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

 

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Corporate Accountability and the UN Sustainable Development Goals: How Responsible Business Conduct could and should play a decisive role

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

This article was prepared as a background document for the  2015 Independent Research Forum Retreat ‘Towards a Transformative Post 2015 Development Agenda’, which took place in New York, May 17th 2015 with UN Post 2015 and SDG negotiators. and for the the UN ESCAP OECD Regional Conference on Aligning Corporate Sustainability with SDG’s, taking place in Bangkok May 20th 2015.

Currently, the UN is in the process of developing the Sustainable Development Goals, a set of 17 goals which will define the post-2015 development agenda. It is recognised that the private sector has an important role to play in economic and social development. Private sector growth can create income opportunities, contribute to human capital development and lead to technology transfers, among other positive economic and social effects. For example, in Bangladesh the apparel sector has been credited in lowering the official poverty rate from 70% to less than 40%.[1]  Today it employs tens of millions of workers globally, predominantly women, which has contributed to empowering women from poor communities.

However, as we have also witnessed in Bangladesh in the context of the apparel sector, in order to avoid other negative impacts, businesses must behave responsibly. Not just within their direct operations but throughout their supply chains and business relationships. This is particularly important in weak regulatory contexts. Given that a significant portion of global manufacturing takes place in such contexts, if multinationals would commit to promoting sustainability and responsible business conduct throughout their supply chains this would have a decisive impact on the success of the SDGs.

The OECD Guidelines on Responsible Business Conduct

The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct currently represent the most comprehensive set of government-backed recommendations on responsible business conduct. They are an important tool for promoting responsible business conduct globally, and therefore for supporting global development.

The OECD Guidelines state as an overarching objective that enterprises should contribute to economic, environmental and social progress with a view to achieving sustainable development.[2] Furthermore under the Guidelines enterprises are expected to avoid causing or contributing to adverse impacts (social, environmental, human rights, etc.), through their own activities, and address such impacts when they occur. Therefore the Guidelines promote a concept of responsible business conduct which includes both the idea that business should do no harm and that they can do well by doing good. This applies to an enterprise’s direct operations as well as products, operations and services throughout its supply chain.

Currently 46 countries adhere to the Guidelines, and therefore make a binding commitment to promote RBC amongst businesses operating in or from their territories. Adherent countries represent diverse geographies and include OECD member states as well as 12 non-OECD member countries (Argentina, Brazil, Colombia, Costa Rica, Egypt, Jordan, Latvia, Lithuania, Morocco, Peru, Romania and Tunisia). These 46 countries account for around four-fifths of outward FDI and two-thirds of inflows and are home to the majority of multinational enterprises. This means that the Guidelines are relevant even for non-adherent nations looking to attract investment or home to companies operating abroad.

Linkages amongst the OECD Guidelines and SDGs

Given the instrumental role that business has to play in sustainable development the OECD Guidelines directly support many of the aims of the SDGs. Some of the main complementarities amongst the OECD Guidelines are outlined in the table below.

 

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 are developing specific guidance for supply chains responsibility for the agricultural sector. 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)

 

National Contact Points promote corporate accountability

Perhaps the most important feature of the Guidelines is the National Contact Point mechanism, the built in grievance mechanism of the Guidelines. Countries adhering to the Guidelines are obligated to establish NCPs which are tasked with promoting the Guidelines as well as providing a platform for mediation and conciliation of alleged non-observance by the Guidelines. Given the substantive overlap between the RBC recommendations of the OECD Guidelines and the SDG’s the NCP system can serve as an important tool in advancement of the objectives under the SDGs.

Although the NCP mechanism does not have legal authority and thus cannot impose sanctions nor mandate that parties participate in the process, it has nevertheless proven to be an effective tool in promoting RBC. Utilizing the NCP mechanism provides a venue for enterprises to discuss and explore issues regarding responsible business conduct in a low-cost, non-adversarial manner, which can avoid further escalation of disputes.  The OECD NCP mechanism has a growing track record of agreements resulting through mediation.  For example in 2014 the UK NCP resolved a complaint brought by the World Wildlife Fund based on the 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. Such a result directly supports the environmental agenda of the SDGs.

