A Responsibility Revolution in the Fashion Industry: How OECD’s new Due Diligence Instrument can transform the global garment industry
Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)
The collapse of the Rana Plaza factory in 2013 with a loss of over 1,130 lives was a jarring reminder that though much has been accomplished to improve working conditions in global supply chains, more is needed. Following the tragedy, stakeholders worldwide, ranging from industry to labour organizations and civil society, mobilised to respond to this need. The breadth of initiatives launched to tackle these issues is impressive. Perhaps most visible are the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety. Together, these initiatives have joined over 250 brands, retailers and their suppliers to inspect and upgrade shared factories, demonstrating that a sector-wide approach to building safer supply chains is not only feasible but effective. During my last trip to Bangladesh, I witnessed the great progress these initiatives have made. The Accord and the Alliance are only two responses amongst many since the Rana Plaza tragedy.
A common understanding of company responsibility in an age of globalization
Rana Plaza was a subcontractor to many garment companies, meaning that in many cases global brands did not place their orders directly with factories operating out of Rana Plaza. Furthermore, in some cases the subcontracting was illegal. While there was already general agreement in the sector that companies should identify and address risks with direct suppliers, the complexities of Rana Plaza raised the question, whose responsibility is due diligence when we look beyond direct contractors and further up the supply chain?
The OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights are clear: companies have a responsibility to identify, prevent, mitigate and account for adverse impacts in their supply chains. In June 2015 the G7 promoted international efforts to promulgate industry-wide due diligence standards in the textile and ready-made garment sector.
On 8 February 2017 the OECD will launch a Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector which responds to this call. This Guidance, developed through an intense multi-stakeholder process, supports a common understanding of due diligence and responsible supply chain management in the sector.
The Guidance is a global instrument
This is really a global instrument, contributing towards a level playing field for responsible business conduct. The OECD Guidelines apply to all companies operating in or sourcing from the 46 adhering countries, but they are likewise relevant for any company operating in their global supply chains. The Guidelines are relevant for a Bangladeshi factory that sells to companies in the US, even while Bangladesh itself is not an Adherent, just as they are relevant for cotton producers in Pakistan exporting to EU markets. OECD , demonstrating the global reach of the OECD Guidelines in the garment sector alone.
Adherents to the OECD Guidelines account for over 72% of world imports of clothing
The relevance of the OECD Guidelines globally is no longer hypothetical. The National Contact Points (NCPs), the globally active grievance mechanism of the Guidelines, have already handled several cases related to due diligence in the garment and footwear sector. For example, the Danish NCP recently concluded its consideration of a case involving PWT Group, a Danish retailer, for failing to carry out due diligence in relation to its textile manufacturer in the Rana Plaza building. Both the Guidance and the conclusions of the Danish NCP in this case are significant for the future of human rights due diligence in the textile sector globally.
The Guidance is progressive, realistic and balanced
The Guidance encourages the sector to think differently and to react differently, but does so in a progressive, balanced, and realistic way. Under the Guidance, companies are expected to scope risks across the full length of their supply chain, including risks related to subcontracting and homeworkers. Moreover, this assessment moves beyond auditing to not only identify labour, human rights and environmental impacts, but also understand why they are occurring. This tailor-made approach to risk assessment recognises that risks in the garment and footwear sector are very different and the assessment methodologies should reflect these differences. An assessment for child labour and forced labour should not be the same as an assessment of occupational health and safety or wage compliance. This Guidance also recognises the challenge of ‘audit fatigue’, so it pushes the sector towards harmonised assessments and most importantly effective monitoring.
While the Guidance is ambitious, it is also realistic. Addressing the full range of challenges in the sector all at once is mission impossible for brands with vast supply chains that go several layers deep. So brands will have to prioritise issues where the impacts are most severe. This could be, for example in relation to hazardous chemicals in finishing or forced labour in cotton.
Finally, the Guidance recognises the diversity of actors in this sector and the diversity of sourcing models. It does not prescribe a one-size-fits all approach, seeking rather to provide recommendations for how companies can carry out due diligence given their circumstances (size, context, etc). For example, the Guidance recognises that companies may source materials and products directly from suppliers or indirectly through buying agents and provides tailored recommendations for each. Similarly, it acknowledges the role subcontracting plays and therefore recommendations point more to ‘responsible subcontracting’ than always ruling out subcontracting altogether.
No more neo-colonial top-down system
In November of last year I participated as a panellist in India on responsible garment supply chains. A fellow panellist, a factory owner, called the traditional garment audit model a colonialist approach: ‘Western brands telling the developing country factories what to do’. With the new OECD Due Diligence Guidance we finally say goodbye to this neo-colonialist approach. It appreciates the importance of a partnership between buyers, suppliers and workers in identifying methods to address risks and monitor progress over time.
But just as important as this partnership, is the fact that due diligence is not merely about looking outward; it’s also about looking inward. Another remark made by my fellow panellist is that companies do not align their purchasing policies with responsible business policies. For example, brand purchasing officers often ask the factory to cut prices by 10%, while the brand ethical sourcing team asks for a 20% wage rise. In a study conducted by ETI Norway, Suppliers speak up, suppliers responded that paying legal minimum wage and legal overtime premiums would increase labour costs by 10-20%. However, despite this reality, little science goes into price-setting by brands and retailers. So functional alignment of brand policies needs to be part of due diligence.
