Chapter 6. Promoting sustainable development through responsible business conduct1

In 2011, the OECD Guidelines for Multinational Enterprises were updated and the UN “Guiding Principles on Business and Human Rights” were unanimously endorsed, evidencing international convergence and coherence around what constitutes responsible business conduct. These two instruments have helped build consensus and clarify the baseline standards for how businesses should understand and address the actual and potential adverse impacts of their operations, and how governments should support and promote responsible business practices. This convergence is echoed in other international standards, including the ISO 26000 Guidance on Social Responsibility,1 the International Finance Corporation’s “Performance Standards” (IFC, 2012) and the OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence.2 In addition, regional and country strategies based on the OECD guidelines and the UN guiding principles are increasingly emerging, for example the European Union Corporate Social Responsibility Strategy3 and the United States’ National Action Plan on Responsible Business Conduct, to be adopted in 2016 (The White House, 2014). Many countries are also developing national action plans to ensure that the recommendations are implemented (UN OHCHR, n.d.). Finally, more and more countries are using responsible business conduct principles and standards to frame domestic law. For example, the United States’ Dodd-Frank Act specifically addresses due diligence along mineral supply chains and requires companies to report on whether they source certain minerals (tin, tantalum, tungsten and gold) from conflict areas. Another notable development is the 2015 G7 leaders’ commitment to support responsible supply chains and improve access to remedy (G7, 2015).

Figure 6.1. Who adheres to the OECD Guidelines for Multinational Enterprises

← 1. See: www.iso.org/iso/catalogue_detail?csnumber=42546.

← 2. See: www.oecd.org/tad/xcred/oecd-recommendations.htm.

← 3. See: http://ec.europa.eu/growth/industry/corporate-social-responsibility/index_en.htm.

Sources: OECD (2014c), “OECD Guidelines for Multinational Enterprises: Responsible business conduct matters”, OECD, Paris, http://mneguidelines.oecd.org/MNEguidelines_RBCmatters.pdf; IMF (2015), IMF Balance of Payments and International Investment Position Statistics (database), www.imf.org/external/np/sta/bop/bop.htm.

The OECD guidelines are a primary reference on responsible business conduct.

Investing in agriculture is one of the most effective strategies for economic growth and poverty reduction in rural areas. However, agri-business investments can have adverse social and environmental impacts, including on the rights and livelihoods of local communities – particularly in countries with weak regulatory capacity and tenure rights. For instance, if domestic land legislation does not adequately recognise and protect informal land tenure rights, land acquisition may lead to the eviction – without fair compensation – of local communities holding customary rights; this, in turn, can result in a loss of income, increased vulnerability and food insecurity.

Businesses have a key role to play in ensuring that their operations do not have adverse impacts, and that they benefit local communities and host countries. Observing responsible business conduct principles and standards can ensure that they contribute to sustainable development. The 2016 “OECD-FAO Guidance for Responsible Agricultural Supply Chains” (OECD, 2016b) calls on companies to:

• Ensure that their operations contribute to food security and nutrition and sustainable and inclusive rural development.

• Hold good-faith, effective and meaningful consultations with communities before initiating any operations that may affect these communities.

• Respect legitimate tenure rights holders and their rights over natural resources potentially affected by their activities.

• Seek to ensure that legitimate tenure rights holders receive prompt, adequate and effective compensation of their tenure rights being negatively impacted by their operations. Thus, tenure rights holders should not be displaced without having been consulted and having received proper compensation.

The guidance also recommends that companies increase employment opportunities. Increased employment was the most frequently cited benefit arising from 39 large-scale agri-business investments analysed by the United Nations Conference on Trade and Development and the World Bank (UNCTAD/World Bank, 2014).

Similarly, the textile, garment and footwear industry provides employment for millions of workers worldwide, the majority of whom are women. The garment sector in particular is very important for a number of low-income countries in terms of trade, gross domestic product (GDP) and employment (World Bank, 2015). However, the risks of adverse environmental and social impacts in the sector are well documented. Progress has been made on many fronts, but severe challenges remain, in part because:

• The textile and garment sector operates on short lead times, tight margins and short-term contracts, contributing to downward price pressures and reducing the business incentive for investing in environmental and social upgrading.

• The emphasis is primarily on manufacturing, although the risks of adverse impacts extend across the full length of the supply chain (Figure 6.2). To date, risk mitigation has been primarily driven by individual businesses rather than a sector-wide approach.

• In some cases, the scope of risks of adverse impacts extends far beyond the textile and garment sector and cannot be addressed by business alone, but rather requires a co-ordinated approach among the government, business, workers and civil society.

