must be scaled up. Companies faced with significant risks with regard to these issues should follow the recommendations of the Leadership group for Responsible Recruitment and use the resources being developed through the IRIS initiative.

Useful links

OECD Guidelines for Multinational Enterprises

OECD CleanGovBiz initiative

The Global Construction Sector Needs a Big Push on Corporate Responsibility

This article was originally published by OECD Insights on 22 August, 2016

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

The construction industry employs approximately 7% of the global work force and it is predicted to account for approximately 13% of GDP by 2020. The sector is a major positive force for development. However, large scale construction projects, such as those involving development of infrastructure, can come with significant impacts on local communities such as displacement and environmental damage.  Furthermore, labour rights issues are particularly salient in this sector as it relies strongly on migrant labour and workers are predominantly unskilled and earn low-wages.

Recent high profile events, such as the preparations for the 2022 World Cup in Qatar, have showcased some of the most troubling labour issues related to large scale construction projects, including forced labour, dangerous working conditions, excessive overtime, and inhuman living conditions. Particularly, the kafala system, a system of sponsorship-based employment common in the construction sector in the Gulf, has been heavily documented and criticised. Under the system, migrant labourers are sponsored by employers to come and work in Gulf countries  and their legal residency is tied to their employer, giving employer’s power over working conditions and whether worker’s can change jobs, quit jobs, or leave the country. Additionally workers often arrive in the Gulf significantly indebted due to fees paid to recruitment agencies which employ various middle men.

Certain characteristics of the construction sector make it more vulnerable to abuses. The industry is very competitive and characterised by low profit margins (about 2%); it relies heavily on sub-contracting which can go nine layers deep in certain contexts; and is subject to tight fixed deadlines, such as those related to preparation of global sporting events. It is also often under-regulated by local governments and is recognised as a high-risk sector for corruption.

The construction sector is clearly an area where there is urgent need for global initiatives to promote responsible business conduct and industry actors are feeling increasing pressure in this regard. Widely documented cases of labour abuses related to global sporting events have attracted significant public scrutiny.   For example, Human Rights Watch has carried out detailed investigations of human rights issues in the construction sector in the Gulf region. In December of last year they released a report entitled Guidelines for a Better Construction Sector in GCC, which both describes the human rights impacts associated with this sector and provides recommendations on how companies can avoid and address these risks.   Beyond reputational harms there are increasing legal consequences for construction enterprises that do not behave responsibly.  Recently for example, Sherpa, a French human rights organisation, filed a complaint against Vinci, a large French infrastructure company, in regard to their operations in Qatar and associated labour abuses.[1]

Governments are making efforts to regulate these issues through stronger reporting laws. Under the recent EU Directive on non-financial disclosure, companies incorporated in the EU or listed on EU stock exchanges must report on principle risks and due diligence processes with regard to environment, labour, human rights and corruption.  Under the UK Modern Slavery Act enacted in 2015, companies registered or operating in the UK will have to report annually on their due diligence processes to manage risks of slavery and human trafficking within their operations and supply chains.  The implementation guidance to the UK Modern Slavery Act references the OECD Guidelines for Multinational Enterprises noting that “whilst not specifically focused on modern slavery, they provide principles and standards for responsible business conduct in areas such as employment and industrial relations and human rights which may help organisations when seeking to respond to or prevent modern slavery.”

The OECD Guidelines are the multilateral agreement of 46 governments defining corporate responsibility. They form the most comprehensive set of guidelines for responsible business conduct (RBC) covering all areas of corporate responsibility, ranging from labor and human rights to environment and corruption.  The Guidelines are equipped with a unique globally active grievance mechanism, known as the National Contact Points, where parties can submit complaints regarding non-observance of the Guidelines by companies.

Under the NCP mechanism there have been 12 cases reported involving the construction sector, representing approximately 3% of all cases brought to NCPs. These cases most frequently involved impacts of large scale construction projects on local communities. For example, two cases brought to the Norwegian and Austrian NCPs, respectively, dealt with human rights impacts associated with construction of a large dam in Malaysia and Laos.  Labour issues are also a common theme. A case brought to the German NCP involving labour rights issues at Heidelberg Cement Co in Indonesia ended in a mediated agreement.  Recently a case was brought to the Swiss NCP by Building and Wood Workers’ International (BWI) regarding alleged human rights violations of migrant workers by the Fédération Internationale de Football Association (FIFA) in Qatar. According to the complaint the human rights violations of migrant workers in Qatar were widely documented in 2010 when FIFA appointed Qatar as the host state for the 2022 World Cup and FIFA failed to conduct adequate and ongoing human rights due diligence after the appointment. The case was accepted for further examination and is currently under mediation at the Swiss NCP.

Several months back the UK NCP and the Institute for Human Rights and Business (IHRB) organised a workshop on responsible business conduct in the construction sector.  My take away from the event was that it is high time for the sector to come together to address ongoing issues in this sector.  Many high-impact, high-risk sectors have engaged internationally to launch initiatives to promote responsible business conduct, including development of standards or sectoral codes of conduct. While there are some promising initiatives seeking to improve conditions in the construction sector, there is currently no global corporate responsibility effort underway.  However, given the serious risks associated with this sector as well as the amount of unskilled workers it employs globally, improving standards and performance in this sector will be crucial to advancing the Sustainable Development Goals (SDGs).

A large portion of global construction projects are publically financed. As such, government agencies and public finance institutions such as the World Bank have a significant opportunity to promote better conduct in this sector. Many governments already promote the recommendations of the Guidelines through export credit agencies, which are a significant source of global financing and insurance, specifically with regard to financing of large scale infrastructure projects in developing countries. The 2016 OECD Common Approaches for Export Credit Agencies signed on to by all OECD member countries explicitly recognise the recommendations of the Guidelines, and provide that “[m]embers should… [p]romote awareness of the [the Guidelines] among appropriate parties.” Governments could also build in criteria associated with RBC into bid evaluations for construction projects and public procurement criteria generally. Public finance institutions can build in conditionality measures associated with strong due diligence systems and standards into their financing terms.

The construction sector is a critical industry: it is crucial to sustainable development and a significant source of employment globally. However, serious impacts associated with the sector can no longer go unnoticed and mounting pressure on the industry makes this an opportune time to take significant steps internationally to address ongoing problems in the sector. However, companies cannot solve these problems on their own. Governments and public finance institutions also have a critical role to play.  Governments should push construction companies to launch or participate in global corporate responsibility efforts. They should also put their money where their mouth is and condition contracts and financing for construction projects on a demonstrated commitment to international RBC standards.

Useful links

OECD Guidelines for Multinational Enterprises

OECD CleanGovBiz initiative

[1] Vinci has responded denying the allegations and filing a defamation suit against Sherpa.

Accountability mechanism for the Sustainable Development Goals

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

Originally published on Measure what Matters, 11 July 2016.

The private sector has an important role to play in economic and social development. Private sector growth can create jobs, contribute to human capital development and lead to innovative ways to tackle climate change, among other positive economic and social effects. Innovative businesses are needed to solve major sustainability challenges. However, businesses must also behave responsibly and avoid undermining the SDG’s by causing or contributing to negative impacts on the environment, human rights and working conditions.

This “do no harm” side of corporate responsibility is often neglected when discussing how business can contribute to the Sustainable Development Goals (SDGs) in favor of focusing on potential positive corporate impacts.  However a lack of adequate emphasis on the corporate responsibility to avoid and address harms could lead to a perception of greenwashing and undermine the contribution business stands to make to the SDG agenda.

The OECD Guidelines for Multinational Enterprises (the Guidelines), the multilateral agreement on corporate responsibility,directly support the aims of the SDGs. Some of the main complementarities amongst the OECD Guidelines and the SDGs are outlined in the annexed table. The Guidelines recognize that business have a responsibility to ‘’do no harm’’, and through due diligence guidance and a unique accountability mechanism, the OECD provides important tools to ensure that negative environmental and social impacts of business are avoided to the extent possible, and remediated where they do occur.