Under the OECD Due Diligence Guidance, companies, particularly brands and retailers, are expected to assess their own purchasing practices and determine how their price setting and ordering may be contributing to excessive overtime, low wages, precarious contracts, illegal subcontracting, etc. Personally, I think that embedding responsibility indicators in the bonuses or performance appraisals of purchasing officers should incentivise due diligence; otherwise due diligence and respect for human rights will stay a peripheral issue.
The new global instrument for garment due diligence that will be launched next week at the OECD Roundtable on Due Diligence in the Garment and Footwear Sector can change the fashion industry worldwide. It is global, progressive, and realistic, and assists in more mature supply chain dialogues than the neo-colonialist audit system. Now is the time to implement and make fair fashion the standard.
Damiano de Felice, Deputy Director Strategy, Access to Medicine Foundation (@damidefelice)
On Thursday 9 June, I will moderate the first ever session on pharmaceutical companies to be held at either the UN Forum on Business and Human Rights or the OECD Global Forum on Responsible Business Conduct. For starters, these conferences represent the two most important annual events organized by international organizations to promote corporate respect for human rights.
There are several reasons why it is surprising that a panel on pharmaceutical companies has been absent for so long.
First, the OECD understands very well the importance of tailoring international standards to different business sectors. It has already produced a Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas and, together with the Food and Agriculture Organization, a Due Diligence Guidance for Responsible Agricultural Supply Chains. It is currently developing a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains.
Second, several scholars examined whether pharmaceutical companies – whose business is to research, develop, produce and market essential health products – are living up to their human rights responsibilities. Under international law, the right to access to essential medicines is a key component of the right to the highest attainable standard of health (i.e., the “right to health”). It is easy to see how some business decisions from pharmaceutical companies – such as favouring generic competition or avoiding excessively high drug prices – can have significant influence on whether vulnerable individuals can access crucial health products. In 2008, Paul Hunt – then UN Special Rapporteur on the right to health – even published specific Human Rights Guidelines for Pharmaceutical Companies in relation to Access to Medicines.
Third, the pharmaceutical industry seems to be ahead of the curve in terms of the adoption of human rights principles and norms. A recent report from the Business and Human Rights Resource Centre invited 180 companies from different industries to complete a questionnaire on their actions on human rights. The pharmaceutical sector was the only one where all companies had already adopted a human rights policy.
How can we then explain the absence of panels on pharmaceutical companies at the UN and OECD fora?
Conversations with business executives, government representatives and civil society activists pointed at two hypotheses.
To begin with, pharmaceutical companies are already under the attention of an older constituency of vocal health activists. This may have led those working on responsible business conduct to concentrate on other, less-crowded niches (such as extractives and consumer goods). For example, last year’s UN Social Forum – which focused specifically on “access to medicines in the context of the right of everyone to the enjoyment of the highest attainable standard of physical and mental health, including best practices in this regard” – saw almost no participation from the usual attendees of business and human rights events.
Additionally, most business and human rights specialists are experts in human rights abuses committed by companies while sourcing and manufacturing their products (that is, in the upstream side of global value chains). With the exception of a few reports on ICT companies and the right to privacy/freedom of expression, most business and human rights organizations focus on “upstream” topics, such as extractive companies and indigenous’ rights, apparel companies and workers’ rights, seafood companies and human trafficking, food/beverage companies and land rights, etc.
Against this background, the most important challenges for pharmaceutical companies lie in the way in which they market and distribute their products (that is, in the downstream side of global value chains).
Starting the conversation: the Access to Medicine Foundation
The willingness to explore what human rights due diligence means in the downstream side of global value chains and to understand the differences with its implementation in the upstream side was the trigger for the OECD to co-host a session on pharmaceutical companies with the organization whose strategy I lead, the Access to Medicine Foundation.
The selection of our organization was not by coincidence. The Access to Medicine Foundation is a non-profit organization that guides and incentivizes pharmaceutical companies to do more to facilitate access to medicine. In particular, we:
- Build multi-stakeholder consensus on a list of ambitious yet achievable actions for pharmaceutical companies to improve access to medicine;
- Analyse, measure and publicly report on the extent to which companies meet these expectations; and
- Use and diffuse this information to catalyse corporate change.
Our flagship product – the Access to Medicine Index – is a biennial report that ranks 20 of the largest pharmaceutical companies in the world on the basis of their performance against more than 70 indicators that have been agreed upon by multiple stakeholders after a year-long consultation process.
The panel at the OECD session will build on the work of the Access to Medicine Index because of the alignment between our indicators and the most authoritative international standards on responsible business conduct: the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises.
I can offer three examples of this alignment here below.
- The UNGPs and the OECD Guidelines both require business enterprises to adopt a policy commitment to respect human rights. The Access to Medicine Index assesses how companies integrate access-to-medicine issues within their corporate strategies and governance structures.
- International standards emphasize the importance of interactive processes of engagement with relevant stakeholders. We reward companies that, through engagement with global and local stakeholders, better incorporate local needs and perspectives within their access strategies, increasing the likelihood of uptake and success.
