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.
Erik Solheim, Chair of the OECD Development Assistance Committee (DAC)
Extreme poverty has been halved in a few decades and more than 600 million people have been brought out of poverty in China alone. Child mortality was also halved and children born today will reach 70 years of age on average. The enormous development progress over the past decades is one of the most significant achievements in human history and business and private investments have played an integral part.
Business and private investments under strong national leadership have been instrumental in all the greatest development success stories. Just think of Singapore, Korea, China, Ethiopia, Turkey and Rwanda. More and better business and investments will be crucial to eradicate extreme poverty by 2030 and implement the sustainable development goals to be agreed at the United Nations later this year. Only businesses can provide jobs for the around one million young Africans joining the labour market every month. Private investments are hugely important to green our agricultural systems and invest in clean energy for billions of people with little or no access to electricity. Private business is generally a huge force for good. But strong national leadership and responsible business conduct is necessary to avoid super-profits, exploitation of workers and degradation of the environment.
More of the $20 000 billion estimated to be invested around the world annually over the coming years must be directed to green investments in developing countries. Good investment policies are the most important thing. China now receives much more foreign direct investment in a single day than it did in the whole of 1980. Investments to Ethiopia have increased 15 times in just seven years as a result of good policies and focus on manufacturing, agriculture and energy. Development assistance can also help by reducing risk and mobilizing much more private investment. By blending public and private investments, the EU used $2billion in aid to mobilize around $40 billion for things like constructing electricity networks, financing major road projects and building water and sanitation infrastructure in recipient countries.
We also need better investments and better business conduct. Corporate super-profits, corruption and tax avoidance must be stopped. Far too often, profits are private while the destruction of forest, pollution of rivers and the effects of climate changing gasses are borne by the public. Workers must make decent wages, work in safe environments and have the right to join unions.
The OECD has developed the Guidelines for Multinational Enterprises, which set out recommendations on what constitutes responsible business conduct in areas such as employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, and taxation.
Mechanisms are in place to deal with grievances and the Guidelines have had some great successes. The UK-based oil company Soco decided to halt oil exploration in Africa’s Virunga national park until UNESCO and the government of the Democratic Republic of Congo agree that oil production does not threaten the unique biodiversity in the area. G4S, a major global security guard employer, stood accused of underpaying and denying rights to employers in Malawi, Mozambique and Nepal while blacklisting union members. After mediation by a global union of 900 national unions, G4S agreed to improve employment standards across the company and to help improve the standards in the whole global security industry. The Norwegian salmon farming giant Cermaq stood accused of inadequately considering the environment and the human rights of indigenous people in Chile. The company agreed to enter into mutually beneficial agreements with indigenous peoples and to even further minimise risk of any environmental damage. The parties also agreed that certain claims about the company made by civil society groups were baseless and that future dialogue should start with mutual trust and clarification of facts, a win-win solution for both parties.
States must be responsible for framing the market in such a way that companies can make a healthy profit and provide jobs while protecting the environment and people’s rights. But companies can also be advocates for more responsible business conduct. The world moves forward when the best companies push others to improve social and environmental standards. Wilmar, the largest palm oil producer in Asia, became an advocate for conservation and after they themselves committed not to cut down rainforests.
Such business norms works best when leading global companies take the initiative. Last year, China was ranked by Forbes as home to the three biggest public companies in the world and five of the top 10. The OECD and China are now working on moving towards common standards for businesses. More global guidelines would make a huge difference because China now provides 1 out of every 5 dollars invested in Africa. Chinese companies are building important infrastructure around the world like the East African railroad linking Kenya with Uganda, Rwanda and South Sudan. Chinese companies are increasingly moving manufacturing plants to Ethiopia and Rwanda.
More and better private investment is necessary to eradicate poverty and provide food, electricity and jobs for a future 9 billion people without destroying the planet. More responsible business conduct is a hugely important part of that.
The Global Forum on Responsible Business Conduct 18-19 June 2015 is held to strengthen international dialogue on responsible business conduct (RBC) and provide a platform to exchange views on how to do well while doing no harm in an effort to contribute to sustainable development and enduring social progress.
Should we read anything into the fact that the three panelists in the session on Business ethics: Restoring trust were all women?
In the face of what discussant Roland Schatz, president of Media Tenor, called a “trust meltdown”, the panelists and other discussants insisted that restoring trust and promoting ethics in business must be a universal issue, and one that must also involve the financial industry. As Amy Domini, founder and CEO of Domini Social Investments said, “The role of finance is pivotal to the success of the planet. If finance is working against the goals of human dignity and ecological sustainability, then governments and civil society will be incapable of achieving those goals.”
Anne-Catherine Husson-Traoré, CEO of Novethic, noted that there are already reams of rules and regulations on ethical business practices, the problem is that they are often not enforced and no sanctions are applied if they’re breached. Agnes Jongerius, president of the Dutch FNV labour union agreed, but argued that new regulations were also needed: “The G20 countries are not delivering what they promised in London and in Pittsburgh,” she said. “They have a very short time to deliver new rules for the financial world, for business ethics, for real corporate social responsibility.” She urged the OECD to strengthen its guidelines on multinational enterprises. “If you have good rules but none are applied, we won’t make the progress we need to make.”
Amy Domini stressed the tactical role that shareholders can play in influencing corporate behaviour. But first they have to assume their responsibility. “Nobody owns corporate America anymore,” she said, citing the preponderance of mutual funds in the US that have no real stake in the individual companies in which they invest. She suggested that European unions, which are far stronger than those in the US, and particularly their pension funds, could drive changes corporate behaviour. “Unions need to have a more robust opinion of their own influence,” she said.
But Edward F. Greene, partner at the law firm Cleary Gottlieb Steen & Hamilton, was not convinced. For him, it was governments and international organisations that could exert the most influence. “If we are going to manage financial institutions, we’re going to have to have much more sophisticated regulators in place and a broader regulatory system to identify and control risk.”
Carla Coletti, the director of Trade, Employment and Development at the International Metwalworkers’ Federation, was passionate: “There is no more time for unilateral good will. Enough public relations; enough window dressing; enough voluntary codes. They are dangerous because they give the impression that something is being done.” She urged ministers who will be meeting at the OECD ministerial council meeting later today and tomorrow to “take bold decisions” to require businesses to accept their ethical responsibilities.