Promoting inclusive business through responsible business

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

This article was originally published in two parts on the OECD Insights website  on September 9th, 2015 and September 10th, 2015.

Inclusive business and inclusive growth have of late become powerful buzz words in the realm of international policy. Inclusive business is a private sector approach to providing goods, services, and livelihoods on a commercially viable basis to people at the base of the pyramid by making them part of the value chain of companies’ core business as suppliers, distributors, retailers, or customers.[1] Several years ago the G20 launched a challenge to find the best examples of inclusive business in developing countries which resulted in the identification of various innovative and effective business schemes. While some business models are purposefully ‘inclusive’, i.e. they specifically target poorer populations, the nature of global commerce today has also resulted in inclusivity without necessarily intending to do so. For example in Bangladesh the apparel sector has been credited in lowering the official poverty rate from 70% to less than 40%. Today the sector employs tens of millions of workers globally, predominantly women, which has contributed to empowering women from poor communities.

It is undeniable that the private sector has an important role to play in economic development and that the globalization of supply chains has provided important growth opportunities for developing countries. However in order to be beneficial to local populations, particularly those at the base of the pyramid, business must act responsibly. For example, workers employed by apparel factories in developing countries are notoriously paid below a living wage, forcing them to work excessive hours and limiting their agency in refusing to work in unsafe conditions. Indeed the link between wages and working conditions was put in stark relief in the wake of Rana Plaza. However payment of living wages contributes to raising populations out of poverty, can result in increased retention of staff and productivity and can lead to improved workplace health and safety by increasing worker agency.

The OECD Guidelines on Multinational Enterprises represent the most comprehensive set of recommendations by governments to companies on responsible business conduct. Under the OECD Guidelines business are expected to make a positive contribution to economic, environmental and social progress with a view to achieving sustainable development. They are also expected to avoid and address adverse impacts through their own activities and prevent or mitigate adverse impacts directly linked to their operations, products or services by a business relationship. In other words businesses are not only responsible for the impacts and conditions of their direct operations but throughout their supply chains. Under the framework of the Guidelines companies can outsource their production but not their responsibility. The OECD Guidelines are accompanied by a unique grievance mechanism – the National Contact Points – that contributes to their effectiveness and implementation. This system exists in 46 countries and recently received prominent support from G7 Heads of State.

Staying Engaged and Continuous Improvement

This two fold obligation of doing good in addition to doing no harm has important implications with regards to promoting inclusive growth. Most importantly, this expectation means that business are encouraged not to simply disengage at the first sign of potential environmental or social risks within their supply chain but are rather urged to engage in risk mitigation efforts and to take into account the potential social and economic adverse impacts related to a decision to disengage from a certain business relationship.[2] This is important because industries which feature the most severe risks are often also those which the poorest and most vulnerable segments of the population rely on for their livelihoods. One area where the benefits of continued engagement have clearly been demonstrated is in the context of responsible mineral sourcing.

Since 2011, the OECD has helped lead a global movement to prevent the production and trade of minerals used in everyday products from benefiting armed groups and perpetrators of serious human rights abuses. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High-Risk Areas was developed in response to the ongoing humanitarian crisis in the great lakes region of central Africa where illegal mineral exploitation has been linked to support of armed groups engaging in human rights abuses in the region. The Guidance however is more broad-based than that, applying to any minerals being sourced from any high-risk or conflict affected areas globally.

Related legislative efforts, most famously the US Dodd-Frank Act, Section 1502 have also been developed to address this problem but have faced criticism suggesting that such initiatives result in de facto trade embargos, further harming local populations that rely on the mining sector for their livelihoods. The OECD Guidance for Responsible Mineral Sourcing however rejects the suggestion of disengagement except in extreme circumstances and provides strategies to create economic and development opportunities in high-risk contexts.

For example, in the context of artisanal and small scale mining (ASM), initiatives to promote formalization and legalisation efforts of ASM activity are encouraged, in the DRC this has resulted in special legal zones for ASM activity. The implementation programme also encourages finding solutions for workable cohabitation of ASM and large scale mining activities. Such efforts have resulted in impressive results. In the three years since the implementation program for the OECD Guidance for Responsible Mineral Sourcing was launched, market access has been achieved for approximately 70,000 artisanal miners in the DRC and Rwanda, which in turn support approximately 350,000 dependants, with better prices, better conditions, and secure long-term opportunities.