- All business enterprise are expected to carry out human rights due diligence, that is, an ongoing process by which they assess actual and potential human rights impacts, integrate and act upon the findings, track responses as well as communicate how impacts are addressed. The Access to Medicine Foundation raises the bar at several points of the pharmaceutical business model. For instance, leading companies are expected to take socio-economic factors into account when they set the prices of their drugs, and to differentiate both between countries and within different national population segments. Proof of strategy implementation is provided in the form of examples of corresponding price and sales data.
The success of the multi-stakeholder process of consensus-building at the Access to Medicine Foundation represents a very good starting point for a detailed conversation on how to ensure responsible business conduct from pharmaceutical companies. On 9 June we will discuss how to build on it and progress even further.
I hope to see you there.
The 2016 OECD Global Forum on Responsible Business Conducts takes place in Paris on 8-9 June 2016. The event will be webcast live starting at 9.30 am CET on 8 June 2016.
The session on the pharmaceutical industry and responsible business conduct will start at 4.30 pm CET on 9 June. It will include:
- Catherine Dujardin (Public Health Expert, Belgian FPS Foreign Affairs, Foreign Trade and Development Cooperation) will present what a government can do to incentivize pharmaceutical companies to contribute to the achievement of the Sustainable Development Goals, in particular with respect to the quality of medicines;
- Sarbani Chakraborty (Head of Global Health Policy, Merck Serono) will comment on how to best integrate access to medicine in the business strategy of a pharmaceutical company;
- Helena Viñes Fiestas (Head of Sustainability Research, BNP Paribas Asset Management) will share her experience as member of the Expert Review Committee of the Access to Medicine Foundation and investor lead for a collaborative engagement on clinical trials transparency;
- Herman Mulder (National Contact Point, Netherlands) will introduce the role of NCPs in providing accountability for the actions of pharmaceutical companies, building on a recent Specific Instance at the Dutch NCP on the use of medicines in lethal injections;
- Patrick Durisch (Health Programme Coordinator, Berne Declaration) will discuss the responsibilities of pharmaceutical companies with respect to the globalisation of clinical trials.
Annis Turner, an independent expert specialising in the trafficking of cultural objects with a focus on the Middle East and South Asia, who has formerly worked at the Art Loss Register
A combination of political pressure, supply chain transparency regulations and consumer demand has caused an explosion of ethical supply chain initiatives over the last 15 years for everything from palm oil and coffee, gold and diamonds to cotton, clothing and shoes. Until very recently the antiquities market has been largely left out of these discussions. With recent accounts hitting the headlines of the systemised looting of archaeological sites and museums throughout Iraq and Syria, and the threat of the looted artifacts appearing on the art market, people are slowly starting to take notice. Then why is there still a visible lack of pressure on collectors, dealers and auction houses within this market to prove that the acquisition and sale of their antiquities is responsible as we expect for almost everything else?
Looting antiquities and the limitations of existing counter-measures
The current antiquities trade is a murky business consisting of the movement of licitly and illicitly obtained objects. The conflict in Syria and Iraq has, quite rightly, earned a lot of political and media attention recently. However, the issue is not unique to these two countries. Not only are lootings concurrently taking place during the internal conflicts of Yemen, Mali, Libya and Afghanistan, but the pillaging of cultural heritage has been occurring worldwide for centuries. In the past fifty years alone, items have been looted from Egypt, Greece, Peru, India, Ethiopia and Cambodia, to name just a few. Beyond thousands of years’ worth of history being lost, citizens are also being deprived of their cultural heritage, and in the case of past and current conflicts, the money earned from this destruction enables terrorist organisations to continue their campaigns of murder, kidnappings and terror.
Despite a multitude of international treaties aimed at stopping the looting and trade of cultural objects, illicit antiquities are still emerging on the art market with few signs of this flow being stemmed. There have been various reports by archaeologists of recently acquired small, portable objects originating from Syria and Iraq ending up in London antique dealerships. The dealers claim they originate from Jordan or India, while the archaeologists say otherwise. And a simple search for “cylinder seals” (small engraved cylinders used in ancient times in the Near East) on eBay results in 5 items with origins from modern day Syria or Iraq. It is not certain that they have been looted, just that their provenance is unknown. How would any buyer know whether their acquisition was legal or whether its sale benefited ISIL and helped fund their war? eBay and other sites should do the due diligence needed to let us know.
The existing approach of relying only on government enforcement by way of international treaties and import controls is failing. Without improvements to border controls, customs enforcement capacity and the implementation of existing legislation, the effect of these treaties will remain moral rather than material. It is time that the antiquities trade shifted towards a more complementary approach that has been emerging in the last fifteen years calling on the private sector to check their supply chains and publicly report on their ethics.
Corporate responsibilities – International standards for responsible business already apply to the antiquities market
International, government-backed standards adopted by the UN as well as the OECD already outline a clear responsibility for companies in all sectors of the economy to undertake due diligence in their supply chains, in order to prevent human rights, labour and environmental impacts, as well as bribery, illicit trade and a multitude of other issues. The OECD even has detailed due diligence provisions for corporate supply chains on minerals and precious metals from conflict areas ensuring companies procure their supplies responsibly and avoid contributing to conflict and human rights abuses. Yet, despite the significant pressure on electronics companies and jewelers to address the issue of blood diamonds or conflict minerals in their global supply chains, the escalating lootings of antiquities has so far seen minimal pressure on the companies in the antiquities market to check theirs.