A complaint submitted by UNI Global Union and the International Transport Workers Federation against DHL also led to a useful agreement at the German NCP. The complainants and the company agreed to respect the rights of workers to establish and join trade unions in Turkey, India, Colombia, Indonesia and Vietnam.  In another case concerning the Tazreen factory fire in Bangladesh, the complainant, Uwe Kekeritz, member of the German Bundestag, and Karl Rieker, a garment company, reached an agreement in which Karl Rieker 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. The conclusion of these cases supports the SDG goal of protecting labour rights and promoting safe and secure working environments for all workers.

Many NCP cases tackle multiple issues and thus can contribute to several aspects of the SDGs.  For example in a complaint by several NGOs against the Cameroon palm oil giant Socapalm and its owners (France’s Bolloré) the French NCP brokered an agreement in which Socapalm agreed to improve workers’ conditions in Socapalm and its suppliers, improve stakeholders engagement with local communities, and reduce environmental damage.

Although non-binding, this soft law mechanism can have hard consequences. If mediation in the context of an NCP procedure fails an NCP may issue a statement with recommendations, sometimes including a statement on whether a company did or not act in adherence with the recommendations of OECD Guidelines. While such determinations may cause significant reputational damage to a company they can also protect a company’s reputation in instances when conduct is found to be consistent with the recommendations of the OECD Guidelines. Furthermore in some contexts governments consider NCP statements with regard to economic decisions, 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. This process is being conducted to avoid ethical and commercial risks associated with being linked to 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.

Conclusion

The private sector has an important role to play in realizing the SDGs and in this respect, the OECD Guidelines provide a strong existing framework for corporate accountability complementary to the aims of the SDGs. Specifically, where the SDG address behaviour of enterprises the NCP mechanism of the Guidelines will continue to function as a strong tool for encouraging responsible behaviour. Governments should take a whole of government approach to this tool and strengthen the NCP system with the SDG’s in mind. For countries with an existing NCP this means strengthening the mechanism and providing it with adequate resources to fulfill its tasks.  Finally, multinationals should play their role by behaving responsibly within their direct operations as well as throughout their supply chains.

[1] Sarah Labowitz and Dorothée Baumann-Pauly, Business as Usual is Not an option, New York University Stern School of Business (April, 2014), 16 http://www.stern.nyu.edu/sites/default/files/assets/documents/con_047408.pdf

[2] OECD Guidelines for Multinational Enterprises, 2011, II A.1 General Policies

Drilling down and scaling up in 2015

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

After the development of new global standards on responsible business conduct (RBC = beyond CSR…) in 2011[1] it was time to get down to business and work on making these standards a reality. The implementation process has been hard, complex and slow, however the good news is that this has not deterred companies and governments from taking new standards seriously. In 2014 we saw some important developments and we saw many demonstrated leaders being proactive in trying new approaches.

Global players made significant advances in RBC policy. For example, China demonstrated exciting and encouraging efforts on RBC including the development of guidelines on corporate social responsibility for outbound mining investments.[2] Follow closely how this is implemented; it could have a huge impact. Canada likewise introduced a tough new CSR policy for international mining operations guided by the OECD Guidelines and promoting the NCP grievance mechanism.[3]

Companies also stepped forward to address ongoing challenges in their sector. For example the Accord and Alliance initiatives were established through company networks after Rana Plaza to inspect and remediate fire and safety problems in garment factories throughout Dhaka, Bangladesh. In 2014 both programs completed the bulk of their inspection programs.

Additionally we saw civil society and companies collaborate together and reach solutions on RBC through mediation. A good example of this was a case mediated by the UK NCP and brought by the World Wild Life Fund (WWF) which resulted in pledge by Soco, an oil company, that it would cease oil exploration in a treasured national park in DR Congo.

Despite some advances and important resolutions there remains a lot of work to do, by companies, by governments and by civil society. The field of RBC is changing rapidly and will be shifting to an even higher gear in 2015. In preparation for this gear shift I have prepared a list of top 5 RBC developments to watch in 2015.