The apparel sector also provides a good example of the strong relationship between inclusive business and responsible business. As noted, the apparel sector has served as an important economic driver for Bangladesh as well as other developing countries. However, in the wake tragedies such as Rana Plaza and the Tazreen factory fires many global brands were put under fire for not adequately managing risks at the manufacturer level of their supply chains. Many of the risks of the textile sector are systemic— they are imbedded in the nature of the industry and exacerbated by the development challenges and weak rule of law in the countries where production is often based. Thus these risks cannot be addressed overnight and an approach of continuous improvement in which buyers encourage improved standards within supplier factories over time is preferable to those which recommended cutting off business relationships or boycotts. Under an approach of continuous improvement sourcing from countries with weak regulatory frameworks, where often populations are most in need of employment opportunities, is not discouraged but rather strengthened.

Aside from promoting engagement with suppliers and communities that often include vulnerable populations the OECD Guidelines for Multinational Enterprises also encourage local capacity building through close co-operation with the local community and human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees.[3] While such recommendations do not specifically target base of the pyramid populations, they do promote economic advancement, particularly in the context of industries relying on unskilled labour.

Technology transfer is another important way of creating value and encouraging economic growth. The OECD Guidelines recommend that companies adopt, where practicable, practices that permit the transfer and rapid diffusion of technologies and know-how[4] and that when granting licenses for the use of intellectual property rights enterprises should do so on reasonable terms and conditions and in a manner that contributes to the long term sustainable development of the host country.[5] With regard to technologies that could provide substantial benefits to poor populations (for example medical or agricultural technologies) the expectations of responsible business conduct can have important implications for inclusive growth.

The OECD Guidelines likewise promote community engagement with relevant stakeholders in relation to planning and decision making for projects or other activities that may significantly impact local communities. In the context of large scale agricultural investments and the extractive sector, industries which notoriously posed risks to poor communities in developing countries, the OECD has developed guidance on how to best engage with stakeholders to avoid adverse impacts from operations and to ensure that such activity produces shared value at the level of local communities. [6]

The extractive sector is often pointed to as a sector with limited positive linkages as it is an enclave industry and generally generates minimal direct employment opportunities. However a focus on shared value can ensure that indirect benefits are maximized and that extractive operations are as inclusive as possible. For example an extractive operation could support local enterprises to become competitive, efficient suppliers to the extractive project resulting in a win-win local procurement strategy. Likewise investment in infrastructure that is dual purpose and benefits both the enterprise and local communities can be an important resource for economic growth beyond the lifetime of an extractive operation. Furthermore, as extractive operations usually involve long life-cycles and fixed locations fostering economic opportunities locally can be an important factor in reducing risks and lowering the costs of production.

In the agricultural sector, large agri-food enterprises can benefit from establishing long-term relationships with small-scale farmers thereby supporting their integration into global supply chains. Globally there are around 500 million smallholder farms and agriculture provides income to approximately 70% of the worlds rural poor populations. Stable relationships can improve transparency and traceability and help large enterprises secure access to a reliable supply of agricultural commodities. Such sourcing relationship can also work to enhance capacities of small-scale agricultural producers, share technology and resources, and promote responsible business practices at the base of the supply chain. This is quite important in the case of cocoa whose production is done by numerous smallholders that lack access to finance and technology and for which land productivity should be enhanced to respond to international demand.

No matter what the sector, the link between responsible business practices and inclusive growth is clear. Responsible business conduct encourages continued engagement to improve conditions in high-risk industries which often are the primary employers of populations at the bottom of the pyramid. It encourages capacity development and training which can build skills and encourage advancement of low-skilled workers, technology transfer, and meaningful stakeholder engagement with local communities which may otherwise be disenfranchised. Such approaches not only result in positive impacts for poor communities and workers but also often result in valuable commercial gains. In this regard as inclusive business or inclusive growth continues to be labeled as a policy priority by global leaders, the role of responsible business practices will merit special attention.