Risk-based due diligence related to the SDG’s

Risk-based due diligence is a process by which companies prevent and mitigate social and environmental harms throughout their operations and supply chains. This should be the first goal of companies seeking to contribute to the SDGs. Under the due diligence approach recommended by the Guidelines businesses are expected to go beyond sustainability reporting to integrate environmental and social risk management into their corporate DNA: the core internal management, operations, accounting and (financial) decision making systems.  The OECD has sector specific guidance for due diligence in the extractive, garment and footwear, agriculture and financial sectors which provide approaches to managing salient risks specific to these industries.[1]

National Contact Points: An Accountability Mechanism for the SDG’s

Countries (currently 46) that adhere to the Guidelines are legally obliged to establish a grievance mechanism, the National Contact Points (NCPs) for responsible business conduct, where parties can bring complaints about company behavior.  This globally active complaints mechanism promotes corporate sustainability and directly supports objectives under the SDGs by mediating issues regarding corporate responsibility in the context of climate change, biodiversity, slave and child labor, health and safety of work, among other issues. NCP mediations have achieved important outcomes. For example in 2014 the UK NCP resolved a complaint involving 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. In another case concerning the Tazreen factory fire in Bangladesh, Karl Rieker, a garment company, 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. These results directly support the agenda of the SDGs.

Over 360 cases related to sustainable development have been brought to the NCP mechanism since 2000. From 2011 to 2015 about half of all complaints brought which were accepted for mediation, resulted in an agreement between the parties. Human rights, labor and employment and the environment represent the most common themes treated by the mechanism. This accountability mechanism will play a significant role in advancing the SDG’s.

Annex 1: Examples of alignment between SDGs and the Guidelines

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 have developed specific guidance for supply chains responsibility for the agricultural sector.[1] 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)

 

[1]See OECD-FAO Guidance for Responsible Agricultural Supply Chains (2016), available at: http://www.oecd.org/daf/inv/investment-policy/rbc-agriculture-supply-chains.htm

 

The Force of Finance for Responsible Business: How the financial sector could and should contribute to responsible business conduct

Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). This article also includes a contribution by Bob Jennekens, LL.M./M.A. student, Maastricht University Faculty of Law/Arts and Social Sciences.

This article was originally published on the OECD Insights webpage, on 6 June 2016.

These days a critical mass of investors promote investment approaches which take into consideration environmental, social, governance (ESG) factors, otherwise known as responsible investment. Investors involved in the ‘Principles for Responsible Investment (PRI) Initiative, a membership based organization which seeks to promote responsible investment, currently manage over $60 trillion in assets.

Responsible investment is not only an ethical consideration but also relevant to managing risks regarding returns on investment as often there will be alignment between salient ESG risks and financial materiality. A wide body of research suggests that responsible business practices can represent a competitive advantage for firms, creating increased returns for investors, while irresponsible practices can pose serious risks and costs. For example, earlier this month investors of ExxonMobil and Chevron voted to support a resolution for a climate ‘stress-test’, signalling that investors view climate change as a material financial risk.

In this context many investors rely on the OECD Guidelines for Multinational Enterprises (the OECD Guidelines) as an important benchmark for responsible business conduct (RBC) for their investee companies. The OECD Guidelines are a comprehensive multilateral agreement on corporate responsibility which are accompanied by a globally active grievance mechanism that aims to resolve issues arising under the Guidelines, including those linked to investments in companies which may be behaving irresponsibly. This mechanism is known as the National Contact Point (NCP) system.

Because they hold the purse strings, investors have the potential to exert substantial influence, or leverage, on their underlying companies. Under the Guidelines institutional investors are expected to conduct due diligence and use their leverage to influence companies they invest in to prevent or mitigate negative impacts they are causing.  Similarly, PRI members subscribe to the principle of being active owners of their investments, which in practice also includes engaging with and exerting leverage on investee companies to promote responsible business practices. We have already seen many significant examples of the ‘’force of finance’’ in promoting responsible business practices. In the context of the OECD Guidelines’ grievance mechanism, investors have helped persuade companies to come to a mediated agreement with parties raising complaints and have followed up on NCP statements with recommendations, adding ‘teeth’ to the process. In practice this has resulted in investor engagement to fight forced labour in Uzbekistan, to prevent environmental damage in the Democratic Republic of the Congo (DRC) and to prevent human rights violations in India.

These examples, described in more detail below, have demonstrated that harnessing the “force of finance” can create real market incentives for responsible business and promote respect of non-binding international standards, such as the OECD Guidelines.

The OECD Guidelines and National Contact Points (NCPs)

The OECD Guidelines, affectionately referred to as the grandmother of all corporate responsibility standards, celebrate their 40 year anniversary this year. The Guidelines are a comprehensive set of recommendations directed towards multinational enterprises (MNE’s).  While they are non-binding for companies they represent a “firm expectation by governments on company behaviour.”

They are however binding for member states of the OECD, who are obliged to 1) promote the OECD Guidelines amongst MNEs operating in or from their territories and 2) establish National Contact Points (NCPs).  NCPs are mandated to promote the OECD Guidelines within their jurisdictions and to serve as the unique grievance mechanism of the OECD Guidelines.[1] NGOs, citizens and other interested parties can refer complaints to NCPs regarding alleged non-observance of the OECD Guidelines, termed as “specific instances.” Specific instance proceedings usually involve mediation between the parties followed by a final statement on the issues.

The role of the financial sector in promoting RBC is increasingly being discussed in the context of specific instance proceedings.  Specific instances involving the financial sector have seen significant increases in terms of submissions of complaints, from about 8% of specific instances from 2000-2010 to 17% of specific instances from 2011. Increased attention to expectations of investors to manage environmental and social risks in their underlying companies as well as recognition of the financial materiality that such risks may bring has encouraged investors to take an active role in promoting responsible business conduct. Below we highlight five specific instances to illustrate the potential force of finance in promoting the recommendations of the OECD Guidelines.

Divestment based on poor stakeholder engagement and risks to Indigenous Peoples

In 2009 the UK NCP handled a specific instance involving Vedanta Resources, a diversified metals and mining group, with regard to establishment of a bauxite mine and the expansion of an aluminium refinery in Orissa, India.  The NCP concluded that Vedanta Resources had failed to adequately consult indigenous communities about the proposed mine.  In response to this finding and the ongoing controversy, some investors made an effort to engage with Vedanta while others disinvested or significantly decreased their stakes in the company.  Investors that chose to divest included the Norwegian Government Pension Fund (one of the largest pension funds in the world), the Church of England, the Joseph Rowntree Charitable Trust and more recently, the PGGM, a large Dutch pension fund manager.  PGGM noted that it had attempted engagement with Vendanta for two years with regard to its mining activities in Orissa, and that it had met with the company’s management and non-executive directors. PGGM stated however that when it had tried to organise a meeting with a  group of other investors: ‘to discuss possible solutions to the problems in Orissa, Vedanta did not accept the invitation to participate.’

Engagement with government regarding human rights and forced labor in the cotton sector

In 2014, the Korean NCP received a complaint alleging that Daewoo International had breached the human rights provisions of the Guidelines by purchasing cotton produced in Uzbekistan despite their awareness of on-going state-sponsored forced labour in the country. The Korean NCP recommended that the company continue to monitor the situation and respond actively to the issues by means of dialogue and co-operation with the government of Uzbekistan, state-owned companies, related international organisations, NGOs, and local communities.

Upon issuance of these recommendations by the NCP the CEO of Daewoo  and other senior executives of the company asked the government for consistent efforts to eliminate the risk of forced labor in Uzbekistan.   Pension funds from Sweden, UK, Denmark, Poland, etc. have also been engaged with Daeweoo to  encourage them to contribute to improved labor conditions in the cotton industry. These major global investors want the company to keep pressing the government of Uzbekistan to introduce risk mitigation measures in this context, for example, independent monitoring of the cotton harvesting.

Exclusions and human rights violations in the mining sector

In 2012 three complaints were filed claiming POSCO, a South Korean steel company had not engaged in meaningful stakeholder consultations and had not respected environmental and human rights standards when establishing a new plant in India.  In addition to bringing a specific instance involving Posco’s parent company, two other specific instances were filed implicating pension funds with investments in POSCO. These were ABP, one of the Netherlands’ largest pension providers, and its administrator APG and Norges Bank Investment Management (NBIM).

As a result of the NCP process ABP agreed to use its leverage in the future to bring the operations of POSCO up to the required international standards and proposed organizing a fact finding mission to India to map the adverse impacts. However this fact finding mission was not undertaken and POSCO was effectively excluded from ABPs portfolio. Subsequent to the issuance of a final statement from the Norwegian NCP, POSCO has been included on NBIM’s conduct-based investment exclusion list.