Responsible Business Conduct in 2015: Top 5 issues to Watch

  1. Hardening of soft law

Over the past few years we have increasingly been seeing a shift of CSR standards from the voluntary domain into the hard law domain. This year a couple of important developments will be concluded further reinforcing this trend.

Legislating due diligence

In the UK, Switzerland, and France there are proposals in the pipeline to make due diligence regarding aspects of RBC mandatory. The broadest scheme is this sense is the proposal being considered in France which would mandate supply chain due diligence in accordance with the OECD Guidelines for Multinational Enterprises, thus covering a comprehensive range of RBC issues.[4] The Prime Minister of France Manual Valls publically endorsed this proposal in December and it will be discussed in end of January in French parliament.

The UK[5] and Swiss[6] laws being proposed have a more narrow focus, forced labor and human rights and the environment respectively, but likewise oblige companies to avoid such impacts throughout their supply chains. These laws will follow suit of several existing policies. For example, California mandates supply chain due diligence to avoid modern slavery[7]. Last year the ILO adopted the Protocol to Convention n. 29 which calls on companies to take measures to prevent forced or compulsory labour through supporting due diligence to prevent and respond to risks of forced or compulsory labour. [8]

Binding International Treaty: will it fly?

In June of 2014 a UN Working Group was established to discuss the development of a binding treaty which would hold transnational corporations accountable for human rights violations. Such a treaty would be the first international human rights instrument with legal enforceability against transitional corporations. We will soon see whether this will prove to be a serious effort t or just a distraction. There are still many flaws in the setup, for example in that it excludes national companies. One early indication of the seriousness of the initiative will include who will be asked to chair the working group. Will it be someone from a pragmatic country who could act as a bridge builder between countries that have supported the treaty on the one hand and the US and EU on the other? If that is the case, the treaty might fly, with a potentially huge impact. However if a more dogmatic representative from a country with rigid views is selected, my prediction is that we can ignore the development in the future.

 

  1. Specific due diligence recommendations in high risk sectors

While expectations of companies to conduct due diligence to avoid certain impacts are beginning to be regulated, practical guidance will be launched in 2014 across a range of sectors to help guide companies in meeting these expectations.

Textile and Garment Sector

In the wake of the Tazreen and Rana Plaza tragedies, the textile and garment industry experienced a wake-up call. Old CSR models simply have not been working and executives and civil society alike have agreed that returning to business as usually is simply unthinkable.

To be sure some important advances have been made in the sector over the past decade. However, a multitude of challenges continue to exist in the sector. The fast paced and unreliable nature of the business, reliance on unskilled labour, strong downward price pressures and complex global supply chains all heighten the risk of adverse impacts and make supply chain management difficult.

The OECD is currently developing guidance on tackling some of these issues and practicing responsible business conduct in the face of ongoing challenges. This guidance will be finalized and released this year and we can only hope that it will have the transformational impact on the industry that the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals of from Conflict-Affected and High-Risk Areas has had on the extractives sector.

Financial Sector

As expectations of RBC in the financial sector continue to be shaped, increasing evidence is emerging demonstrating the positive business impact of social and environmental due diligence in the financial sector. For example a recent study by the University of Oxford and Arabesque Partners suggests that investment strategies that incorporate environmental and social governance (ESG) issues outperform comparable non-ESG strategies. [9]

This past year we made some advances in clarifying the expectations of the financial sector in the context of responsible business conduct. A few cases at the NCP level found a lack of adherence to the OECD Guidelines where environmental and social due diligence processes of certain financial institutions were not strong enough. In response to these cases the OECD and UN provided statements and explanatory notes exploring how the expectations of the OECD MNE Guidelines and UN Guiding Principles for Business and Human Rights (UNGPs) should apply in the context of the financial sector. [10]

This year the OECD will launch a project on responsible business conduct in the financial sector. Along with other leaders in this field such as the Equator principles, Principles for Responsible Investment, Thun Group of Banks, the OECD is now getting down to business and drilling down to the complex details of how financial institutions should actually conform to the expectations of the OECD MNE Guidelines and UNGPs. The financial sector represents relatively unchartered territory in the context of RBC. Ongoing work on these issues will lead to emerging good practices, which can be scaled up across the sector.

