A Responsibility Revolution in the Fashion Industry: How OECD’s new Due Diligence Instrument can transform the global garment industry

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr). This article was originally published on OECD Insights on 31 January 2017.

218px-sri_lankan_garment_workers

The collapse of the Rana Plaza factory in 2013 with a loss of over 1,130 lives was a jarring reminder that though much has been accomplished to improve working conditions in global supply chains, more is needed. Following the tragedy, stakeholders worldwide, ranging from industry to labour organizations and civil society, mobilised to respond to this need. The breadth of initiatives launched to tackle these issues is impressive. Perhaps most visible are the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety. Together, these initiatives have joined over 250 brands, retailers and their suppliers to inspect and upgrade shared factories, demonstrating that a sector-wide approach to building safer supply chains is not only feasible but effective. During my last trip to Bangladesh, I witnessed the great progress these initiatives have made. The Accord and the Alliance are only two responses amongst many since the Rana Plaza tragedy.

A common understanding of company responsibility in an age of globalization

Rana Plaza was a subcontractor to many garment companies, meaning that in many cases global brands did not place their orders directly with factories operating out of Rana Plaza. Furthermore, in some cases the subcontracting was illegal. While there was already general agreement in the sector that companies should identify and address risks with direct suppliers, the complexities of Rana Plaza raised the question, whose responsibility is due diligence when we look beyond direct contractors and further up the supply chain?

The OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights are clear: companies have a responsibility to identify, prevent, mitigate and account for adverse impacts in their supply chains. In June 2015 the G7 promoted international efforts to promulgate industry-wide due diligence standards in the textile and ready-made garment sector.

On 8 February 2017 the OECD will launch a Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector which responds to this call. This Guidance, developed through an intense multi-stakeholder process, supports a common understanding of due diligence and responsible supply chain management in the sector.

The Guidance is a global instrument

This is really a global instrument, contributing towards a level playing field for responsible business conduct. The OECD Guidelines apply to all companies operating in or sourcing from the 46 adhering countries, but they are likewise relevant for any company operating in their global supply chains. The Guidelines are relevant for a Bangladeshi factory that sells to companies in the US, even while Bangladesh itself is not an Adherent, just as they are relevant for cotton producers in Pakistan exporting to EU markets. OECD , demonstrating the global reach of the OECD Guidelines in the garment sector alone.

Adherents to the OECD Guidelines account for over 72% of world imports of clothing

The relevance of the OECD Guidelines globally is no longer hypothetical. The National Contact Points (NCPs), the globally active grievance mechanism of the Guidelines, have already handled several cases related to due diligence in the garment and footwear sector. For example, the Danish NCP recently concluded its consideration of a case involving PWT Group, a Danish retailer, for failing to carry out due diligence in relation to its textile manufacturer in the Rana Plaza building. Both the Guidance and the conclusions of the Danish NCP in this case are significant for the future of human rights due diligence in the textile sector globally.

The Guidance is progressive, realistic and balanced

The Guidance encourages the sector to think differently and to react differently, but does so in a progressive, balanced, and realistic way. Under the Guidance, companies are expected to scope risks across the full length of their supply chain, including risks related to subcontracting and homeworkers. Moreover, this assessment moves beyond auditing to not only identify labour, human rights and environmental impacts, but also understand why they are occurring. This tailor-made approach to risk assessment recognises that risks in the garment and footwear sector are very different and the assessment methodologies should reflect these differences. An assessment for child labour and forced labour should not be the same as an assessment of occupational health and safety or wage compliance. This Guidance also recognises the challenge of ‘audit fatigue’, so it pushes the sector towards harmonised assessments and most importantly effective monitoring.

While the Guidance is ambitious, it is also realistic. Addressing the full range of challenges in the sector all at once is mission impossible for brands with vast supply chains that go several layers deep. So brands will have to prioritise issues where the impacts are most severe. This could be, for example in relation to hazardous chemicals in finishing or forced labour in cotton.

Finally, the Guidance recognises the diversity of actors in this sector and the diversity of sourcing models. It does not prescribe a one-size-fits all approach, seeking rather to provide recommendations for how companies can carry out due diligence given their circumstances (size, context, etc). For example, the Guidance recognises that companies may source materials and products directly from suppliers or indirectly through buying agents and provides tailored recommendations for each. Similarly, it acknowledges the role subcontracting plays and therefore recommendations point more to ‘responsible subcontracting’ than always ruling out subcontracting altogether.

No more neo-colonial top-down system

In November of last year I participated as a panellist in India on responsible garment supply chains. A fellow panellist, a factory owner, called the traditional garment audit model a colonialist approach: ‘Western brands telling the developing country factories what to do’. With the new OECD Due Diligence Guidance we finally say goodbye to this neo-colonialist approach. It appreciates the importance of a partnership between buyers, suppliers and workers in identifying methods to address risks and monitor progress over time.