Prevention oil prospecting in a World Heritage Site

In 2013 a complaint was lodged by the World Wildlife Fund (WWF) at the UK NCP against SOCO, a British oil and gas exploration company for its operations in the Virunga National Park in the DRC. These operations were deemed to be contrary to the DRC’s treaty obligations to protect the Virunga National Park as a UNESCO World Heritage Site.  WWF also appealed to SOCO investors to engage with the company. The investors, including Aviva, heard WWF’s call and responded by engaging with SOCO to bring it in line with expectations under the OECD Guidelines. Some even called to remove SOCO’s CEO in reaction to the event. As a result of the NCP case and pressure exerted by investors SOCO committed to cease exploration in the park unless UNESCO and the DRC government agree that such activities are not incompatible with its World Heritage status and also committed to “not to conduct any operations in any other World Heritage site.”

Protesting the pharmaceutical sector’s involvement with capital punishment 

Recently a case was brought to the Dutch NCP involving Mylan, a pharmaceutical company, for possible human rights abuses associated with the production and sales of rocuronium bromide to the United States for use in lethal injections.  In parallel to the specific instance proceeding several investors entered into dialogue with Mylan to persuade the company to ensure that its products are not used to carry out lethal injection executions. ABP had been in talks with Mylan since October 2014 about the use of muscle relaxants in executions in US prisons, however because it felt its requests to alter its distribution systems were  not met with an adequate response, ABP decided to sell its shares in the company.  Other shareholders, such as ROBECO, PGGM-Pensioenfonds Zorg & Welzijn and NNGroup N.V., indicated their intention to continue the dialogue. Excluding investments was seen to be ‘a last resort that should be used only when all other forms of active shareholdership have not led to the desired result.’  Since the specific instance was first filed Mylan has taken active steps to prevent the rocuronium bromide from being used in US prisons for executions. The Dutch NCP concluded in its final statement for the specific instance that “dialogue as well as disengagement by some [investors] appear to have contributed to improvements in Mylan’s conduct.”

Investors have the power  

Investors have significant potential to use the “force of finance” to promote better business behaviour amongst their investee companies.  Indeed, applying this leverage is an expectation under the OECD Guidelines as well as Principles for Responsible investment.

These five specific instances represent fascinating case studies of how investors can exert leverage on their underlying companies, either through engagement or divestment, to promote responsible business conduct.  In practice, often investor engagement with investee companies is done in confidence and thus likely many more examples of successful outcomes exist.  Furthermore, direct engagement and divestment represent only two approaches investors have at their disposal in using the force of finance to promote responsible business practices. Shareholder activism is another potentially effective approach. Recently AFL-CIO, the most powerful trade union in US, introduced a shareholder resolution at seven companies urging them to participate in mediation processes to remedy human rights violations, including through NCPs. Even if these resolutions are not ultimately successful they nevertheless will serve to heighten awareness amongst investee companies at the board level about the NCP procedure as well as importance of these issues for their investors.

While these initiatives and results are promising, active ownership and application of due diligence as promoted by the OECD Guidelines by institutional investors is a trend that is still only in its infant stage. In order to have greater impacts these ESG initiatives will have to be scaled up considerably and global investors will have to collaborate with one another to encourage positive solutions to pervasive challenges in the context of corporate responsibility.

Useful links:

The Global Forum on Responsible Business Conduct, 8-9 June  will be broadcast live starting at 9.30am Paris time on Wednesday, 8 June 2016 Watch

Roel Nieuwenkamp maintains a blog where all of his articles are archived. Please visit https://friendsoftheoecdguidelines.wordpress.com/

 

[1] Established per article I, paragraph 1 of the Amendment of the Decision of the Council on the OECD Guidelines for Multinational Enterprises

Game Changing Trade Regulations in US Shake Up Corporate Supply Chain Responsibility

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

In July 2015, The New York Times published an article about forced labor on Thai fishing boats. In the article they follow the story of Lang Long, a man who was shackled by the neck, working for 3 years as a slave at sea. He was one of the many Cambodian migrant boys and men working on Thai boats that supply fish to consumers worldwide. The men featured in the article are fortunately now free, but many slaves are still involved in the production of goods for global supply chains.

Indeed modern slavery is endemic within global supply chains. In recent conversations I had with some sourcing directors of large multinational enterprises, they admit that if you look closely and deeply enough, in every major global supply chain you are likely to find modern slavery. This has fuelled political moves to fight slavery in supply chains and also created serious challenges for companies dedicated to responsible sourcing.

In previous articles I have covered some of the innovative regulatory initiatives taken to promote supply chain responsibility (e.g. the UK Modern Slavery Act, the proposed law on due diligence in France, the Swiss referendum for a due diligence, and the EU non-financial reporting directive). Currently 8 Parliaments in the EU are calling on European Parliament to follow the French example.

Some recent developments in the United States may have even more impact on supply chain responsibility with global trade implications.

This February, President Obama signed in the Trade Facilitation and Trade Enforcement Act (H.R. 644). Section 910 of this law strengthened restrictions on the import of goods into the United States produced with forced labor, closing a loophole that existed in the Tariff Act of 1930 which allowed import of such goods if the product was not made in high enough quantities domestically to meet the U.S. demand.

This law accompanied two other moves to tackle modern slavery, particularly in the fishing industry, by the Obama administration. In addition to the new act, the administration has also enacted the Port State Measures Agreement which bars foreign vessels from accessing ports if suspected of illegal fishing. Furthermore the National Oceanic and Atmospheric Administration, which regulates fishing, announced new reporting requirements aimed at developing a better understanding among US companies of where seafood imports are sourced from.

While regulation is important, enforcement is arguably even more so. Indeed the Trade Enforcement Act is already being enforced. Recently the U.S. Customs authority issued two “withhold release” orders, preventing goods from entering the country because of suspicions that they were made using forced labor.

The first order came on March 29^th against imported soda ash, calcium chloride, caustic soda, and viscose/rayon fiber that was manufactured or mined by Chinese company Tangshan Sunfar Silicon. U.S. Customs and Border Protection (US CBP) believes that these products were made by forced convict labor. The second order, on April 13^th, was against imported potassium, potassium hydroxide, and potassium nitrate that is believed to be mined and manufactured by the same company using convict labor.

According to CBP Commissioner Kerlikowske: “CBP will do its part to ensure that products entering the United States were not made by exploiting those forced to work against their will, and to ensure that American businesses and workers do not have to compete with businesses profiting from forced labor.”   The Business & Human Rights Resource Center is tracking enforcement of the Act on their site.

These orders are an important part of enforcing the new ban and ensuring criminals that profit from human trafficking are not supported. Effective enforcement of this provision also provides incentives to business to protect their supply chains from forced labor to guarantee all of their imports are cleared for entry into the United States.

Recently Turkmenistan News (ATN) and International Labor Rights Forum (ILRF), partners in the Cotton Campaign, filed a complaint with the US CBP. The complaint concerns the import of cotton goods made using forced labor from Turkmenistan by companies, including retail giant IKEA. The government of Turkmenistan engages in a practice where annually farmers are forced to deliver cotton production quotas and thousands of citizens are required to pick cotton or are faced with a penalty. The complaint calls on U.S. Customs to classify cotton goods, such as the IKEA products, from Turkmenistan as illicit, issue a detention order on all imports of them, and direct port managers to block their release into the United States. CBP has yet to respond.

If the U.S. government and American businesses set a precedent that forced labor will not be tolerated, other countries are likely to follow suit. However, how U.S. government follows through on implementing the new ban, is essential to this effort.

Furthermore, given the extensive pervasiveness of modern slavery in global supply chains companies must be armed with tools to protect themselves and their supply chains from liabilities under these regulations.

Strong supply chain due diligence processes should in my opinion be an accepted defence under these new laws. This should include the notion that supply chain responsibility means often not ‘cut and run’ from risky suppliers, but ‘stay and improve’. Else these regulations could have devastating negative impacts on livelihoods of legitimate businesses operating in high risk areas. The OECD has provided guidance to companies in designing such due diligence processes. The OECD Guidelines for Multinational Enterprises (the OECD Guidelines) recommend that companies carry out supply chain due diligence to identify, prevent, mitigate and account for all adverse impacts that they cover, which include child labour and forced labour issues.  For negative impacts arising within a company’s supply chain the Guidelines recommend that companies acting alone or in cooperation with others use their leverage to influence the entity causing the impacts to prevent or mitigate the harms.