A patchwork of private sector responses and tools to address these issues surrounding the illicit antiquities trade has emerged over the last 20 years. The Art Loss Register together with Interpol provide databases of lost and stolen art. Searching these databases is often one of the sole measures of due diligence that dealers and auction houses undertake to prove an object has been lawfully obtained. Yet all this means is that the object was never registered on the database as lost or stolen. What about all the objects that haven’t been, or simply could never be, registered? If an object has been pillaged from an archaeological site in Syria or hacked off a temple in Cambodia, there will have been no opportunity for it to be documented and listed. In spite of the successes in thwarting art theft, a database search is, quite frankly not sufficient for antiquities.
A significant concern of the illicit antiquities trade is the multifaceted movement of the objects. The global supply chains of antiquities are very complex structures where it is normal for objects to move between 3 or 4 countries before finding a final destination. The transport and warehousing of art, auction houses and dealers are all part of this chain. They claim that information on the chain of custody, export certificates and documents declaring legal title of objects are often non-existent, and even when they are, they are likely to be forged. However, the concept of due diligence is not simply about ticking documents off a list, but about understanding risk – in this case the risk of obtaining looted objects – and applying more scrutiny to inspect and understand the likelihood of this risk associated with an object or supplier. The International Council of Museums (ICOM) publishes “Red Lists” that offer detailed descriptions of objects from countries that may be or have been at risk of looting, so that art market professionals, museums, and customs and law enforcement officials can better identify endangered antiquities and archaeological material. Whether the art market actually uses this resource is unknown, since there there is zero transparency and zero due diligence reporting on such matters.
Under international standards set by the UN and OECD, all entities in the antiquities supply chain have their own responsibility to look at the chain and ensure responsible sources. Companies should observe international standards of due diligence, using resources like the ICOM Red Lists to detect and prevent buying looted objects. They should then report on their due diligence efforts, outlining at risk transactions and describing the enhanced measures taken to assure the provenance is legitimate, or in cases where objects were not accepted, report any suspicious transactions. This should then be made available to the public assuring them of the market’s responsible practices in turn diminishing the adopted secrecy surrounding the antiquities trade.
Accountability for offenders?
Dealers associations and auction houses often have their own code of ethics to prevent the sale of illicitly obtained objects. However, there is no public reporting on how the codes are implemented or enforced and with illicit material still appearing on the market, it is clear they are either ineffective or not always followed. If a stakeholder needs to raise an issue about an abuse of ethics, or if an object is suspected of having been looted, there are currently no public mechanisms available other than to report such issues to law enforcement agencies. Once reported however, it is very rare to bring a successful legal case unless there are clear, demonstrated links to money laundering, terrorist financing or tax evasion. And with regards to the repatriation of looted objects to their countries of origin, these are few and far between. At a UNESCO conference in March on the movement of cultural property, Qahtan Al Abeed, the director of the Basra Museum stated that Iraq is still waiting for the return of over one thousand looted objects from Europe and the US.
An integral part of the OECD Guidelines for Multinational Enterprises is that they oblige countries to set up a grievance mechanism – the so-called “National Contact Points” (NCPs) – to help resolve complaints received from any interested party about specific instances of alleged non-observance by enterprises. The NCP’s could provide a unique mechanism to hold the art market to account for the acquisition practices and the human rights abuses and other impacts arising from the illicit trade in antiquities. They could even provide a platform to assist in repatriation cases. All this would shed a new light on the supply chain, forcing the art market to be more transparent and thereby act with an increased level of responsibility. This is a necessary measure in an industry where there is absolutely no public reporting on sourcing practices by the overwhelming majority of companies in the antiquities supply chain, which in turn, allows the antiquities market to remain opaque.
It is time this changed, once and for all. The antiquities trade should adhere to international standards on supply chain responsibility and take proactive measures to set up an industry-wide program to certify and publish their due diligence and acquisition practices. Only when there is no place for illicit objects on the antiquities market will there be any hope of the prevention of future lootings.
10th Forum on responsible mineral supply chains, 10-12 May 2016, OECD,Paris
4th Global Forum on Responsible Business Conduct 8-9 June, OECD, Paris
Hannah Koep-Andrieu of the OECD’s Responsible Business Conduct Unit (@H_KoepAndrieu)
The Dodd-Frank Act and its Section 1502 on conflict minerals adopted in 2010 obliges public companies in the United States (US) to undertake supply chain due diligence and report on products containing certain minerals that may be benefiting armed groups in the Democratic Republic of the Congo (DRC). The Act’s supporters celebrate that it finally holds companies sourcing minerals from conflict zones accountable, while critics claim that implementation of the law is cumbersome and expensive for companies and that singling out the DRC and adjoining countries created an effective embargo and is hurting local producing communities.
While both accounts hold some truth, as usual the reality is much more complicated.