But just as important as this partnership, is the fact that due diligence is not merely about looking outward; it’s also about looking inward. Another remark made by my fellow panellist is that companies do not align their purchasing policies with responsible business policies. For example, brand purchasing officers often ask the factory to cut prices by 10%, while the brand ethical sourcing team asks for a 20% wage rise. In a study conducted by ETI Norway, Suppliers speak up, suppliers responded that paying legal minimum wage and legal overtime premiums would increase labour costs by 10-20%. However, despite this reality, little science goes into price-setting by brands and retailers. So functional alignment of brand policies needs to be part of due diligence.

Under the OECD Due Diligence Guidance, companies, particularly brands and retailers, are expected to assess their own purchasing practices and determine how their price setting and ordering may be contributing to excessive overtime, low wages, precarious contracts, illegal subcontracting, etc. Personally, I think that embedding responsibility indicators in the bonuses or performance appraisals of purchasing officers should incentivise due diligence; otherwise due diligence and respect for human rights will stay a peripheral issue.

The new global instrument for garment due diligence that will be launched next week at the OECD Roundtable on Due Diligence in the Garment and Footwear Sector can change the fashion industry worldwide. It is global, progressive, and realistic, and assists in more mature supply chain dialogues than the neo-colonialist audit system. Now is the time to implement and make fair fashion the standard.

Useful links

More on the garment industry and on due diligence on OECD Insights

National Action Plans on Business and Human Rights: Strong support for OECD’s Responsible Business Grievance Mechanism

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct and Froukje Boele, Policy Analyst Responsible Business Conduct, OECD

The year 2017 got off to a good start for business and human rights with a number of prominent National Action Plans (NAPs) finalised last December right in time for Christmas. The fresh German, Italian, Swiss and US NAPs resemble each other by placing the OECD Guidelines and the attached grievance mechanism at the forefront of efforts to promote responsible business conduct for enterprises operating at home and abroad. They also acknowledge the alignment between its Human Rights Chapter and the UN Guiding Principles on Business and Human Rights. Moreover the NAPs uphold and strengthen the National Contact Point (NCP) system of the OECD Guidelines as a means for effective problem solving, thereby supporting the OECD’s globally active grievance mechanism for responsible business as a de facto complaints mechanism for the UN Guiding Principles.

Some highlights:

Responsible Supply Chains and Due Diligence

The concept of adequate due diligence – to identify, prevent and mitigate actual and potential adverse impacts of business operations – centres at the heart of the NAPs with action-oriented language on the different OECD sectoral guidelines. Yet Governments emphasize different aspects, for example the German NAP on Business and Human Rights and the Swiss NAP on Business and Human Rights include a particular focus on helping small and medium-sized enterprises.

The US Government’s National Action Plan on Responsible Business Conduct recognises the OECD Due Diligence Guidance for Responsible Minerals Supply Chains from Conflict and High Risk Areas as a key tool for businesses to help them “respect human rights and avoiding contributing to conflict through their mineral sourcing practices.” In this regard, the German and the Italian NAP on Business and Human Rights also point to their involvement in the process of the elaboration of an EU Regulation for supply chain due diligence in this field. If adopted, the Swiss Government also commits to consider the formulation of similar legislative proposals adapted to the Swiss context.

For agriculture, both Switzerland and Italy commit to active implementation of the OECD-FAO Guidance for Responsible Agricultural Supply Chains.

Moreover, in line with Italy’s active involvement to improve standards in the textile sector, its NAP emphasizes the OECD’s work on the Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector, which will be launched next 8 February.

Sensible to the risks involved in the banking industry, Switzerland has included its support for the OECD work on a guide for due diligence in the financial sector in the NAP.

Not only do the NAPs on the whole indicate a high level of support for implementing the outcomes of the proactive sector projects, they also signal a political commitment to engage in their multi-stakeholder advisory groups going forward.

National Contact Points

The role of the NCPs to promote corporate responsibility and deal with issues relating to business and human rights is prevalent throughout the recent NAPs. Delivering on the G 7 Leaders’ Summit Declaration of June 2016, Italy, Germany and the United States recall their commitments to undergo an NCP peer review in 2017.* The plan for Germany also announces the repositioning and further strengthening of its NCP. Interestingly, the US announces it will implement procedures to ensure that stakeholders outside the US and using other languages than English can engage in the NCP process. The NAPs for Germany and Switzerland also make an operational link between the work of the NCPs and national export credits and guarantees. As such, the German NCP is upgraded as a central complaint mechanism for projects for foreign trade promotion and the Swiss Export Risk Insurance Agency is reported to have to take account of the results and evaluations by the NCP.