The OECD Guidelines are referenced in the statutory guidance of the UK Modern Slavery Act, which note that “they provide principles and standards for responsible business conduct in areas such as employment and industrial relations and human rights which may help organisations when seeking to respond to or prevent modern slavery.’’

In addition to general recommendations the OECD has developed more detailed guidance on how these expectations can be responded to in specific sectors. For example the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the global standard on mineral supply chain responsibility, provides a 5 step framework for due diligence to manage risks in supply chains of minerals including forced and child labour in the context of artisanal mining. This Guidance is now the leading standard for avoiding child and forced labour in mineral supply chains and has been integrated as an operating requirement in the DRC, Rwanda and Burundi.

The FAO and OECD recently jointly developed a Due Diligence Guidance for Responsible Agricultural Supply Chains which also provides due diligence recommendations to manage risks related to forced labour and child labour in high risk agriculture sectors including palm oil and cocoa. Such approaches could be applied in the context of the Thai shrimping industry as well. Lastly the OECD is also developing a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations for addressing risks of forced and child labor. This Guidance will be launched later this year and will be relevant to migrant workers in textiles factories

Regulation of global supply chains to combat forced labour is becoming increasingly common and impactful. Recent developments in the EU followed by new regulations and enforcement by the US customs authority are putting pressure on companies to monitor their supply chains more closely than ever. As the US and EU represent that world’s most important consumption markets these pressures will extend to companies globally, and have already been felt by Chinese and Swedish enterprises in the context of the recent US detention orders.

Supply chain due diligence and transparency will be increasingly important tools for global companies in safeguarding themselves from liability in light of these new regulations. The OECD has developed guidance on supply chain due diligence processes which address a range of issues including forced labour. In order to strengthen their global supply chains, companies would do well to step up and speed up implementation of due diligence in their global supply chains.

Useful links:

Global Forum on Responsible Business Conduct, 8-9 June

 

 

Scaling Up Living Wages in Global Supply Chains

 

By Dr Marjoleine Hennis, Counsellor Social Affairs and Employment, Permanent Representation of the Kingdom of the Netherlands to the OECD and Prof Dr.  Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct

 1. Introduction

Meet Ei Yin Mon, a factory worker in Myanmar. She came to Yangon after cyclone Nargis hit the country in 2008. The base wage she earns is extremely low, so she has to work many hours of overtime to compensate. “We are always being told to work faster. They think that we are like animals. I know I have no rights to make a complaint, so I have to bear it”[1].

Many workers globally face similar challenges and are trapped in poverty. They often have many mouths to feed, with too little revenue coming from regular working hours and must either compensate by working overtime or fall into debt. Sometimes workers don’t get paid at all and do not have access to grievance mechanisms to address this. In many sectors, plantations, factories and countries, this situation is the norm rather than the exception. Still, consumers are buying goods that are made using under-paid labor.

Imagine now that you are a CEO of a global company with suppliers in various countries. You would like to see to it that your workers, and those in the supply chains, earn a living wage. But how can you convince your suppliers to do so and according to which criteria? And how do you involve local governments or bring stakeholders to the table?

In recent years the responsibilities under internationally recognized standards have been clarified for supply chain responsibility vis-à-vis wages. Since 2011, the UN Guiding Principles for Human Rights and Business (UNGPs) and the OECD Guidelines for Multinational Enterprises (OECD Guidelines) both address living wages, partly by focusing on the angle of human rights, and partly by focusing on specific labor rights.

Let’s not be naïve, this is a very difficult issue to tackle for companies and their supply chains. However, in order to reach the Sustainable Development Goals and for companies to fulfill their corporate responsibility, enterprises should dramatically scale up and speed up their good practices towards living wages in global supply chains.

 2. Treatment of living wages within international standards on responsible business conduct

Over the last ten years, living wage as part of corporate responsibility, has received increasing attention worldwide. Although it has gathered less consideration in the press than issues of child labor or forced labor, companies, NGO’s, and governments have increasingly put it on the (international) agenda. The globalization of production, consumption and information, that has drawn attention to all parts of the international production chain, has provided even more insight into the existing variations between wages within one supply chain. Some of those wages do not make for a decent living for workers and their families.

Many consider the concept of living wage to be more useful than the minimum wage. The living wage concept takes into account the local costs of living to cover basic needs for workers in order to take care of themselves, and to find their way out of poverty without being forced into structural overwork. Thus, on the one hand, it provides an instrument for achieving fair compensation throughout all segments of global supply chains. On the other hand, the concept leaves room for persistence of absolute differences in income within the same sector globally, as living wage is context dependent.

Living wage has come to play a role in the OECD Guidelines since its revision in 2011. The OECD Guidelines are the most comprehensive set of guidelines for Responsible Business Conduct (RBC) covering all areas of corporate responsibility, ranging from labor and human rights to environment and corruption. Currently, 46 countries adhere to the OECD Guidelines and more non-OECD members are in the process of adherence. The OECD Guidelines are a binding multilateral commitment for governments. Although not legally binding for MNE’s, they represent a “firm government expectation of company behavior”. The OECD Guidelines have likewise been endorsed by business and civil society. Indeed, business has actively been engaged in the negotiations leading to their latest revision in 2011. This revision has been important for living wages, as it has led to considerable clarification in responsibilities of countries adhering to the OECD Guidelines, and their MNE’s with regard to this issue.

For the moment, attention with respect living wages issues seems to concentrate on the textile and garment sector in addition to  a few select agricultural commodity sectors (tea production, for example). These sectors are probably most at risk when it comes to non-payment of living wages, however the under the Guidelines payment of living wages must be respected throughout all sectors. Additionally, under the Guidelines not only do companies have a responsibility to pay living wages within their own operations, they also should  promote the payment of living wages throughout the whole of their supply chain. The 2011 revision of the OECD Guidelines incorporated the concept of due diligence which is the process by which companies can demonstrate they are acting responsibly in this respect.  Finally, the Guidelines are equipped with a grievance mechanism, the National Contact Points (NCPs) which was further strengthened during the 2011 update. The combination of those new elements makes that the OECD Guidelines could be a unique and rather complete framework for promoting living wages.

As of yet, the OECD Guidelines have been under-utilized by stakeholders as a tool for promoting living wage. This may be due to a lack of information about the scope of the OECD Guidelines. This article seeks to deal with that by focusing on the responsibilities of business throughout the supply chain under the OECD Guidelines, with respect to living wages. It encourages business to do its due diligence in general, and on the wage situation in particular, throughout its supply chain. Dealing with living wages is not only an ethical or moral issue, but it is also good for business itself by creating a broader level playing field and avoiding the involvement in grievances brought under the OECD NCPs.

 3. The basis for living wages in the OECD Guidelines

The OECD Guidelines have not developed their concept of responsible business conduct on living wages in an isolated manner. Their principles are firmly based upon the UN Declaration of Human Rights and ILO Conventions.

Firstly, according to the Universal Declaration of Human Rights, a living wage is a human right. The Declaration points out that everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection[2]. Moreover, it falls under the UNGPs which were endorsed by the UN Human Rights Council in 2011. The UNGPs  build on three pillars: The duty of states to protect against human rights abuses by third parties, including business; the inclusion of the respect of human rights as part of corporate responsibility for all businesses; and greater access by victims to effective remedy, both judicial and non-judicial. The first two pillars introduce obligations concerning living wages for states and for businesses through reference to general human rights. More explicit references are also included, for example in article 2.12[3], where it refers to the fundamental labor standards of the ILO.

The OECD Guidelines state that enterprises have the responsibility to respect human rights[4].  Among other things, this means that enterprises should avoid causing or contributing to the non-respect of living wages, and seek ways to prevent or mitigate adverse impacts on living wage as far as they are directly linked to their business operations, products or services by a business relationship, even if they do not contribute to those impacts[5]. In other words, enterprises are expected to make an effort vis-à-vis their suppliers to have living wages respected in all parts of their supply chain.