Extractives

For years now the OECD has been articulating best practices in responsible mineral sourcing. This year the OECD will release a User Guide on Stakeholder Engagement and Due Diligence in the Extractive Industries, contributing guidance on another crucial area of RBC in the extractives sector.

Effective stakeholder engagement is crucial to both communities as well as well as extractive enterprises themselves. Extractive operations often contribute to severe environmental and social impacts. Thus special attention on engagement with communities to avoid such impacts is crucial.   A lack of good community relations can also be critical from the perspective of maximizing profitability of operations. For example, a recent study found that the cost of community conflict amounts to a loss of approximately 20 million USD a week in NPV on average for major mining operations. [11]

The OECD User Guide on Meaningful Stakeholder Engagement is being developed in consultation with a multi-stakeholder advisory group and when finalized will represent the first authoritative multilateral guidance on this issues. Despite its political clout, the aim of the User Guide will be to provide practical, site level guidance and serve as a practical tool for practitioners.

Agriculture

Agriculture represents another high-risk sector due to high fluctuations in commodity markets, at times dangerous and laborious working conditions. As global demand for food continues to rise, developing countries represent new sources for agricultural markets. Agricultural operations in contexts of weak governance and land rights raise additional risks and challenges with regard to responsible business conduct.

This January a public consultation will be launched on a guide to responsible business conduct in agricultural supply chains developed in partnership with the OECD, FAO and a multi-stakeholder advisory body. This guide brings together various authoritative guidance on this issue and will help provide guidance to all actors throughout the supply chain on avoiding salient risks and operating ethically in this sector.

  1. UN Convention on Climate change: how can companies contribute to solutions?

The 21st session of the Conference of the Parties (COP 21) to the United Nations Framework Convention on Climate Change (UNFCCC) will take place in Paris, December 15th. This is set to be a historic event.  The announced objective of the 2015 conference is to reach a binding and universal agreement on climate, from all the nations of the world. This would be the first such agreement to be reached in over 20 years of UN negotiations.   While this will certainly prove to be an ambitious and challenging goal, certain developments provide promise that such a goal may be achievable. Notably, in late 2014 China and the US announced a plan to cap and lower emissions levels. The deal represents the first time that China has agreed to peak its carbon emissions signalling to the world that China is ready to come to the table to combat climate change.

Climate negotiations and policy have historically focused on government commitments and this continues to be the case today. Currently little guidance exists on the obligations and expectations of companies in climate change mitigation, but given that central role industry plays in production of global emissions, businesses should also be brought to the table. Applying the RBC agenda to the climate debate can help can contribute to adding dialogue on corporate responsibility in the context of GHG emissions to COP 21 and raising engagement from business and corporate stakeholders on these issues in the lead up to the event.

Several concrete areas where business responsibility and climate impacts have already been seen are in the context of transparency and finance. Increasingly countries are requiring greenhouse emissions reporting from companies. The OECD is currently developing a study analysing such reporting obligations amongst G20 countries. Additionally, climate risks are becoming a significant factor of consideration in investment strategies. We are already seeing many institutional investors divesting from industries such as coal due to heightened financial risk. Investment strategies incorporating climate risk may provide additional impetus to companies to report on emissions and climate impacts as well as to mitigate any such impacts.

  1. National Action Plans: will the US use its ‘Soft Power’?

This year several countries will develop and launch their National Action Plans (NAPs) on Responsible Business Conduct or more focused on business and human rights. NAPs for business and human rights are strategy documents that States are encouraged to develop as part of the State responsibility to disseminate and implement the UNGPs.  Although non-binding, NAPs will represent important reflections of countries’ policies on human rights and business and could prove useful in scaling up commitments to RBC as well as detecting best practices.

Several states have already developed and submitted NAPs, while others are now in the process.

