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.

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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.

forced labour

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 29th 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 13th, 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

 

 

Two secrets concerning a value chain approach to corporate climate change risk-management

By Roel Nieuwenkamp, Chair of the OECD Working Party on Business and Human Rights (@nieuwenkamp_csr)

This article was originally published by OECD Insights, November 29, 2015

This coming week the world’s leaders will gather in Paris to discuss approaches to addressing climate change, kicking off the 21st annual meeting of countries which want to take action for the climate, otherwise known as COP 21.

A well-hidden secret is that under the OECD Guidelines for Multinational Enterprises (‘the Guidelines’) businesses are expected to do their due diligence on environmental impacts such as climate impacts. This concerns not only their own negative environmental impacts, but also the impacts in their value chain. Another – less well-kept – secret is that the OECD Guidelines include a unique grievance mechanism known as National Contact Points (NCPs) that could also be utilized for climate-related grievances concerning multinational enterprises.

The Guidelines expect companies to behave responsibly through making a positive contribution to economic, environmental and social progress with a view to achieving sustainable development. Besides, the 46 adhering governments expect companies to avoid causing or contributing to negative environmental impacts. In addition the Guidelines expect companies to seek to prevent or mitigate adverse climate impacts directly linked to their operations, products or services by a business relationship. To achieve this, businesses are called upon to carry out due diligence throughout their value chains to identify, prevent, mitigate adverse impacts and account for how they are addressed.

Due diligence, importantly, applies not only to actual impacts but also to risks of impacts. This is particularly relevant in the context of greenhouse emissions as the extent of climate impacts and what they will mean for a company’s bottom line are as of yet not precisely known.

The Guidelines also include a specific chapter on environment which outlines recommendations for responsible business behaviour in this context. For example businesses are encouraged to continually seek to improve corporate environmental performance at the level of the enterprise and, where appropriate, of its supply chain, by encouraging such activities as: development and provision of products or services that reduce greenhouse gas emissions; providing accurate information on greenhouse gas emissions and exploring and assessing ways of improving the environmental performance of the enterprise over the longer term, for instance by developing strategies for emission reduction. Furthermore, the disclosure chapter of the Guidelines also encourages social, environmental and risk reporting, particularly in the case of greenhouse gas emissions, as the scope of their monitoring is expanding to cover direct and indirect, current and future, corporate and product emissions.

These expectations suggest that enterprises should not only be concerned with their direct emissions and impacts on climate change, but that they should also be aware of their carbon footprint throughout their supply chains and that their due diligence efforts should be targeted accordingly. A value chain approach is particularly important in the context of climate change issues as often the majority of emissions will be generated throughout supply chains rather than direct emissions. For example, Kraft Foods, one of the world’s largest food and beverage conglomerates, found that value chain emissions comprise more than 90 percent of the company’s total emissions.

However the supply chain approach has yet to be mainstreamed in the field of corporate emissions management. For example a recent OECD report, Climate change disclosure in G20 countries: Stocktaking of corporate reporting schemes, found that most of the mandatory corporate emissions reporting schemes among G20 countries only require companies to report on direct greenhouse gas emissions produced within national boundaries, whereas significant volumes of emissions are often produced lower down on a company’s supply chain, and often in jurisdictions where that do not have reporting requirements. Likewise a survey conducted by CDP and Accenture in 2013 found that only 36% of 2,868 companies responding report emissions throughout their value chains (known as Scope 3 emissions) and only about 11% set either absolute or intensity Scope 3 targets.

Identifying risks is a primary element of due diligence and therefore the limited amount of supply chain reporting in this context is worrisome and suggests that currently companies are not collecting the information they need to effectively prevent and mitigate risks.

This is problematic not only with respect to the expectations of business to act responsibly but also because increasingly investors are seeing fossil fuel dependence as a systemic risk. For example, the CDP reports that currently 822 institutional investors request climate change disclosure from investee companies. Assets managed by these investors comprise up to a third of all global financial assets. However, this demand had not been reflected in generation of useful information. Research on the top 500 global asset owners found that only 7% of them are able to calculate their emissions, only 1.4% have reduced their carbon intensity since 2014, and none of them has yet calculated its portfolio-wide fossil fuel reserves exposure.

As of yet climate change due diligence has not been considered by the NCP network. However as corporate responsibility to mitigate against climate impacts becomes increasingly prominent, continued industry inaction could lead to a complaint being brought on this subject.

The upcoming two weeks will bring thousands of participants together to brainstorm solutions to perhaps the greatest global crisis facing us today. We hope that the event will prove to be historic and that the implications of corporate value chain approaches and due diligence will be adequately considered.

Useful links

OECD COP21

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.