Secondly, the ILO recognizes living wage as a basic human right as laid out in the Universal Declaration of Human Rights, through the ILO Convention concerning the Protection of Wages of 1949 (95), and the ILO Convention on Minimum Wage Fixing of 1970 (131). In addition, living wage is mentioned in the ILO Constitution and the 2008 ILO Declaration on Social Justice for a Fair Globalization. This declaration has been the ILO’s response to globalization via the adoption of the Decent Work Agenda based on four, interrelated goals of employment creation, social protection, rights at work, and social dialogue.

More direct guidance for business is offered by the 2006 ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (ILO Tripartite Declaration). In this declaration the ILO invites governments of State Members of the ILO, the employers’ and workers’ organizations concerned and the multinational enterprises operating in their territories to observe, among others, the principle that wages, benefits and conditions of work offered by multinational enterprises should be no less favorable to the workers than those offered by comparable employers in the country concerned[6]. Moreover, the Declaration states that when multinational enterprises operate in developing countries, where comparable employers may not exist, they should provide the best possible wages, benefits and conditions of work, within the framework of government policies. These should be related to the economic position of the enterprise, but should be at least adequate to satisfy basic needs of the workers and their families. Where they provide workers with basic amenities such as housing, medical care or food, these amenities should be of a good standard[7].

These two pillars of international engagements have formed the basis for the recommendations for MNE’s concerning living wage as laid down in the OECD Guidelines since its revision in 2011. The revision has resulted, among other things, in the inclusion of a recommendation on living wages in Chapter V on Employment and Industrial Relations. The OECD Guidelines are clearly inspired by the ILO wording of living wage as laid down in the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. The OECD Guidelines state that: “when multinational enterprises operate in developing countries, where comparable employers may not exist, (they should) provide the best possible wages, benefits and conditions of work, within the framework of government policies. These should be related to the economic position of the enterprise, but should be at least adequate to satisfy the basic needs of the workers and their families.”[8]

Since their revision in 2011 the OECD Guidelines do not only concern investments anymore, but also cover global supply chains. MNE’s are recommended to adopt a comprehensive approach to risk-based due diligence to identify, prevent or mitigate actual and potential adverse impacts, where they have not contributed to that impact, when the impact is nevertheless directly linked to its operations, products or services by a business relationship[9]. To put it differently, responsible supply chain management by MNE’s means, that even if the MNE’s themselves have not contributed to a negative impact, they are still expected to try to use their leverage on their suppliers to make them change their behavior. This includes taking reasonable steps by putting pressure on suppliers to make sure they pay a living wage. In high risk situations, the Guidelines recommend that MNE’s do more robust due diligence. For living wages this will probably be the case in many parts of the world and in many sectors such as garment and footwear.

This combination of references in the OECD Guidelines – directly, or indirectly– to living wages has thus resulted in a situation today in which multinational enterprises (parent companies and/or local entities) face a rather extensive package of strong expectations and recommendations by the 46 governments concerning their efforts in paying a living wage to their workers and using their leverage to let the enterprises in their supply chains do the same[10]. The fact that the references now apply both to the company and its suppliers, for example in developing countries, increases the scope of their responsibilities. However, it is important to stress that the supply chain responsibility in the OECD Guidelines does not shift responsibility away from the supplier that causes the adverse impact, to the buying enterprise[11]. In addition, the OECD Guidelines recognize that there are practical limitations on the ability of enterprises to effect change in the behavior of their suppliers.[12]

4. How to integrate the concept of living wage into responsible business conduct?

In order to do no harm, MNE’s should carry out due diligence, including throughout their supply chain. The process of due diligence consists of three parts.

 Firstly, there is the identification of the risks of negative impacts in the supply chain, the supplier risks and the internal risks. Enterprises should identify countries in their supply chain where wages have been identified as not meeting the basic needs of workers and their families and should, where possible, prioritize their engagements in countries with the greatest discrepancy between the actual wage and the wages necessary to satisfy basic needs[13].

In countries where the established standards are not met, the enterprise should also do a context assessment, for example by checking the proportion of wage workers under a collective agreement, for themselves and for their suppliers. The quality of collective bargaining and the lack of free association are critical factors contributing to the (non-) respect of living wages. But, even if good collective bargaining would drive up the wages, this may not be enough to ensure sufficient levels for the workers and their families, due, for example to (partially unpaid) overwork-practices or a high labor supply on the local labor market.

Moreover, even in a situation where the established hourly remuneration qualifies as living wage, its impact will be limited if other conditions are not met, such as the regular and timely payment of wages.

 Additionally, companies should also review their purchasing practices. Sometimes the pricing, timing and changes in contracts contribute to suppliers breaching labor standards. Late payment of the factories could for example lead to late payment of wages to workers. All these elements should be taken into consideration. Living wage issues generally cannot be addressed in an isolated manner.

Secondly, potential impacts are to be addressed through prevention or mitigation, while actual impacts are to be addressed through remediation. This is done, for example, by encouraging collective bargaining agreements, by respecting national minimum wage mechanisms, or where both do not exist, through the engagement in capacity building.

Thirdly, the actions in prevention, mitigation and remediation of a company should be verified, reported, and communicated to stakeholders, workers and consumers.

So far, the OECD Working Party on Responsible Business Conduct has prepared supply chain due diligence guidance for MNEs in several sectors. These include the Due Diligence Guidance for Responsible Supply Chains in the Minerals Sector, and more recently the  OECD-FAO Guidance for Responsible Agricultural Supply Chains[14].  Additionally, guidance on responsible supply chains in garment and footwear sector will be published this year.

It is important to stress that due diligence on the issue of wages in the supply chain is not a zero tolerance approach. Due diligence should be risk-based, meaning that the level of due diligence applied corresponds with the level of risk identified. It may not always be possible for an enterprise to address all adverse impacts in its supply chain. The severity and probability of the adverse impact are the most important factors in determining the scale and complexity of the processes the enterprise needs to have in place in order to know and show that it is acting responsibly. The nature and appropriate extent of due diligence on wages in the supply chains will depend, furthermore, on individual circumstances and be affected by factors such as the size of the enterprise, the location of its activities, the situation in a particular country, the number of business relationships, the sector, and the nature of the products or services involved. While an enterprise’s degree of leverage does not alter its responsibility to identify and respond to adverse impacts, leverage is a key consideration of how businesses should prevent and mitigate adverse impacts.

Due diligence should also be dynamic, meaning that it can be tailored over time to the operating context or circumstances and should be applied with flexibility. It should include a process of learning, through constructive engagement with business partners, workers and stakeholders. When risks on adverse impact are brought to the enterprise’s attention, due diligence systems should be adjusted accordingly, in order to enhance the identification of similar risks in the future.

Although enterprises retain individual responsibility for their due diligence, supply chain due diligence can be more effective when conducted in collaboration with others, including with other enterprises at a sector-wide level, with workers, with home and host governments, and with civil society. For example, due diligence on wages ideally would be conducted in consultation and collaboration with trade unions and representatives of workers’ organisations.

Enterprises should work towards progressive improvements. In practice, this means that an enterprise may not be able to implement all of the recommendations on wages in supply chains at once, but should systematically work towards their full application. Enterprises should be transparent on their existing due diligence practice and their plans for progressive improvement.

5. It pays to pay a living wage

If the business case for taking these actions is made clear for enterprises, with respect to risk management, reputation and productivity gains, they will be more likely to act responsibly. Apart from ethical considerations, there are many reasons why it makes business sense to strive for payment of living wage throughout the value chain. Paying relatively low wages may lead to costs for businesses such as lower product quality, lower worker productivity and few investments in innovation due to high labor-turnover.[15] Below living wages also increase the risk of labor unrest which can lead to the disruptions of operations and reputational damage to companies, particularly in this age of mass communication. Lastly the rise in ethical consumerism means that companies can access an important market share and stand to profit by behaving responsibly.

Additional incentives for business to pay a living wage can be found in (financial) incentives by national governments adhering to the OECD Guidelines, which are set up to encourage them to comply with the Guidelines; marketing opportunities for business and attraction of consumers willing to pay for goods resulting from responsible business practice; and, lastly, reducing harm through business operations on a global scale.