[1] See Concept Note of the Turkey hosted G20-B20 Workshop on “Inclusive Business” https://g20.org/turkey-hosted-g20-b20-workshop-on-inclusive-business/

[2] OECD Guidelines for Multinational Enterprises, Chapter II: Commentary, para. 22

[3] OECD Guidelines for Multinational Enterprises (2011), Chapter II, A.3-4

[4]OECD Guidelines for Multinational Enterprises (2011), Chapter IX. para. 2

[5] OECD Guidelines for Multinational Enterprises (2011), Chapter IX. para. 4

[6] See Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractives Sector, p. 48 (forthcoming, winter, 2016).

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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’’)

Looking Back to Rana Plaza to Find a Way Forward

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

April 24th of this year marked the one year anniversary of the tragic collapse of the Rana Plaza factory which claimed over 1,130 lives and inspired shock and sorrow globally.  The Rana Plaza disaster was a jarring reminder of the fact that responsibility over global supply chains needs to be strengthened.

Global Mobilization

Stakeholders worldwide from industry to labour organizations to civil society mobilized to respond to this need. The breadth of initiatives launched to tackle these issues in the past year is impressive.  Private industry collaborated to form the Bangladesh Accord on Fire and Building Safety, an association of 150 apparel corporations, as well as the Alliance for Bangladesh Worker Safety, which represents 26 retailors. Both initiatives are committed to inspecting and repairing garment factories to assure safe working conditions in Bangladesh.  On a multilateral level the International Labour Organization launched the Improving Working Conditions in the Ready-Made Garment Sector (RMGP) initiative, and the Better Work Program which likewise involves factory inspections as well as implements a standard approach to assessing supplier compliance and auditing. These initiatives are coordinated on a national level by the National Tripartite Plan of Action on Fire Safety and Structural integrity which aims to extend inspections and repair to the factories not already covered by the Alliance and Accord initiatives.

Importing countries have likewise been active in this regard through their National Contact Points (national entities tasked with promoting and mediating claims under the OECD Guidelines for Multinational Enterprises). [1]  The French National Contact Point published a report earlier this year analysing the application of the Guidelines to the textile and garment sector and has since been active in promoting the recommendations of the report amongst local industry.  The Belgian, Italian, Dutch and Canadian NCPs have likewise been active in analysing challenges in their textile and garment sector supply chains and promoting due diligence to tackle some of these issues.

The impacts of these initiatives are slowly starting to be seen.  For example, the Accord initiative has already completed inspection of 550 factories and hopes to complete all 1,500 factories it sources from by September.  In addition to factory inspections the families of victims of the Rana Plaza incident are slowly being compensated. A total of nearly 15 million USD has raised for compensation through donations to the Rana Plaza Arrangement, and another 1.3 million USD has been raised through The Prime Minister’s Relief and Welfare Fund.

Remaining Challenges

Despite this progress much more needs to be done. Firstly a lack of capacity and resources for monitoring and enforcement means that the proposed initiatives may not be adequately implemented.  Since industry related initiatives only apply to first tier factories (factories brands source from directly) there remain risks that smaller factories used for subcontracting, generally those with the poorest standards, may escape adequate inspection and regulation.  Secondly current compensation schemes have been criticized as being insufficient and inefficient. Currently only half of all brands with ties to Rana Plaza have contributed to compensation funds.

Thirdly, such initiatives need to extend beyond Bangladesh to other garment producing nations with similar production risks and institutional weaknesses.

Finally, when discussing supply chain due diligence in the textile and garment sector it is important to go beyond workplace health and safety issues. Workers should be paid a living wage for their labour and multinational brands and retailors should encourage this. Brands and retailors can help promote living wage standards by conducting due diligence on adverse impacts in their supply chains to assure that fair labour standards are being respected.

Based on a pilot project of production of cotton t-shirts in India Fairwear Foundation, found that labour costs for such a garment account for only 0.6% of its total price compared to retail mark-ups which account for 59%. [2]Given the tiny proportion labour costs represent relative to total costs, competition and downward price pressures cannot be used as justification for failure to provide a living wage.

Fairwear foundation: Cost breakdown sample t-shirt

 

Another frequent excuse for a lack of collaboration on living wage standards is the liability implications for enterprises under competition law, the argument being that industry cooperation on fair wage policies may be found to be a form of collusion on price fixing.  The relatively insignificant proportion that labour costs comprise in terms of garment pricing seems to render this argument unwarranted.  However, until there is clarity on this issue it will continue to hinder progress on achieving agreement on living wage standards. Experts in the field of competition law should come together to provide answers to this issue and help resolve the debate.

