I was delighted to hear that the Organization for Economic Cooperation and Development (OECD) had recently published its OECD Due Diligence Guidance for Responsible Business Conduct (Paris: OECD, 31 May 2018). The OECD describes this work in the following terms:
Businesses can play a major role in contributing to economic, environmental and social progress, especially when they minimise the adverse impacts of their operations, supply chains and other business relationships. The OECD Guidelines for Multinational Enterprises recommend that enterprises conduct due diligence in order to identify, prevent or mitigate and account for how actual and potential adverse impacts are addressed.
The OECD Due Diligence Guidance for Responsible Business Conduct provides practical support to enterprises on the implementation of the OECD Guidelines for Multinational Enterprises by providing plain language explanations of its due diligence recommendations and associated provisions. Implementing these recommendations can help enterprises avoid and address adverse impacts related to workers, human rights, the environment, bribery, consumers and corporate governance that may be associated with their operations, supply chains and other business relationships. The Guidance includes additional explanations, tips and illustrative examples of due diligence.
This Guidance also seeks to promote a common understanding among governments and stakeholders on due diligence for responsible business conduct. The UN Guiding Principles on Business and Human Rights as well as the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy also contain due diligence recommendations, and this Guidance can help enterprises implement them.
The development of the OECD Due Diligence Guidance for Responsible Business Conduct followed a process of deep institutional consultation appropriate to governance making at this level under conventional contemporary standards:
The development of this Guidance was overseen by the OECD Working Party on Responsible Business Conduct (WPRBC) and involved a multi-stakeholder process with OECD and non-OECD countries and representatives from business, trade unions and civil society. A first draft was submitted to the WPRBC and institutional stakeholders of the OECD for comment in May 2016. A public consultation on a revised draft of this Guidance was held in February 2017. A multi- stakeholder advisory group was formed in June 2017 to support the WPRBC in integrating stakeholder comments and completing the Guidance. United Nations Human Rights collaborated extensively in this process. (Due Diligence Guidance, supra., p. 3).Like the human rights due diligence built into the UN Guiding Principles for Business and Human Rights, the OECD Due Diligence Guidance is based on the development of structures for identifying, assessing risk, and then mitigating and remedying adverse impacts for which business may be deemed responsible. "Due diligence is the process enterprises should carry out to identify, prevent, mitigate and account for how they address these actual and potential adverse impacts in their own operations, their supply chain and other business relationships, as recommended in the OECD Guidelines for MNEs." (Due Diligence Guidance, supra., p. 10). The Due Diligence Guidance makes a distinction between actual and potential adverse impacts, the later identified in the common business parlance of risk. The scope of harm and risk for which a business is responsible id defined by the OECD Guidelines for Multinational Enterprises. That intertwining of standard risk analysis and mitigation (as a core business policy) with the human rights language of impact, remedy and mitigation, is meant to merge the two approaches.
For many enterprises, the term “risk” means primarily risks to the enterprise – financial risk, market risk, operational risk, reputational risk, etc. Enterprises are concerned with their position in the market vis-à-vis their competitors, their image and long-term existence, so when they look at risks, it is typically risks to themselves. The Guidelines however refer to the likelihood of adverse impacts on people, the environment and society that enterprises cause, contribute to, or to which they are directly linked. In other words, it is an outward-facing approach to risk.(Ibid., p. 15 (Box 1)).
The Due Diligence Guidance is careful to stress the multiple character of due diligence itself. Due diligence is preventative, involves multiple processes and objectives, is commensurate with risk, can involve risk based prioritization, is dynamic, does not shift the burden of responsibility, is focused on internationally recognized standards of responsible business conduct (societally based governance), is contextually determined on the basis of the enterprise's circumstances and the nature of its business relationships, is informed by stakeholder engagement, and requires constant communication. (Ibid., 16-19). It is thus neither a standard of liability, nor a method of embedding risk within financial statements. Rather, it is a method that is meant to provide some basis for assessing the risks of business conduct in terms of its impacts (within the scope of the OECD Guidelines for Multinational Enterprises only).
The Due Diligence Guidance creates a simple and straightforward structure designed to make incorporation relatively seamless with ordinary business operations. It is structured around six due diligence nodes:
1. Embed responsible business conduct into policies and management systems
2. Identify and assess actual and potential adverse impacts associated with the enterprise’s operations, products or services
3. Cease, prevent and mitigate adverse impacts
4. Track implementation and results
5. Communicate how impacts are addressed
6. Provide for or cooperate in remediation when appropriate
OECD Watch Press Release noted:
This week the OECD formally launched its new Due Diligence Guidance for Responsible Business Conduct (the Guidance). Due diligence has emerged as the fundamental and essential behaviour expected of any responsible business. The 2011 revision of the OECD Guidelines for Multinational Enterprises (OECD Guidelines) and the adoption of the UN Guiding Principles on Business and Human Rights (UNGPs) raised the expectation of due diligence by companies to an international consensus. Until now, however, there was no agreement over what due diligence really means.
The new Guidance resolves that by clarifying exactly what is expected of business to prevent harm and conduct business responsibly. The guidance is intended for use in all sectors of the economy and by all companies, regardless of size, geographical location or value chain position. It was developed over a two-year period through a credible, multi-stakeholder process involving governments, business, unions, and civil society.
According to the Coordinator of OECD Watch, Joseph Wilde-Ramsing, who led the civil society delegation negotiating the text of the Guidance, “The endorsement of the Guidance by the OECD Council means that it will be the most authoritative international elaboration of due diligence available for many years. States have made a high-level political commitment to promote the Guidance and actively monitor its implementation by business. Civil society can and should use it in advocacy to hold companies accountable for their behaviour.”
Given it’s authoritative nature, the Guidance is sure to have a role in future developments including national, regional and international requirements for due diligence
Prevention and remediation are key
The Guidance clarifies and elaborates several key concepts related to responsible business conduct and provides recommendations to business on how to fulfil these expectations.
“The Guidance makes clear that due diligence is first and foremost about preventing harm”, said Gabriela Quijano, legal adviser at Amnesty International. “Companies must consult individuals and communities whose human rights might be at risk from their activities, and provide them with all the relevant information to allow them to make informed decisions. Under the Guidance, disclosure is the rule, not the exception.”
The Guidance also clarifies that due diligence means more than “do no harm” and involves bundles of interrelated iterative processes, many of which must involve pro-active behaviour. And when companies do cause or contribute to impacts, the Guidance is clear that they must remediate them.
According to Joseph Wilde-Ramsing, this is important because “When it comes to adverse impacts, there are only two things that count in the end: one is prevention and the other is remedy.”
In order to help civil society interpret and use the Guidance, OECD Watch and Amnesty International have developed a briefing for civil society and written a blog.
Countries commit to step up efforts to drive more responsible business conduct through new OECD instrument
Recommendation of the Council
OECD's Due Diligence Guidance for Responsible Business Conduct.
Blog by OECD Watch’s Dwight Justice and Joseph Wilde-Ramsing and Amnesty International’s Gabriela Quijano.
OECD Watch & Amnesty International’s briefing for civil society.