Policy coherence on responsible business conduct

At the same time, the national action plans send a clear message on policy coherence on corporate responsibility issues and set an example for other countries in the process of developing a NAP. They are comprehensive efforts to ensure alignment between all policies relevant to responsible business with Governments leading by example on issues such as procurement, exports credits but also responsible retirement plans (US NAP). Beyond the national level, the NAPs make a point about international policy coherence by including corporate responsibility commitments in trade and investment agreements, as well as development finance. These are complemented on an operational level with measures to train German and US diplomats abroad.

Conclusion

The high level of commitment to the OECD Guidelines, the NCP system and the OECD sector due diligence instruments will greatly contribute to their visibility and implementation worldwide. They also present promising building blocks for the 2017 German G20 efforts to address RBC and sustainable global supply chains and the Italian G7 Initiative on sustainable global supply chain management. Finally, these 2016 Christmas gifts are full of inspiration for Governments that are in the process of developing a national action plan, for example in Latin America.

*               The peer review of the Swiss NCP is ongoing.

The Global Construction Sector Needs a Big Push on Corporate Responsibility

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

 

Responsible Business Conduct in Cyberspace

By Prof. Roel Nieuwenkamp, Originally published by the Institute for Human Rights and Business, April 30, 2015

At the Global Conference on CyberSpace held in the Hague in April, I spoke about human rights in the context of development and sales of surveillance technology and software – a fascinating topic that deserves increased attention.

What kind of business are we talking about? And what human rights are at stake?

Surveillance and reconnaissance technologies invoke images of Hollywood spy movies.  This is a world of deep packet inspection (DPI), spyware, keyloggers, Trojan horses and password sniffing– tools invented to observe, capture and explore the behaviour and identities of people and organisations on computer networks. Sellers of such technologies often justify their use by saying they are intended to support law enforcement or protect the public welfare (e.g. through protecting against terrorist activity), but they often can also be used to facilitate human rights violations by the purchasers.

For example, recently a criminal complaint was brought against a French company, Amesys, which provided the former Libyan government with surveillance technology and support in using this technology. It is alleged this technology was used by the government to monitor opposition activists who were subsequently arrested, detained and tortured. The case is currently pending an outcome.

While all surveillance technologies impact the right to privacy, this example demonstrates that human rights are  at stake, and the rights include freedom of expression, freedom of association and freedom from torture.

Selling spyware is a tricky business

It can be difficult to reach a definitive assessment of whether a surveillance product is good or bad in terms of its human rights impact because, as noted, often products can be developed to protect human rights and then applied to do just the opposite.  Furthermore, the rapid evolution of technology makes it difficult to regulate these types of products and services. For example, sophisticated export control regimes exist for goods and service that are ‘dual use’, e.g. products that can be used both for military and civilian purposes. However because of the fast pace of technological development, such control regimes often end up ‘regulating the past’, as advancing technology makes current regulation irrelevant.

Marietje Schaake, member of the European Parliament, correctly stated during our panel at the conferencethat there is a legal vacuum in this area. Despite the challenges, governments have a duty to protect human rights and therefore should establish and enforce regulation to ensure that they are conforming to this duty. The European Commission and some EU member states are exploring what could be done in this regard by conducting a review of EU export control policy and seeking areas of clarification.

In addition to regulation, international instruments on business and human rights have a role to play. For example corporations have the responsibility to respect human rights under both the UN Guiding Principles for Human Rights and Business (UNGPs) and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (‘the OECD Guidelines’). These instruments do not provide a silver bullet solution to resolve the issue – soft law is non-binding and thus has its limitations.

At the same time non-binding instruments are not without impact or consequence.  The UNGPs restate state obligation to protect human rights, from which it cannot abdicate itself, and companies have the obligation to comply with laws, which is also not an optional alternative for companies. Furthermore, although the OECD Guidelines are non-binding for companies, they have a built-in grievance mechanism providing them with some bite. Governments of 46 the states adhering to the Guidelines made a binding commitment to implement the National Contact Point (NCP) mechanism, the grievance platform of the Guidelines. NCPs are mandated to provide good offices to consider cases of alleged non-observance of the OECD Guidelines.

NCPs in Action: Human rights issues in the ICT sector

A case recently brought to the NCP mechanism is a good illustration of the application of the OECD Guidelines to these issues. The case was brought by a consortium of NGOs led by Privacy International (PI), consisting of the European Centre for Constitutional and Human rights (ECCHR), Reporters Without Borders, Bahrain Centre for Human Rights, and Bahrain Watch. In February 2013 this group submitted a complaint to the UK NCP alleging that Gamma International had supplied a spyware product – Finfisher – to agencies of the Bahrain government which had used it to target pro-democracy activists.