To assess five years of work on responsible mineral supply chains in the Great Lakes region, the OECD worked with the International Peace Information Service (IPIS) to determine the impact in eastern DRC, the region most in the spotlight. Since 2009, IPIS collected data on security conditions at over 1100 mining sites in eastern DRC (North and South Kivu provinces, Maniema, northern Katanga and southeast Province Orientale) and published interactive maps showing armed group presence at mine sites.
More due diligence tools and positive results in 3T minerals
Since the launch of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas in 2011 the number of tools, regulations, initiatives, and programmes developed to foster responsible mineral sourcing and combat the illicit exploitation of minerals has dramatically evolved. The OECD Guidance is now referenced in domestic regulations, for example in the US, and the European Union (EU) is currently drafting a regulation that is based on the Guidance. As a result, as of 2016 the US and EU markets could both be covered by mandatory provisions requiring mineral supply chain due diligence on all imported products containing tin, tungsten and tantalum (3T) and gold. Hundreds of companies and industry initiatives across the supply chain now implement the OECD’s five-step due diligence framework to ensure they produce and source responsibly.
Companies are also beginning to understand that responsible trade of minerals from areas of conflict or high-risk is possible when carrying out due diligence. However, this wasn’t always the case. Disengagement from the DRC was indeed dramatic in 2010-2011, but this was due to a number of contributing factors: the DRC President banned the mining of affected minerals for almost a year; the US legislation was adopted; new consumer and political attention was given to the issue in the OECD, the UN Security Council, the G8 and elsewhere; and new market expectations for conflict-free minerals emerged. Exports fell for tungsten from peak years in 2007 when the DRC exported 1,200 tonnes to less than 50 tonnes in 2010. Since then, the market for minerals from the region without proof of due diligence has continued to shrink, while the market for traceable, responsibly-sourced minerals has grown, suggesting that due diligence implementation is shaping global metal demand. Traceable exports of 3T now fetch almost 30% higher prices, compared to non-traceable materials.
Responsible sourcing initiatives and the uptake of due diligence have also seen positive results on the ground; significant gains have for example been made in raising the volume of responsibly sourced 3T minerals from eastern DRC. The due diligence and traceability programme iTSCi saw an increase of traceable 3T exports from the DRC, Rwanda and Burundi from approximately 300 tonnes in 2010 to a peak of 19,500 tonnes in 2014. The first half of 2015 has seen lower exports of 7,800 tonnes, reflecting reduced incentives for miners as global commodity prices dropped. The percentage of 3T workers at mines affected by interference from non-state armed groups and public security forces dropped from 57% in 2009/10 to 26% in 2013/14 at sites visited by IPIS. This drop reflects both a cleaning up and contraction of the 3T sector in eastern DRC.
Interference at mining sites persists
While this uptake of due diligence is encouraging, interference of armed groups in mining areas continues to disrupt not only the livelihoods of well over 1 million miners and their communities but also fuels human rights violations and contributes to perpetual conflict financing. Artisanal and small-scale mining (ASM) in the DRC’s eastern provinces remains a central source of revenues for several hundred thousand people. IPIS figures suggest that more than 216,000 miners work in ASM in eastern DRC alone. In addition to direct employment, these miners each support about four to five community members.
While the news is better on 3Ts, gold remains a significant headache – in 2013/2014, four out of five artisanal miners in the eastern provinces were found to be working in the gold sector. This is partly the result of a tangible shift in production from 3T to gold since 2009. 2013/14 research also shows the strong significance of gold to conflict financing in eastern DRC, with a non-state armed group or public security force presence at 524 of around 850 gold mines (61%), compared to 59 of over 200 3T sites (27%). In terms of livelihoods and socio-economic impact, such shifts are difficult for miners and communities alike; at times gold rushes see thousands of miners migrate to a new site, stretching the already often severely limited infrastructure of rural communities in terms of access to land, water and basic housing and causing inter-communal tensions or even outright conflict.
Way ahead: Need for mining sector reforms
Companies are getting better at understanding and implementing supply chain due diligence, but governments have their role to play as well. In the context of attempts to improve governance in the sector, the advancement of mining reforms has been slow. A large majority of artisanal sites remain outside the legal trade as regulatory frameworks either stipulate that ASM is illegal or create prohibitive financial or administrative criteria for legalisation. For our work to have a real and lasting impact on the ground, formalisation, legalisation, regulatory reforms, access to land and the acknowledgement that ASM is an important rural livelihood are key; without policy change in those areas, it will be difficult to improve socio-economic and security conditions in fragile mining regions.
The OECD works to develop common understandings of due diligence standards to foster responsible business conduct, whether this is in minerals, garment and apparel, finance or agricultural supply chains. The aim of this work is not to single out regions or countries but to enable companies to carry out supply chain due diligence in all their operations globally in order to identify those areas and suppliers that carry the greatest risk of negative impacts, such as human rights abuses. Due diligence should be risk-based and progressive, meaning that companies should focus on those areas where risks are greatest and work towards a progressive improvement of due diligence practices.
Supporters and critics of the US Dodd Frank Act are both right – the challenges are enormous but there is room for optimism as the tools and initiatives to tackle the issues become increasingly widespread and refined.