Figure 6.2. Simplified garment supply chain

Note: Intermediaries operate throughout the supply chain.

To promote a common understanding of due diligence in the sector, the OECD is developing guidance for responsible supply chains in the garment and footwear sector.* The guidance encourages companies at each stage of the supply chain to take a pro-active and risk-based approach to risk identification, mitigation and prevention. It harmonises the expectations of due diligence for child labour, forced and bonded labour, freedom of association and collective bargaining, wages, discrimination, working hours, occupational health and safety, environment, and bribery and corruption.

← * http://mneguidelines.oecd.org/responsible-supply-chains-textile-garment-sector.htm and http://mneguidelines.oecd.org/rbc-agriculture-supply-chains.htm.

Governments should exemplify responsible business conduct in their own operations.

The Business and Industry Advisory Committee (BIAC) represents business interests to the OECD. BIAC has long recognised the importance of responsible business conduct in globalised markets, consistently underlining its commitment to work in partnership with its members – the leading business organisations in OECD countries and beyond – to support effective implementation of the OECD guidelines. There is a strong business case for all enterprises to operate responsibly, regardless of their size, ownership structure or the sector of the economy in which they are engaged.

As companies increasingly invest in emerging and developing countries, responsible business conduct helps firms strengthen their long-term investment perspectives while also contributing to the implementation of the Sustainable Development Goals. An investment climate that does not include respect for certain core rules of responsible business conduct risks acting as a disincentive for international investors, making it clearly in the interest of the business community to promote responsible business conduct. That is why BIAC believes that it is more important than ever to foster global engagement and a global level playing field by promoting implementation of the OECD Guidelines for Multinational Enterprises by countries that are not yet adhering to them.

The updated OECD Policy Framework for Investment also recognises the role of governments in providing an enabling environment both for investment and for responsible business conduct. By including a chapter on responsible business conduct, the OECD has highlighted that promoting investment and fostering responsible business conduct go hand-in-hand. BIAC is actively involved in OECD discussions on fostering private investment, addressing barriers to investment flows and encouraging responsible business conduct to foster growth and development around the world.

Contributed by the Business and Industry Advisory Committee (BIAC), http://biac.org.

Peter Bakker, President, World Business Council for Sustainable Development (WBCSD)

Sustainability is the defining issue of this generation. Climate change, natural resource depletion and widespread inequality – all against the backdrop of a rapidly growing population – are arguably some of the most daunting challenges humanity has yet to overcome. Responsible businesses understand the risks that these challenges pose, but they see the opportunities as well. That’s why businesses everywhere are integrating sustainability into their core business strategies.

They know that responsible business goes beyond altruism: it’s also about spotting trends, being among the first to move and adapt to an ever-changing future. It’s about redefining the way businesses value nature and society so that they can understand the true costs, profits and values of their enterprises. It’s about cultivating a new development framework that encourages sustainable success, for business and for society.

The 2030 Agenda calls for a new corporate sustainability philosophy, one built on the SDGs and the Paris Agreement1 resulting from COP21. A strong, sustainable development framework will be crucial for a healthy global economy because businesses cannot succeed in societies that fail. The sooner companies integrate principles from the SDGs and COP21, the sooner they will reap the tangible benefits.

Responsible businesses recognise this critical period as a chance to get ahead. They’ve started by building a business case for transitioning to a low-carbon economy, demonstrating that this is one of the biggest opportunities for the foreseeable future. Through the Low Carbon Technology Partnerships Initiative,2 companies are working together to develop innovative and scalable solutions for addressing global issues – like supplying clean energy to developing areas and building infrastructure for climate-smart agriculture – all while maintaining a focus on economic objectives that spur continuous, independent and sustainable development.

In order to do this properly, we need accurate metrics and feedback on how we’re doing and where we can improve – financially, socially and environmentally. Current forms of reporting and measurement are failing, largely because they exclude crucial social and environmental measures from the balance sheet. Without this information, we are unable to fully unlock the solutions that will bring sustainability to scale. In order to address this need, forward-thinking businesses are using an integrated reporting framework supported by non-financial frameworks such as the Global Reporting Initiative,3 the Sustainability Accounting Standards Board,4 and the Natural and Social Capital Protocols.5

Cutting-edge measurement, reporting and valuation standards like these will eventually enable us to accurately evaluate our businesses, opening new avenues for success by incentivising integrated sustainability solutions and rewarding companies that adopt responsible business models early. Tools like these can enable the move beyond low-carbon technology and savings in energy costs to create an economy that’s based entirely on social and environmental sustainability.

Responsible business is the key to a sustainable world. Businesses must continue uncovering opportunities around all aspects of sustainable development, placing the emphasis on creating a responsible relationship with the world and fostering equitable progress for humankind as a whole. It’s time for all actors to seize the opportunities to address global socio-environmental challenges. Our future depends on it.