 6. Good practices and remaining challenges

A reality check is needed. Unfortunately, getting to a living wage is not as simple as $1 dollar more on the price, equals $1 dollar more in salary for the workers. So when you pay that dollar extra for your T-shirt, you should not expect it to end (entirely) in the pocket of the worker. As the Secretary General of the International Organization of Employers, Linda Kromjong, states: “Buyers are not in a position to dictate wages unilaterally, especially when rates relate to supplier companies in a second or a third tier position. Supply chains are not direct linear arrangements; as we have noted above, they are complex webs of interaction. It is naive to imagine that buyers can pour money in at one end and expect it to be directly distributed to supply chain workers through higher wages at the other. Experience tells us that wage setting is most effective when it takes place at the national level with the full involvement of the representatives of the social partners. Nevertheless, many companies are proactively engaged in promoting decent wages at their suppliers. Contrary to reports that international companies lobby for low minimum wages, joint efforts in Cambodia by international brands in the garment and the textile industry and IndustriALL Global Union have shown the opposite to be the case.” [16]

Indeed, many businesses are already undertaking action in order to ensure a living wage for their workers and those of their suppliers. Many of these initiatives bring together several stakeholders and seem to be motivated by the need to act together and create a level playing field, not only among some enterprises and their suppliers, but in the whole sector. A good example is the Action Plan on Living Wages, which was the result of a multi-stakeholder consultation process that culminated in the European Conference on Living Wages (Berlin, 2013).

In the textile industry, for example, there is ACT (Action, Collaboration, Transformation) a global framework on living wage that brings together all relevant stakeholders. According to its website ACT is based on the awareness that the payment of a living wage should not be limited to certain brands but should apply to all workers. [17] ACT aims to accomplish this by establishing industry-wide collective agreements on wages in key garment and textile sourcing countries, supported by manufacturing standards and responsible purchasing practices.  15 brands, including  H&M, Esprit and C&A, participate in this initiative. These companies deserve praise for engaging in this effort.

A good example in the food sector is the Malawi Tea 2020 Revitalization Program. Under this program a Memorandum of Understanding (MOU) was developed which commits to payment of  living wages on tea plantations and living income on smallholder farms in Malawi by 2020. Among the participating partners are tea producing companies, tea buying companies and retail, standards and certification organizations, and tea trading companies. This MOU emanates from an earlier MOU of ISEAL signed by organizations (Fairtrade International, Rainforest Alliance, UTZ Certified, Forestry Stewardship Council, Goodweave and Social Accountability International), which they have committed to adopt a common definition of living wage and apply a common methodology to estimating living wage levels, as developed by former ILO economist Richard Anker.[18] In order to convince actors such as retailers and brands to participate, the program has calculated the needed increase in price in the UK for a typical tea box of 80 teabags in order to generate sufficient funds to pay a living wage for workers in the Malawi-tea sector: merely one cent.[19]

 7. Scaling up & speeding up good practice

These initiatives are all to be praised for having paved the way forward in a new and challenging territory. The considerable participation by business in these initiatives demonstrates that business is willing to act but that it requires common standards and guidance. Furthermore in order to be really effective, these initiatives would need to be scaled up dramatically to other sectors, and to other countries. The question is, how?Firstly, awareness and understanding of the responsibilities is important. Companies have to understand the individual responsibilities they have under internationally recognized standards of the ILO, the OECD and the UN concerning wages in their supply chain. It helps if they see the business case for this in terms of risk management, reputation and productivity gains. Once they do, companies should use their leverage and take steps to promote living wages in their supply chains. These new responsibilities should also be reflected in sectoral codes of conduct, of which many currently ignore the tricky living wage issue. Secondly, methodologies should be more fine-tuned and consistent. Currently a common methodology for calculating living wages does not exist. Ideally MNEs could rely upon one broadly accepted methodology which takes into account local conditions to determine what living wages should be. Moreover, wages should also be regularly adjusted and be determined based on negotiations with social partners.[20] The lack of one or more of these factors is likely to result in persistence of differences in wages throughout supply chains and within countries, while frustrating the good intentions of all stakeholders. Promising initiatives that focus on the development of a common approach to the measurement of living wages, such as that of ISEAL and Wage- Indicator, should receive support.Thirdly and most importantly, a sector-wide comprehensive approach is needed. Focusing on calculating the numbers and levels of wages alone will not do the trick. Tackling the root causes of low wages is necessary. The gaps between living wage and current wages are so large in certain jurisdictions that individual companies will not be able to bridge the gap even when they are the only company sourcing from a factory. In addition, there will be pressure from colleague-suppliers and employers’ organizations to stay “in line”. And, even if a jump to provision of living wage levels could happen overnight, in many regions this might damage the competitiveness of factories or suppliers, potentially squeezing them out of the market and leaving many workers jobless. Therefore, the comprehensive approach seems the only viable way towards sustainable living wages.. A reasonable step would be to start with, or engage in, sector-wide collaboration between companies, suppliers, employers’ organizations, trade unions and governments. This includes processes to set an adequate national minimum wage. The Tea MOU and ACT are good examples of this sector-wide approach. Moreover, companies should support collective bargaining mechanisms and effective worker institutions, in particular trade unions. They should enable factories to incorporate living wages as part of their human resource policy to motivate, attract and keep people.

Those are not simple tasks for companies, but are not impossible either. The OECD Guidelines facilitate companies in these efforts  by offering guidance for the due diligence process and convening actors to promote a level playing field.  In addition, companies can turn to (local) governments who, according to the OECD Guidelines and UNGPs have the duty to protect human rights, including the right to a living wage. Collaboration with governments can create the conditions for promoting  living wages for a larger group of workers.

 8. Conclusion

Ensuring the payment of living wages throughout global supply chains will be a significant challenge. However, doing so will be necessary to achieving the Sustainable Development Goals and responding to expectations of international standards of human rights and responsible business conduct. Even if individual companies play a considerable role in this, they cannot solve this issue on their own. For one thing, (local) governments, who have the duty to protect and fulfill human rights, and ensure access to effective remedy[21], should be there to support them and contribute to creating the right conditions. Ideally, however, the way forward is to engage in an even broader collaboration which is sector-wide and includes not only suppliers and governments, but also trade unions, NGOs and employers’ organizations. Some promising initiatives have been successful, such as the ACT process and the Malawi Tea MOU. The companies involved in these initiatives deserve praise for their effort. But what about the other 80.000 multinationals?[22] These efforts need to be scaled up and sped up dramatically. Other companies should join. Similar initiatives should be introduced in other sectors and other regions. Any company that reflects on its possible contribution to the SDG’s should look at this issue with high priority!

[1] A worker interviewed for Oxfam study ‘In work but trapped in poverty’. http://policy-practice.oxfam.org.uk/publications/in-work-but-trapped-in-poverty-a-summary-of-five-studies-conducted-by-oxfam-wit-578815, the worker’s name was changed to protect her anonymity.

[2] Universal Declaration of Human Rights, Article 23.3

[3] OECD Guidelines, II, art A2

[4] OECD Guidelines, Chapter IV

[5] OECD Guidelines, IV-2, 3

[6]  ILO Tripartite Declaration, art. 33

[7]  ILO Tripartite Declaration, art. 34

[8] OECD Guidelines for Multinational Enterprises, 2011, Chapter V, 4B

[9] OECD Guidelines, General Policies, art A10, 11 and 12

[10] Even if the strong expectations mentioned above do not apply, the Guidelines still demand that enterprises encourage business partners, including suppliers and sub-contractors, to apply principles of responsible business conduct compatible with the Guidelines (A13), and to inform workers and consumers about the company policies including their adherence to the Guidelines on initiatives they have taken to integrate social concerns according to the rules of disclosure (chapter III and chapter V, 2C), and resulting engagement in achieving a living wage throughout enterprise groups.

[11] OECD Guidelines, Chapter General Policies, paragraph 12

[12] OECD Guidelines Chapter General Policies, Commentary paragraph 21

[13]  OECD Due diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector, pp 93) DRAFT

[14] December 2015

[15] Cascio W.F, The high cost of low wages, Harvard Business Review, December 2006; and  Zeynep T., The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits– Amazon Publishing, 2014.