2015 International Workshop on Responsible Mineral Supply Chains, Beijing, China, 2-3 December
Hosted by the China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters (CCCMC) and the OECD
The workshop will discuss the role of governments, industry associations, international partners, businesses, non-governmental organisations, and other stakeholders in promoting responsible mineral supply chains. The workshop will also launch the new Chinese Due Diligence Guidelines for Responsible Mineral Supply Chains developed as a result of co-operation between between the CCCMC and the OECD. Participants can learn about what is expected from them to implement these guidelines and participate in a consultation on audit protocols related to these guidelines. Draft agenda
Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct and a member of the Eminent Persons Group that has overseen the development of the UNGP Reporting Framework (@nieuwenkamp_csr); and Caroline Rees, President of Shift, the leading centre of expertise on the UN Guiding Principles, which co-facilitated the development of the UNGP Reporting Framework together with Mazars.
When the OECD Guidelines for Multinational Enterprises were revised in 2011, one of the most important changes was the addition of a new chapter on human rights. Over the four years since that chapter was introduced, ever more companies have begun the journey of conducting human rights due diligence: the process of assessing and addressing their human rights impacts, and tracking and communicating how well they do so. And ever more initiatives have developed or refined sector-specific tools to support these efforts: from the Equator Principles for banks to the Voluntary Principles on Security and Human Rights, to the Roundtable on Sustainable Palm Oil.
Now we see another and important trend emerging: as time passes, and the guidance becomes more sophisticated, there are fast rising expectations among investors, governments and civil society that companies provide evidence of what they are doing to put the Guiding Principles into practice. Yet companies’ reporting on their human rights performance remains at best the poor cousin of other non-financial or ‘sustainability’ reporting.
Many reports still focus on philanthropic projects divorced from the human rights issues associated with the company’s core business, or on community volunteering and other commendable but discretionary activities. Where there is relevant information on supply chain audits or community consultation, it is often unclear how these processes inform core business decisions.
Meanwhile those who write reports are frustrated, and understandably so. It’s unclear who actually reads the reports they produce. And the prospect of more demands from more sources leads inevitably to groans at the prospect of chasing down more data for the sake of data.
It doesn’t need to be that way. The UN Guiding Principles Reporting Framework, launched in February, takes a different approach to what human rights reporting could and should be. Two features stand out in particular.
First, the UNGP Reporting Framework asks companies to focus their human rights disclosure on their salient human rights issues: those human rights at risk of the most severe impacts through the company’s activities and business relationships as defined by how grave they are, how widespread, and how hard to remedy. This is not a new idea – in fact, identifying salient human rights issues is simply the first step of human rights due diligence as required under the OECD Guidelines and the UN Guiding Principles on Business and Human Rights.
Importantly, this process starts from the perspective of risk to human rights, not risk to the business. But for any company, an understanding of its salient human rights issues is also indispensable to business success over time.
We don’t have to search long in our newspapers these days to find evidence of how severe impacts on people bring significant risk also to the businesses involved. We can read of literally scores of extractive, construction and other projects delayed or disrupted when communities protest their displacement from land and their loss of livelihoods. Research shows the many kinds of costs companies incur from the conflict that so often ensues.
We see brand company reputations suffer when their products are made by people who die in Bangladeshi factory fires and building collapses or by forced labourers in the Thai fishing industry. With research showing that over one-third of the market capitalization of large listed companies in the UK lies in their reputations, these are hits they cannot afford to carry.
Indeed, research shows that under the complaints system provided through the OECD’s own National Contact Points (NCPs), the largest category of complaints today relates to human rights and typically an alleged failure to conduct human rights due diligence. Most recently a case was brought to the NCP system against FIFA for failing to engage in due diligence concerning human rights for migrant construction workers in Qatar. While non-binding, the NCP mechanism has brought about real results through its mediation procedures. For example recently in two separate cases respectively involving Formula One and Karl Rieker (a German apparel retailer), NCP mediation processes resulted in the companies’ agreement to strengthen their environmental, social and governance (ESG) due diligence systems. In another case, the government of Canada barred future financial support through commercial diplomacy to a mining company which refused to participate in the NCP mediation process and which was alleged to have contributed to adverse human rights and environment impacts through its activities.
In short, the evidence is strong and growing that where risks to human rights are greatest, they converge strongly with risk to business. So for any company, knowing and addressing its salient human rights issues just makes good sense.
Second, the Reporting Framework provides a set of questions for companies to answer: questions such as, ‘How does the company demonstrate the importance it attaches to the implementation of its human rights commitment?’ and ‘How does the company integrate its findings about each salient human rights issues into its decision-making processes and practices?’.
In other words, the Framework does not impose indicators or metrics from outside the company, but offers a set of meaningful questions that any company can answer in some way. Most importantly, these are questions to which any company needs to have answers internally, even if they are not reporting externally. It is in finding those answers that they will understand whether human rights risks are being managed effectively.
So the Reporting Framework is much more than a tool for reporting – it can be seen and used also as a tool for improved human rights due diligence. It translates the human rights chapter of the OECD Guidelines, and the UN Guiding Principles on Business and Human Rights that it mirrors, into simple questions in everyday language. The Reporting Framework’s Annex also helps companies recognize and understand the array of internationally-recognized human rights that need to be addressed through their due diligence, and the kinds of ways in which impacts can occur.