 

The Guidelines and Supply Chain Due Diligence

Although serious challenges and risks still exist in the Bangladesh textile sector relevant actors should cooperate to overcome these risks rather than attempting to avoid them all together by pulling out their operations or investments.  Millions of Bangladeshi workers’ livelihoods depend on this sector. Disengagement should only be considered as an option of last resort.

The OECD Guidelines for Multinational Enterprises recommend use of risk-based due diligence to avoid adverse impacts throughout a supply chain. This approach is fully aligned with the UN Guiding Principles on Business and Human Rights and complementary to ISO 26000 which, in addition to the Guidelines have been endorsed by most G20 countries.

Under the due diligence framework buyers and suppliers work together to assure lack of adverse impacts at every tier of the supply chain. As noted some of the most serious issues in the garment and textiles sector exist in the bottom tiers of the textile and garment supply chains, amongst small companies  which are hired for ad hoc rush jobs and are not part of formal sourcing networks. Although such practices are widespread and hard to regulate in these instances buyers are still expected to take action. Often a single actor in a complex supply chain will not possess much leverage with regard to preventing or mitigation adverse impacts. However a lack of leverage does not justify a lack of action. Rather actors are encouraged to collaborate with one another in order to increase collective leverage through contracting, collective buying agreements and so on.

The year ahead

Much has been accomplished since the Rana Plaza tragedy one year ago but much more remains to be done.  Workplace safety initiatives need to be adequately monitored to assure they are being effectively implemented and compensation schemes need to be strengthened.  Such initiatives need to reach beyond Bangladesh to other garment producing nations. Additionally matters beyond work place safety, most prominently living wage issues, need to be given adequate attention.

For addressing problems of this magnitude collective action has been and will continue to be important. The second annual Global Forum will take place June 26-27, 2014. It will be an opportunity to bring together diverse stakeholder groups to review the existing initiatives and ongoing challenges present in this sector.  An informational meeting amongst senior ministers will take place during the forum which will also take stock of these issues. I encourage ministers to take an active role in reaching out to MNEs about the need for stronger engagement in this sector. MNEs can effectively engage through application of the OECD Guidelines, which provide an effective model for applying risk-based due diligence systems to avoid adverse impacts throughout supply chains and for cooperation with different actors in a supply chain to achieve this goal.  This utility of this framework could further strengthened by production of industry specific guidance for application of principles of the Guidelines to the textile and garment sector, something national ministers and stakeholder groups should encourage.

 

 

[1] National Contact Points are good offices set up by national adherents to the OECD MNE Guidelines. They are responsible for Industry will need to approach these issues seriously as scrutiny regarding responsible business conduct standards in the financial sector continues to intensify.

[2] Source http://www.fairwear.org/ul/cms/fck-uploaded/documents/policydocs/ClimbingtheLadderReport.pdf

Bangladesh Accord Foundation announces completion of first factory inspection reports

Bangladesh Accord Foundation announces completion of first factory inspection reports

Press Release, Bangladesh Accord Foundation

10 March 2014, Amsterdam / London – The Bangladesh Accord Foundation has today announced the completion of the first reports detailing the results of factory inspections in Bangladesh.  Available online on the Accord website as of Tuesday (March 11) 09:00 CET, the reports set out details of current building safety standards in the first Bangladesh garment factories to be inspected and identify necessary steps required to improve the level of safety.

Cut and run, or stay and improve?

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

Companies have an opportunity, and a duty, to improve worker conditions and the sustainability of their supply chains

Over the past year,  more and more, an appropriate principle for companies from the 46 countries that adhere to the OECD guidelines for multinational enterprises has been: “Don’t run. Stay and improve!” The Rana Plaza factory collapse was a wake-up call, even for sustainable business leaders . The central question was: what do companies, governments and civil society need to do to prevent these tragedies?

©Thinkstock.Istockphoto/kzenon

©Thinkstock.Istockphoto/kzenon

You can outsource your production but you cannot outsource corporate responsibility. The OECD guidelines state that multinational enterprises should do their due diligence to prevent and mitigate such adverse impacts, along their entire supply chains. Due diligence is the process that companies should use to manage the risks of causing or contributing to negative impacts on human rights or labour rights.