[16]http://www.ioe-emp.org/fileadmin/ioe_documents/publications/ILO_ILC/2016_ILC/EN/_2016-02-01__C-345_2016_ILC_-_Global_Supply_Chain_blog_series_-_No._1__final_.pdf

[17] http://www.hiil.org/data/sitemanagement/media/ACT%20Factsheet.pdf

[18]See, for example Anker, R., Estimating a living wage: a methodological review, ILO 2011.

[19] Anker, R., Anker M., Living wage for rural Malawi with Focus on Tea growing area of Southern Malawi, Report prepared for Fairtrade International, Sustainable Agriculture Network, Rainforest Alliance and UTZ Certified, January 2014.

[20] Vaughan-Whitehead D., Speech at NCP–NL conference on living wages, The Hague, October 2015.

[21] Guiding Principles on Business and Human Rights (2011)

[22] Estimate from Sustainable Stock Exchanges Initiative, 2014 report on progress

“I don’t care if it’s legal, it’s wrong”: Panama Papers show taxation is a core corporate responsibility issue

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

“I don’t care if it’s legal, it’s wrong.” This quote from US President Obama about tax avoidance illustrates the shift in thinking about tax from issues from a strictly legal perspective to the domain of corporate responsibility.

Global tax avoidance has been attracting increasing attention and ire over the past few years. In the UK public outrage over tax avoidance has been very visible, several years back company executives of the world’s largest MNE were publically scrutinized over tax avoidance issues. In the midst of the financial crisis EU countries like Greece and Portugal were furious to learn that their multinational enterprises paid almost no taxes because of fiscal arrangements involving the same jurisdictions that had put pressure on them to implement severe austerity packages. In developing countries tax base erosion and profit shifting (BEPs) has likewise been the cause of outrage and is increasingly viewed as an impediment to development. According to the OECD ‘’Revenue losses from BEPS are conservatively estimated at USD 100-240 billion annually, or anywhere from 4-10% of global corporate income tax (CIT) revenues. Given developing countries’ greater reliance on CIT revenues as a percentage of tax revenue, the impact of BEPS on these countries is particularly significant.’’ The Luxleaks and SwissLeaks exposed instances of tax avoidance that shocked the general public. Now the Panama Papers have again demonstrated that corporate tax responsibility is not just as a legal issue but also an ethical one.

While the Panama Papers uncovered some clearly illegal conduct they also evidenced widespread practices that while not necessarily illegal are morally questionable. ‘Ethical’ tax issues are often linked to aggressive tax planning. According to the European Commission (EC), a key characteristic of aggressive tax planning practices is that they reduce tax liability through strictly legal arrangements which contradict the intent of the law. The EC Action Plan to strengthen the fight against tax fraud and tax evasion further provides that “aggressive tax planning consists in taking advantage of the technicalities of a tax system or of mismatches between two or more tax systems for the purpose of reducing tax liability and can take a multitude of forms. Its consequences include double deductions (e.g. the same loss is deducted both in the state of source and residence) and double non-taxation (e.g. income which is not taxed in the source state is exempt in the state of residence).”

Several approaches are used in aggressive tax planning including the transfer pricing and the use of brass plate trust companies based in tax havens. Another example of an aggressive tax planning strategy could concern the use of hybrid entities or hybrid financial instruments.

According to the OECD a number of indicators show that the tax practices of some multinational companies have become more aggressive over time. Though companies are usually acting legally, this development is raising serious compliance and fairness issues. In response countries and international institutions have been active in developing creative solutions to curb these practices. For example, the OECD has elaborated a comprehensive action plan on Base Erosion and Profit Shifting (BEPS) which has been endorsed by the G20.  At the EU level an Action Plan to strengthen the fight against tax fraud and tax evasion  was developed in 2012. Among other recommendations the Action Plan stresses  that “[a]ggressive tax planning could thus be considered contrary to the principles of Corporate Social Responsibility”.

Responsible tax planning as an expectation of corporate social responsibility is not a new concept. Indeed the OECD Guidelines for Multinational Enterprises (OECD Guidelines), the most comprehensive standard on corporate ethics, celebrate their 40th anniversary this year and have long included a chapter on Taxation.

Under the OECD Guidelines enterprises are encouraged to design their tax governance and tax compliance in a responsible manner. Furthermore, enterprises are called on to comply with both the letter and spirit of the tax laws and regulations of the countries in which they operate. (See Annex: Relevant language on taxation under the OECD Guidelines for Multinational Enterprises).

46 countries, including the 34 OECD member governments have adhered to the OECD Guidelines and have made a legally binding commitment to set up a National Contact Point (NCP) to promote the recommendations of the OECD Guidelines – including promoting corporate tax responsibility! – in addition to handling complaints arising with regard to the non-compliance with these recommendations.

As of yet one tax related complaint has been brought to the NCP system. In 2012 the Swiss NCP considered a submission based on a leaked report from an auditing firm that suggested that commodities giant Glencore was resorting to various techniques to avoid paying taxes in Zambia with regards to its subsidiary, Mopani Copper Mines Plc. The Swiss NCP undertook mediation with the parties which resulted in constructive engagement and ultimate agreement between the parties.

Did Mossack Fonseca, the law firm at the center of the Panama Papers scandal, act within the spirit of the tax law when advising its clients? Did the clients of that firm act responsibly? Are the practices of establishing shell companies in tax havens, use of transfer pricing, or hybrid mismatch agreements aimed at tax avoidance in line with the OECD Guidelines? As strictly legal arrangements which contradict the intent of a tax law do not pass muster under the framework of the OECD Guidelines, the answer would likely be ‘no’.

As clearly stated by President Obama, international tax planning is no longer simply a legal compliance matter, but also an ethical one. This ethical expectation is already embedded in the OECD Guidelines, which governments have committed to promoting.  Additionally it is only a matter of time that more tax related complaints will be filed in the NCP system, thus governments should be active in promoting responsible tax planning as a corporate ethics issue.

The OECD/G20 BEPS project already has already been a game changer in regards to transparency of fiscal policies. Leaks will continue to expose companies’ fiscal conduct in practice. In times of ‘radical transparency’ companies have to take a very critical look at their tax policies and verify whether their policies are not only legally compliant but also ethically sound.

Annex: Relevant language on taxation under the OECD Guidelines for Multinational Enterprises

Chapter XI of the OECD Guidelines provides principles and standards of good practice consistent with corporate citizenship in the area of taxation, it reads:

It is important that enterprises contribute to the public finances of host countries by making timely payment of their tax liabilities. In particular, enterprises should comply with both the letter and spirit of the tax laws and regulations of the countries in which they operate. Complying with the spirit of the law means discerning and following the intention of the legislature. It does not require an enterprise to make payment in excess of the amount legally required pursuant to such an interpretation. Tax compliance includes such measures as providing to the relevant authorities timely information that is relevant or required by law for purposes of the correct determination of taxes to be assessed in connection with their operations and conforming transfer pricing practices to the arm’s length principle.

Enterprises should treat tax governance and tax compliance as important elements of their oversight and broader risk management systems. In particular, corporate boards should adopt tax risk management strategies to ensure that the financial, regulatory and reputational risks associated with taxation are fully identified and evaluated.

The commentary of Chapter XI offers the following reference in order to assess whether certain transactions could be contradictory with the spirit of the tax law:

“An enterprise complies with the spirit of the tax laws and regulations if it takes reasonable steps to determine the intention of the legislature and interprets those tax rules consistent with that intention in light of the statutory language and relevant, contemporaneous legislative history. Transactions should not be structured in a way that will have tax results that are inconsistent with the underlying economic consequences of the transaction unless there exists specific legislation designed to give that result. In this case, the enterprise should reasonably believe that the transaction is structured in a way that gives a tax result for the enterprise which is not contrary to the intentions of the legislature.”

Tackling modern slavery in global supply chains

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

This article was original published on the OECD Insights blog on March 11, 2016.

The recent migrant crisis paired with shocking exposes of labour issues in global supply chains has heightened public attention to modern slavery, forced labour and human trafficking. Children working in cobalt mines for the Apple and Samsung supply chains, Syrian refugees working under terrible circumstances for garment supply chains in Turkey, Rohingya refuges working as slaves in the Thai fishing industry and North African migrants working in agriculture in Italy and Spain.

The International Labour Organization estimates that 21 million people are victims of forced labour, of which 44% are migrants. In total, forced labor generates an estimated $150 billion in illegal profits every year. A recent ETI survey found 71% of companies suspect the presence of modern slavery in their supply chains.