As a result, using the UN Guiding Principles Reporting Framework is not an additional reporting burden on companies. It’s a means of doing better business that meets both OECD and UN standards with regard to human rights.
The UNGP Reporting Framework was launched on 24 February, and is already being used and promoted by a wide range of companies, NGOs and investors, including through a statement of support from over 80 investor groups representing $4.26 trillion in assets under management. For more on the Reporting Framework see www.UNGPreporting.org.
In the run-up to the Third Global Forum on Responsible Business Conduct in June, today’s post is by Jennifer Schappert of the OECD’s Responsible Business Conduct Unit (@J_Schappert).
Two years ago today, the Rana Plaza building in Bangladesh’s capital Dhaka collapsed, killing over 1,100 people and injuring another 2,500. The dead and injured were garment workers, ordered to go back to work even though shops and a bank in the same building had closed immediately the day before when cracks appeared. The garment factories were indirectly supplying international retailers, highlighting the debate on whether multinational enterprises (MNEs) can make the apparel supply chain safe and healthy. Ensuing recommendations to MNEs have often focused on MNEs strengthening existing compliance mechanisms with individual suppliers. However, to transform the sector, we need to question whether the current approach to supply chain due diligence is the right one to begin with.
In the absence of strong regulatory frameworks in many producing countries, the traditional approach to compliance is for enterprises themselves to take on the role of monitoring and assessing each supplier against international standards, developing corrective action plans, and then using their leverage (for example through the incentive of future contracts) to influence suppliers to mitigate risks. It sounds fine in theory, but in practice the system breaks down.
The OECD Guidelines for Multinational Enterprises advocate an approach where the nature and the extent of due diligence correspond to risk. However, the short-term nature of contracts between MNEs and their suppliers and the sheer size and complexity of apparel supply chains means that MNEs often struggle to know where to prioritise risk assessment and mitigation. Within this context an enterprise’s compliance system becomes reduced to ongoing assessments of (almost) all suppliers across all risk areas. This leaves few resources for tailoring risk assessments, identifying root causes of risks, and effectively managing risks when adverse impacts are identified.
Effective monitoring of individual suppliers is further complicated by the well-documented shortcomings of social audits, such as factory visits announced well in advance; fraud; inconsistent quality across audits and auditors; lack of alignment with international standards; audit duplication and resulting fatigue; and the limited scope of social audits which seek to identify adverse impacts but rarely root causes. Efforts to improve the system, for example through long-term contracts and close collaboration with suppliers have led to better results in certain cases and should be encouraged. However, this alone will not transform the sector because improvements are isolated to a few strategic suppliers and may fail to adequately address risks which cannot be tackled at the individual supplier level.
A multi-stakeholder project underway at the OECD is questioning current due diligence practices in the apparel supply chain on matters covered by the OECD Guidelines (human rights, employment and industrial relations, environment and bribery) and, among other questions, asking whether trade unions and other representative worker organisations could play a role in helping MNEs take a risk-based approach to due diligence.
Historically, unions and other worker organisations have helped government regulators direct inspections towards high-risk workplaces. For example, in the United States, trade unions helped regulators direct occupational safety and health inspections towards high-risk workplaces by requesting inspections as risks arose. This enabled limited government resources to appropriately target the most risky workplaces. By contributing to inspections, trade unions also ensured that inspections targeted the most salient risks at each individual workplace.
Within the apparel supply chain, workers’ representatives could act as an on-the-ground monitoring mechanism to trigger third-party inspections by multi-stakeholder initiatives. Such a process would potentially reduce the duplication of broad social audits and facilitate the targeting of technical assessments to specific risks. By contributing to the assessments, workers would likewise help to improve the quality and conformity of assessments and provide important context in identifying root causes of adverse impacts and corresponding solutions. Furthermore, unions and worker organisations have a role to play in promoting the long-term sustainability of solutions by increasing worker awareness of their rights, offering assistance in the actual exercise of individual rights, and protecting the rights of individual workers through collective bargaining.
The focus of an enterprise’s due diligence would then shift from the seemingly impossible task of monitoring suppliers for all risks to focusing on targeted assessments and risk remediation. The primary role of the MNE would be: to actively promote freedom of association amongst suppliers; create or participate in a system by which workers can request inspections; support timely and targeted technical assessments at the site level when requested or when operating in high-risk contexts (e.g. building integrity); and contribute to the mitigation of risks by addressing root causes (where feasible) in collaboration with suppliers, trade unions, and other buyers.
Freedom of association therefore becomes the enabler of risk-based due diligence across an entire supply chain. In countries where legal or political constraints prohibit or limit this fundamental right, the sector should use its leverage broadly, in collaboration with trade unions, government and international organisations, to influence government to reform the regulatory framework and its implementation in producing countries.
This broader approach to due diligence applies to other salient risks in the sector, low wages for example, that cannot be effectively addressed at the individual supplier level. The Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety are demonstrating how a paradigm shift is feasible.