This means that companies need to identify such risks in their supply chains and to try to prevent these risks from materialising. If these do materialise, companies should try to mitigate or remediate them. The question for famous brands is how they ensure they are not linked to a breach of human rights of people working on their shirts and trousers in Bangladesh.
My feeling is that the brands should not “run” away from Bangladesh, but stay and improve the situation. Leaving will make matters even worse for the people working in the factories.

The Bangladesh Accord on Fire and Building Safety signed by companies operating in Bangladesh and the  Bangladesh Alliance for Worker Safety both represent efforts to deal with this. The accord, in particular, lifts responsible business conduct to a whole new level, by making a voluntary but binding agreement between companies and trade unions to do due diligence on building security and safety training. Will this be the beginning of a trend? Watch closely.

The message that companies should stay and improve conditions is not only relevant to the garment sector. Many discussions the OECD working party on responsible business conduct focussed on this during 2013.
If a breach of the OECD guidelines occurs, companies should first use their influence to try to improve the situation in their supply chain. If they lack the leverage to do so, they should try to increase their influence, for example through cooperating with other companies, trade unions or NGOs.

Improvement is the best solution. Disengagement is the last resort.

Likewise, the electronics industry should not run away from Congo and Rwanda, but cooperate to source tin, tantalum, tungsten and gold responsibly. Leaving the region would mean that miners will lose their jobs and livelihoods. Companies should stay, engage, and improve the situation.

And the wider international business community should not stay away from Burma, but work to improve the situation on the ground. Only responsible investment in Burma will lead to sustainable development of the country.
Financial institutions should do a careful assessment of the projects they provide finance for. If a financial institution notices – for instance through its due diligence process – that it invests in a company that breaches human rights or other principles of the OECD guidelines, simply selling the shares of that company is not the best solution. It might be the easy way out, but it does not help anybody. Very often, engagement with the company is the appropriate way forward to try to change its behaviour.

So, a few weeks in, what will the rest of 2014 bring for responsible business conduct? In at least four areas this might be a pivotal year.

Garments and textiles

First of all it is a critical year for the garment and textiles sector. This is the year in which the companies have to step up their efforts to make the accord and the worker safety alliance successful. These efforts need to focus beyond just Bangladesh and factory safety. Decent wages, responsible pricing and placement of orders are issues in the companies should include in their due diligence assessments.
To help with this process, the International Labour Organisation and OECD will organise a high level roundtable in May to discuss responsible supply chains in the textiles and garment sector with the stakeholders.

Sporting questions

2014 will also be a critical year for finding out how multinational companies should deal with major sports events, such as the football World Cup or the Winter Olympic Games.
Multinationals sponsoring these events need to be aware of human rights and environmental issues, as well as corruption and labour conditions. Will the organisers of such big sporting events – including the IOC for the Olympics and Fifa for football – and the host countries get to grips with these problems? Or will there be – in addition to blood diamonds, blood flowers, blood coal and recently blood bricks – also blood sports?

Solving problems

The national contact points (NCPs) for the OECD guidelines serve as a unique grievance mechanism on all corporate responsibility matters, ranging from labour and human rights to corruption and environment. In 2014 the NCPs will try to solve problems that vary from, for example, alleged human rights breaches by high tech telecoms companies to an alleged lack of stakeholder engagement with indigenous communities by mining companies.

Disclosure and reporting

2014 will also be a critical year for disclosure. The EU has developed a mandatory “comply or explain” reporting system, and will publish details of its plans for conflict minerals. In the US the first reports on conflict minerals are due, and companies will have report on investments in Burma.
In a time where companies in India and state owned companies in China are legally obliged to publish their corporate responsibility reports and many stock exchanges include sustainability reports in their listing requirements, perhaps 2014 be the year that a critical mass of governments support mainstreaming of such reporting.

To address these issues, and others, in June for the first time ministers responsible for corporate responsibility from all over the world are planning to meet in Paris. If progress can be made there, then 2014 could indeed be a successful year.

This article was originally published by Ethical Corporation, March 5, 2014. http://www.ethicalcorp.com/supply-chains/cut-and-run-or-stay-and-help