When cases are brought to the NCP mechanism the first course of action is an offer of mediation to try to solve the problem. In instances where mediation fails NCPs do their own examination and make recommendations to the company. Sometimes they may reach a determination of whether the business’ behaviour was in line with the OECD Guidelines.  In the Gamma case the mediation effort failed. The NCP then went on to conclude that Gamma had not acted consistently with provisions of the OECD Guidelines requiring enterprises to do appropriate due diligence, to have a policy commitment to respect human rights and to remediate human rights impacts, as outlined in paragraph 68 and 69. Furthermore the company’s approach had not met the OECD Guidelines standards to respect human rights and the engagement of the company with the NCP process was unsatisfactory, particularly in view of the serious nature of the issues.

The NCP recommended that Gamma International and the Gamma Group:

  1. Take note of international evidence and UK Government advice in shaping its due diligence processes;
  2. Participate in industry best practice schemes and discussions;
  3. Reconsider its communications strategy to offer the most transparent and consistent engagement appropriate to its sector;
  4. Where it is identified that its products may have been misused, cooperate with official remedy processes used by victims of the misuse.

Consequences with bite

Even if non-binding, the NCP’s conclusion and recommendations have important impacts. First of all such a determination may cause significant reputational damage to the company. Secondly, some governments base some of their decisions in part on NCP statements such as this one, e.g. in the context of public procurement decisions or in providing support to international operations.  For example, export credit agencies of OECD member countries must take into account the final statements of NCPs when they make decisions on export credit guarantees. Additionally, some countries have taken NCP decisions and processes into account with regard to their commercial diplomacy.

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

Resources for human rights due diligence in the ICT sector

In the case of Gamma one of the NCP’s recommendations was that the company engage in human rights due diligence. The Chair’s Statement of the Global Conference on Cyber Space also highlighted the importance of due diligence.  But what does human rights due diligence actually mean for the ICT sector, particularly for companies that sell surveillance and reconnaissance technology?

Due diligence is a part of a broader range of actions corporations should undertake to respect human rights. For example, under this expectation companies should have a policy commitment on respecting human rights, assessing human rights risks, providing remediation when adverse impacts are caused or contributed to and promoting transparency throughout their supply chains.  The essence of due diligence is the process of identifying, preventing and mitigating actual and potential adverse impacts human rights impacts, and accounting for how these impacts are addressed. If there is a risk of severe human rights impacts a heightened form of due diligence is recommended.  For example, significant caution should be taken with regard to the sale and distribution of surveillance technology when the buyer is a government with a poor track record of human rights.

The European Commission has developed a guide on implementing the UNGPs in the ICT sector which provides useful guidance to companies on this issue.  The guide provides that “[i]n all cases, companies should not sell, or facilitate the sale or integration of, product, services or technologies to governments or other end users if they know, or have reason to know, that they are likely to be used in abusing human rights.’’ In addition it articulates the steps that can be taken to identify and address misuse of their product. This includes pre-sale due diligence, including a ‘know your customer approach’, to determine the end user of the product and including respect for human rights in the contracts. Finally, as part of ongoing or post-sales due diligence, leverage could be used during the delivery of the products or services. The regular updating of software could for example provide an opportunity to use influence in order to respect human rights.

TechUK, an industry association of ICT companies in the UK, in partnership with the UK government has alsopublished a guide on assessing cyber security export risks. This publication is a valuable resource for industry on how to design and implement appropriate due diligence processes.

Additionally the Electronic Frontier Foundation has developed a guide on How Corporations Can Avoid Assisting Repressive Regimes and the Global Network Initiative has developed principles on Freedom of Expression and Privacy. Both documents are valuable guides on implementing the ’know your customer’ principle in the context of ICT business operations.

To conclude, governments have a duty to protect against human rights violations in relation to surveillance and reconnaissance technology, and efforts must be made to close the current regulatory gap in this regard. In addition companies have to fulfil their responsibility to respect human rights. Businesses engaged in surveillance, blocking, or network disruption, need to go beyond consulting sanctions lists and the export control lists to developing and implementing human rights due diligence processes, as recommended by the OECD Guidelines.  Furthermore, enhanced human rights due diligence is necessary when selling products to governments with a poor track record in human rights. Responsible business conduct in the ICT sector contributes to protecting the bottom line as well as human rights worldwide.

Responsible gold also means supporting livelihoods of artisanal miners

This week in a guest blog post on OECD Insights Tyler Gillard, head of the OECD’s work on responsible mineral supply chains and Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct, discuss the need to ensure responsible mineral sourcing does not entail disengagement from challenging areas such as conflict zones and artisanal  mining.