← 1. See: https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf.

← 2. See: http://lctpi.wbcsdservers.org.

← 3. See: www.globalreporting.org/Pages/default.aspx.

← 4. See: www.sasb.org.

← 5. See: www.naturalcapitalcoalition.org/natural-capital-protocol.html and www.wbcsd.org/SocialCapital.aspx.

OECD Watch’s 108 members from 52 countries around the globe have a shared commitment to work towards ensuring that business activity contributes to sustainable development and poverty eradication, and that corporations are held accountable for their actions worldwide.

OECD Watch members also share the view that the OECD Guidelines for Multinational Enterprises have enormous potential to provide corporations with the guidance they need to make a positive contribution to sustainable development, while at the same time holding them accountable when they act irresponsibly and providing victims of corporate abuse with a much-needed forum for accessing remedy.

The OECD guidelines are among the world’s few government-backed international corporate accountability standards that are accompanied by a dedicated dispute resolution mechanism. In the absence of an international binding framework regulating corporate behaviour, and in situations where judicial systems are unable to do so – because of inadequate funding, non-enforcement, corruption or otherwise – the OECD guidelines’ system of National Contact Points is often the only option available to victims of corporate abuse for seeking remedy for harm done to them, or for holding multinational corporations accountable for social and environmental abuse.

There is some evidence that the filing of complaints under the OECD guidelines has had beneficial results and has provided a measure of remedy, often in the form of forward-looking corporate policy changes (OECD Watch, 2015). Such policy changes – if genuinely implemented – bring with them the potential to prevent future harm.

Yet unfortunately, these examples are few and far between, leaving the enormous potential of the OECD guidelines unfulfilled. Recent research* reveals that in the overwhelming majority of cases, the complaint process has failed to bring an end to corporate misconduct or provide remedy for past or ongoing abuses. With only a few exceptions, the National Contact Points either remain largely inaccessible, or they suffer from a real or perceived lack of independence and impartiality, frequently failing to follow procedural timelines and refusing to conduct independent investigations.

Nearly all National Contact Points are inadequately funded by their governments. At the same time, governments seldom attach concrete consequences to companies’ failure to adhere to the OECD guidelines. If the National Contact Points are to function as an effective network for promoting adherence to the OECD guidelines and for addressing harm caused by corporate misconduct, these weaknesses need to be addressed. Fortunately, there are steps that adhering governments, the OECD and National Contact Points themselves can readily take to improve effectiveness. This could begin with a revision of the OECD guidelines’ Procedural Guidance for National Contact Points, to level the playing field and ensure harmonisation of performance. Implementing a system of mandatory peer reviews would also accelerate improvements in performance, as would reducing the barriers to accessing the mechanism. National Contact Points should be willing to base findings of non-compliance with the OECD guidelines on independent investigations if cases are not amenable to mediation, or if mediation fails. Finally, adhering governments must be willing to attach consequences to a company’s non-compliance with the OECD guidelines.

Despite current obstacles to the implementation and effectiveness of the guidelines, OECD Watch continues to believe in their potential and remains committed to further engaging with adhering governments, National Contact Points, the OECD, businesses, trade unions and other stakeholders, providing constructive feedback and recommendations.

Contributed by OECD Watch.

← * See, for example, Ruggie and Nelson (2015).

The industries that entail the most severe risks are often relied on by the poorest and most vulnerable segments of the population for their livelihoods. For this reason, the two-fold obligation to do good while doing no harm, as set forth in the OECD Guidelines for Multinational Enterprises, has important implications for promoting inclusive growth and development.

For example, to avoid the potential social and economic adverse impacts of disengagement in high-risk areas or sectors, businesses are encouraged not to pull out at the first sign of potential environmental or social risks within their supply chain, but rather to engage in risk-mitigation efforts and to take into account the possible adverse impacts of any decisions to disengage.

The benefits of continued engagement have been demonstrated clearly in the context of responsible mineral sourcing. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas* suggests strategies to create economic and development opportunities for at-risk populations, such as for example formalisation and legalisation of artisanal and small-scale mining. In the Democratic Republic of Congo (DRC), this approach has contributed to the creation of special legal zones for artisanal and small-scale mining. The guidance also supports workable cohabitation of small and large-scale mining activities. In the DRC as well as in Rwanda, the results of this action have been impressive: in just three years, approximately 70 000 artisanal miners gained market access, with better prices, better conditions and secure long-term opportunities (Creamer Media, 2014).

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

← * http://mneguidelines.oecd.org/mining.htm.