In response, a number of binding regulations regarding modern slavery in supply chains have been introduced. On an international level, the ILO has adopted the Forced Labor Protocol that requires States to take measures regarding forced labor. Domestically, the California Transparency in Supply Chains Act of 2010 is intended to ensure consumers are provided with information about the efforts to prevent and eradicate human trafficking and slavery from their supply chains. President Obama also launched a far reaching executive order to avoid human trafficking in federal contracts and passed a law allowing for stronger enforcement of the Tariff Act of 1930, which aims to block the import of products to the US produced using child labour.

Currently two lawsuits related to slave labour in supply chains of Thai shrimp are pending against well-known multinationals in US federal courts. Likewise earlier this year the US Supreme Court declined to hear an appeal for the dismissal of a lawsuit alleging that three large multinational enterprises aided and abetted child slave labor on cocoa plantations in Africa.

The recent UK Modern Slavery Act applies to all companies that do any part of their business in the UK if they have annual gross worldwide revenues of £36 million or more each year. These companies have to publish an annual slavery and human trafficking statement. The OECD Guidelines for Multinational Enterprises are referenced in the statutory guidance of the Act, noting that “whilst not specifically focused on modern slavery, they provide principles and standards for responsible business conduct in areas such as employment and industrial relations and human rights which may help organisations when seeking to respond to or prevent modern slavery.’’

The OECD Guidelines are recommendations to companies backed by 46 adhering governments and recommend that companies carry out supply chain due diligence to identify, prevent, mitigate and account for all adverse impacts that they cover, including child labour and forced labour. The OECD has developed more detailed guidance on how these expectations can be responded to in specific sectors. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the global standard on mineral supply chain responsibility, provides a 5 step framework for due diligence to manage risks in the minerals supply chain including forced and child labour in the context of artisanal mining. The FAO and OECD recently jointly developed a Due Diligence Guidance for Responsible Agricultural Supply Chains which also provides due diligence recommendations to manage risks related to forced labour and child labour in high risk agriculture sectors including palm oil and cocoa. Such approaches could be applied in the Thai shrimping industry as well. The OECD is also developing a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations for addressing risks of forced and child labor. This Guidance will be launched later this year and will be relevant to migrant workers in textiles factories and cotton fields.

Although the OECD Guidelines are a non-binding mechanism they are accompanied by a unique grievance mechanism, the National Contact Points (NCPs). NCPs in the 46 countries that adhere to the Guidelines facilitate dialogue and mediation with companies who allegedly do not observe their recommendations. Several issues regarding forced or child labor in supply chains have been brought to the NCP mechanism and some have resulted in successful outcomes.

For example, in 2011 complaints were submitted to the NCP mechanism regarding sourcing of cotton from Uzbekistan cultivated using child labour. NCP mediation led to several agreements with companies involved in sourcing the products as well as heightened industry attention to this issue. In a follow up to the NCP processes several years later the European Center for Constitutional and Human Rights (ECCHR) concluded that the submission of the cases had encouraged traders to take steps to pressure the Uzbek government to end forced labour, although company commitment and media attention around the issue diminished over time. Nevertheless the report also noted that the NCP cases triggered investment banks to monitor forced labour issues in Uzbekistan in the context of their investments.

Other NCP cases, while not resulting in agreements between the parties have led to statements determining that certain companies were not observing the recommendations of the OECD Guidelines in the context of forced labour impacts, resulting in reputational harm to those enterprises (e.g. see DEVCOT) . Currently the Swiss National Contact Point is overseeing mediation between the Building and Wood Worker’s International (WWI) and FIFA regarding forced labor issues in Qatar. The results will have important implications for global sporting events and for managing risks of forced labour in large scale infrastructure projects.

Companies themselves have been proactive in addressing these issues. For example Nestlé, despite currently being subject to a lawsuit related to slave labour in its supply chain, participated in and released a report developed with the non-profit organization Verité which identified labour abuses in its supply chain with regard to Thai-sourced seafood.  Within the report the company outlined plans to tackle the problem, and notes that other companies that do business in this sector likely face the same risks.

Several MNEs also participate in the Shrimp Sustainable Supply Chain Task Force set up in 2014 by retailers such as Costco. This brings together manufacturers, retailers, governments and CSOs to conduct independent audits on Asian fishing vessels to ensure seafood supply chains are free from illegal and forced labour. The first round of audits is expected to be complete by July 2016.

In February this year, H&M asked all of its suppliers to sign an agreement prohibiting the use of cotton from Turkmenistan and Syria, on pain of termination in order to avoid sourcing of cotton from ISIS controlled territories, produced through forced labour. H&M also terminated a sourcing relationship with a Turkish supplier after discovering a Syrian migrant child working in its factory, responding to documented abuses against Syrian refugees in the Turkish textile industry.

Labour issues in global supply chains present a serious and pressing problem, therefore it is encouraging to see they are being taken seriously. In addition to regulatory approaches non-binding mechanisms such as the OECD Guidelines, accompanied by the NCP system, and industry initiatives have resulted in important progress and provide alternative models for managing forced labour risks throughout global supply chains. While litigating these issues can be a forceful tactic in bringing companies to account, non-judicial grievance mechanisms can provide a more affordable and more accessible platform for tackling forced labour issues.

In the context of modern slavery, all stakeholders must step up their efforts. Governments should promote due diligence in global supply chains among their companies as outlined in the OECD Guidelines and its related industry-specific instruments. Civil society can continue to be instrumental in reporting upon and exposing these issues and furthermore should rely on the NCP platform for reaching resolutions on supply chain issues with MNEs. Finally, as the current migrant crisis will last many years, companies should conduct heightened due diligence to ensure that they are not linked to forced labour throughout their supply chains, particularly in contexts with large migrant populations.

Translating ‘Human Rights Speak’ into ‘Business Speak’

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

Recently I spoke at a number of conferences about human rights due diligence within supply chains. Many business people engaged in corporate responsibility pointed out how challenging it is to persuade their colleagues to engage in human rights due diligence simply because they not familiar with ‘human rights language’. They spoke about how important it is to translate human rights language into language that is understandable to business.

The corporate responsibility to respect human rights is embedded in the UN Guiding Principles for Human Rights and Business. It is also embedded in the OECD Guidelines for Multinational Enterprises, which is equipped with a unique grievance mechanism known as the National Contact Point (NCP) mechanism. The NCP mechanism handles complaints regarding about the behavior of multinationals and tries to resolve issues through dialogue and mediation. NCP’s also often face the common question from enterprises “what exactly does human rights due diligence mean for my business?”

An excellent resource for addressing this question and helping to interpret the language of human rights for business can be found in the UN Guiding Principles Reporting Framework. This framework is a comprehensive guide for companies on how to report on how they respect human rights. Annex A of the Reporting Framework is exactly what you are looking for if you would like to translate ‘human rights speak’ into ‘business speak’.

This Annex, entitled The Relationship between Businesses and Human Rights, can be a useful resource to business to better understand  human rights and their relationship to them.  For example, what does the right to self-determination mean for a company?  It is not so obvious!  The Annex can help render these concepts less abstract for companies by first explaining what specific human rights are and then providing good examples of how businesses might be involved in impacting those rights.

Right of Self-determination
Brief explanation of the right	Examples of how business might be involved with an impact on the right
A right of peoples, rather than individuals. Peoples are entitled to determine their political status and place in the international community. It includes the rights to pursue economic, social and cultural development, to dispose of a land’s natural resources and not to be deprived of the means of subsistence. A particular right of indigenous peoples to self-determination has been specifically recognized by the international community.	• Engaging in business activities on land that has traditional significance to the peoples that inhabit an area when that land was acquired by Government without due consultation with the local population.   • Any activity that might have impacts on indigenous peoples’ lands, whether through acquisition, construction or operation, may give rise to impacts on their right to self-determination.

 

In other words, if you are looking for a good translation of ‘human rights speak’ into ‘business speak’, look no further!

The complete UN Guiding Principles Reporting Framework can be found here.  For further reading on the intersection of human rights and business I also recommend Human Rights Explained – for Business by Global CSR. This book provides readers with the full list of 48 human rights in the International Bill of Human Rights and demonstrates the relevance of each right within a business context.

 

 

 

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.