To date, supply chain due diligence in the apparel sector has predominantly focused on direct suppliers. However, according to the OECD Guidelines, it should be applied across the full length of the supply chain. Effective due diligence of risks linked to upstream production should build on the lessons of the last 20 years: an individual and bilateral approach to due diligence will not transform the sector. Due diligence is the responsibility of all enterprises in the sector. It should therefore be carried out by enterprises operating at each segment of the supply chain and be mutually reinforcing.
Based on the findings of the multi-stakeholder project, the OECD will develop a practical guidance to support the development of a common understanding of risk-based due diligence in the apparel and footwear sector supply chain. We welcome you to join us on 18-19 June 2015 as we carry this debate forward at the Global Forum on Responsible Business Conduct.
Remembering Rana Plaza Institute for Human Rights and Business
Corporate leaders: Your supply chain is your responsibility Roel Nieuwenkamp (@nieuwenkamp_csr) Chair of the OECD Working Party on Responsible Business Conduct, in the OECD Observer
On October 10th, we published an article from US businessman Chuck Blakeman criticising the Dodd-Frank Act’s section on conflict minerals, saying it was against the interests of the people of the DR Congo. Today, we publish a reply from Prince Kihangi Kyamwami, Secretary-General of BEDEWA, the agency in charge of development in the Walikale region of the DRC, supporting Dodd-Frank.
Everybody seems to think (mistakenly) that they can say: “I’ve been to the Congo and met the local communities. These communities live mainly by exploiting minerals. Section 1502 of the Dodd-Frank Act affects their means of living, and the economic stability of the region is threatened by a de facto ban. This law deprives thousands of people of their livelihood, etc.”
To be frank, this simplistic view is irritating. People who share it shouldn’t believe they’re helping us. On the contrary, they’re destroying us and working against the interests of Walikale. Have they really met local communities, or are they just interested in the minerals and, given the difficulty in getting to the communities, limited themselves to talking to city-based mining interests? Interests that will exploit such talk in their own interests to make official declarations that engage local communities for no reason at all.
Anybody claiming to defend a people should first get to know that people – its history, culture, way of life – and know where to find it. Otherwise, you’re only mocking this people. Experience has shown how tricksters pass themselves off as the people’s champion. They show the world the people’s misery and highlight the need to improve its well-being. But at the end of the day, you realise they’re looking after their own interests.
Who can seriously claim that before the mining sector was liberalised, Walikale’s population went hungry? Mineral resources aren’t Walikale’s only source of wealth: it also has vast tracts of very rich farmland. It’s a territory made for agriculture .
Before 1985, Walikale had numerous pasturelands. Apart from abundant rice crops, there were also many plantations producing high quality coffee, cocoa, plantains and maize, to name only the main cash crops, as well as market gardening, vegetables and palm oil.
These haven’t all disappeared, and the population won’t starve just because mining has been suspended. Artisanal miners with no plots of land complain about mining being stopped, not the local communities.
As everyone knows, over the past decade, the great powers, dictators, private firms, criminal networks and rebel forces have ruthlessly exploited our wealth, plunging most of the population into extreme poverty. The profits from mining haven’t helped local development or local communities. These minerals were exploited with nothing given back in return. Taxes and state levies rarely if ever reach the local community. This windfall didn’t go unnoticed by the DRC’s neighbours, who helped themselves.
These minerals don’t just create conflicts and wars, they help to sustain them, with armed groups fighting for control of mining areas, as happened in Kaseke in July 2011, when a large share of the population had to flee fighting between two groups. We suffer more from having to watch passively how our minerals are exploited than from leaving them buried for the good of future generations.
Mineral resources are by definition non-renewable, making it urgent to find solutions for the harmonious, viable and sustainable development of the mining sector. And Walikale is ready to support the suspension of mining activities for another five years to help reform the sector.
To this end, Walikale’s local communities renew their support to national indicatives (ITIE/RDC, Revision of the Congo Mining Law) sub-regional ones (CIRGL) and those at international level (ITRI/OECD). And in particular, we reaffirm our support for Section 1502 of the July 2010 Dodd-Frank Act, because it marks a break. It contributed to implementing solutions allowing for the traceability of resources from the mine to the point of export in view of local development.
The communities are therefore placing all their hopes in this law. Thanks to this law, they stand to benefit from their natural resources one day. As well as that, this law intends to cut the link between trade in these minerals and the conflicts that bring grief to the people of the Congo daily. Walikale’s local communities there call for the application without further delay of the regulations based on the Dodd-frank Act concerning conflict minerals. This is what we need now.
Desirable economic transformation of this wealth requires good governance, transparency and a stable socio-political climate. It is the state’s responsibility to ensure that this natural mineral wealth is exploited in the most beneficial, efficient and best way. The state must ensure that due diligence in minerals supply is observed and discourage campaigns against the citizens’ interests.
A well-regulated mining sector governed with transparency, and well organised and supported can help lift the Congo’s people out of extreme poverty, restore public finances to help the state function properly, and contribute to regional and international development, as is the case for many other countries in the world.
The above is a translation. The original article in French is here
Transcript of remarks by US Secretary of State Hillary Rodham Clinton at the adoption ceremony of the Recommendation on Due Diligence Guidance on 25 May 2011