One NAP of special importance and impact will be that of the United States. President Obama announced last year the development of a U.S. National Action Plan (NAP) to promote responsible and transparent business conduct overseas. The US NAP will address ways in which the U.S. government can promote, encourage, and enforce established norms of responsible business conduct with respect to human rights, labour rights, anti-corruption, and transparency. The plan will be consistent with the UNGPs and the OECD MNE Guidelines.

Consultations on the US NAP are currently ongoing. The potential impact of the document is significant. The EU CSR communication released several years back proved to be highly influential. My hope is that the US action Plan will be successful in projecting the ‘soft power’ of the US in the field of RBC.

  1. Sustainable Development Goals (SDGs): what can businesses do?

The SDGs grew out of Rio+20 conference and are meant to build off and replace the Millennium Development goals as the leading global framework for development. This summer the  UN General Assembly’s Open Working Group on Sustainable Development Goals released the first draft of the SDGs— 17 proposed goals accompanied by 169 targets. The goals cover a broad range of sustainability issues centred on poverty eradication, environment and development and are designed to be “action-oriented, concise and easy to communicate.’

What role will businesses play in the implementation of the SDGs?

Some of the goals, notably Goal 12 which is ‘’ensuring sustainable production and consumption patterns’’ have direct implications for business conduct. However on a general level, my guess is that the SDG’s will provide a rallying point for progressive businesses to contribute to reaching these goals and as well as to manage their operations to avoid undermining the SDGs. In this way the SDG’s will support the ‘do good’ as well as the ‘do no harm’ part of the RBC agenda. The SDG’s will also shape RBC risk profiles of certain sectors, particularly those with high environmental impact.

2015 will surely prove to be an exciting year for RBC. The hardening of voluntary principles into legal obligations, the availability of a range of practical guidance for business on RBC due diligence along with historical policy developments through the upcoming climate conference, development of NAPs and the SDGs will all contribute to raising the bar on RBC. Personally, I am looking forward to watching these initiatives unfold and predict it will indeed be a happy new year.

[1] Including the OECD Guidelines for Multinational Enterprises (revised in 2011); the UN Guiding Principles for Business and Human Rights   (2011) and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration) (2011).

[2] Available here: http://www.srz.com/files/upload/Conflict_Minerals_Resource_Center/CCCMC_Guidelines_for_Social_Responsibility_in_Outbound_Mining_Operations_English_Version.pdf

[3] Available here: http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/Enhanced_CS_Strategy_ENG.pdf

[4] See Proposition de Loi 1897 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre.

[5] Modern Slavery Bill (proposal), UK (2014) Available at: https://friendsoftheoecdguidelines.files.wordpress.com/2014/11/modern-slavery-bill-15051.pdf See particularly Part 6, section 51 Transparency in Supply Chains

[6] Parliament Motion 14.3671 Umsetzung des rechtsvergleichenden Berichtes des Bundesrates über die Verantwortung von Unternehmen bezüglich Menschenrechten und Umwelt. Prof Ruggie on Motion 14.3671 Available at: http://business-humanrights.org/en/swiss-foreign-affairs-committee-calls-for-mandatory-human-rights-due-diligence-for-companies-0#c106965

[7] California Transparency in Supply Chains Act of 2010; Available at https://friendsoftheoecdguidelines.files.wordpress.com/2014/11/california-slavery-in-supply-chain-act-164934.pdf

[8] Protocol to Convention 29 – Protocol to The Forced Labour Convention, 1930, Adopted by the Conference at its one hundred and third Session, Geneva, 11 June 2014. Available at: http://www.ilo.org/ilc/ILCSessions/103/reports/committee-reports/WCMS_248900/lang–en/index.htm

[9] Oxford University and Arabesque Partners, ‘’From the Stockholder to the Stakeholder’’ (2014)

[10] See Expert letters and statements on the application of the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights in the context of the financial sector, 2014; Scope and application of ‘business relationships’ in the financial sector under the OECD Guidelines for Multinational Enterprises, 2014 ; Due diligence in the financial sector: adverse impacts directly linked to financial sector operations, products or services by a business relationship, 2014

[11] Source: Daniel M. Franks, et al.  ‘’Conflict translates environmental and social risk into business costs’’)