NOTE: This guest post was written by Yesenia Lugo. A native of Texas, Yesenia is a 2014 graduate of the School of Diplomacy. She has previously written and worked on global governance and examined international financial instituions (IFIs) for New Rules for Global Finance. Her interests include economic development, emerging financial markets and fiscal transparency reform. In her spare time, Yesenia enjoys traveling and watching sports (go Longhorns m/).
The Second Global Forum on Responsible Business Conduct (RBC), organized by the Organisation for Economic Co-operation and Development (OECD) took place from June 26 – 27, 2014, at the OECD Conference Centre in Paris, France.
As the global economy strengthens, it is essential to improve the business climate by encouraging companies to adopt more responsible business practices that take into account both their profits and the impact they are having on society. It is also in the best interests of stakeholders and governments to stimulate these efforts and improve their efficiency. What is so special about the Global Forum, you ask? Business, civil society, trade unions and government officials from all over the world meet to share experiences on how responsible business can be conducted in a profitable manner and at the same time contribute to community development.
Last year, the OECD launched the first annual Global Forum to strengthen international dialogue on responsible business conduct and contribute to the effective implementation of the OECD Guidelines for Multinational Enterprises (MNEs). This year’s Global Forum took stock of the efforts in global responsible business conduct since the 2013 meeting, with a particular focus on developments in supply chains and challenging investment environments.
The Opening Remarks by Angel Gurría, OECD Secretary-General, addressed three key issues a) responsible business is essential to recover society’s trust in business and government, b) the need to move beyond rhetoric to application and c) a need to move beyond the lowest common denominator to best practice.
This year’s Global Forum featured sessions on responsible investment in the garment sector, stakeholder engagement in the extractive sector as well as responsible business conduct along agricultural supply chains and in the financial sector. Furthermore, the Global Forum included a session on the grievance mechanism of the OECD MNE Guidelines, as well as regional side-events.
Below are the five main themes discussed throughout the second annual Global Forum:
1. Grievance Mechanism: Access to Remedy & National Contact Point (NCP) Recommendations
Discussion concerning the need for better guidance on what effective remedy outcomes look like focused on the OECD’s Guidelines for Multinational Enterprises “Guidelines” to evaluate the norms of responsible social behavior by multinational firms and resolve the NCP remedy process for all countries to receive, respond, and take action on complaints and move forward past the challenge of impatience with the system.
The NCPs present at the Global Forum insist the current process assists enterprises and their stakeholders to take appropriate measures to further the observance of the Guidelines. The NCPs agree that the mediation and conciliation platform for resolving practical issues is effective in resolving complaints as THE process for remedy, as repeatedly mentioned by the UK NCP Danish Chopra. Hans Petter Graver, NCP for Norway, stated the importance for NCPs to continually issue final statements in order to strengthen the process, including the following recommendations: a) address the balance of resources between both parties b) address the need to strengthen NCP support via governments c) the need to establish more formal ties between UN working groups on business and human rights and the OECD system and the NCPs concerning UN procedures and decision-making systems d) and warned against trying to develop the NCP system towards evolving into a more traditional system i.e. no sanctions and to stay as a non-legally binding system.
On the other hand, Joseph Wilde Ramsing with the OECD Watch, removed the rose colored glasses to point out failings in NCP process, “apart from some successful examples, the process of mediation is a failure.” Ramsing states that the NGO’s see about a 5-10% success rate in filed complaints that have resulted in a positive outcome over the past 13-14 years. In addition, 30% of filed cases are rejected in the initial assessment phase by an NCP, where the reasons tally due to lack of evidence and the sustainability severely limiting the accessibility of the mechanism. It is unacceptable for about half a million Euros are needed to be spent in order to have a successful outcome. Ramsing recommends more NCPs should strive to refine the facts, follow through with more peace building and reconciliation efforts, and acknowledge the facts, truth and promises of non-repetition towards a remedy.
The most difficult thing about remedy is the compensation process, which touches close to a legal framework and the significance of final statements are not about naming and shaming but about giving recommendations to companies. The NCP systems failed in the old system of 10 years but the newly updated system has potential to bring better and improved results. It is very appropriate to expect the NCP system to, as a whole, come up to a level, to provide what it is capable of providing in this space and to improve performance at the basic level.
2. Making Supply Chains More Responsible via Financial Accountability
The International Labour Organisation (ILO) and UNI Global Union, alongside Clean Clothes Campaign, expressed deep concerns over the ILO-backed compensation Rana Plaza Donor Trust Fund’s short amount of essential funds. An agreed upon statement from the governments of France, the Netherlands, the UK, Germany, Denmark, Italy, and Spain, made by Lilianne Ploumen, Dutch minister for foreign trade and development cooperation, at the Global Forum states “the lack of compensation for the victims weakens the improvements realized up to now in Bangladesh.”
The statement is important as it serves a reminder to all brands of their responsibilities to provide appropriate redress to those injured or killed in the building collapse according to the UN Guiding Principles on Business and Human Rights. Per the implementation of the Rana Plaza Donor Trust Fund, about $17 million USD have been contributed, in spite of the estimated $40 million USD that is needed to ensure all those affected receive proper compensation. “We therefore firmly recommend all companies that sourced in Rana Plaza donate generously to the Trust fund, either for the first time or with a second contribution to come to an appropriate amount,” the joint statement said.
The Donor Trust Fund is the only legitimate way to ensure all those affected receive acceptable compensation for loss of income and medical expenses. Many brands have tried to avoid responsibility by making small and undisclosed contributions to charitable schemes that fail to recognize that compensation is a right not charity.
“These governments have taken political responsibility where companies have failed to act, which is a significant step in getting compensation for all victims” says Ineke Zeldenrust, of Clean Clothes Campaign, “it is not acceptable that 428 days since the collapse of Rana Plaza the Donor Trust Fund is still lacking US$23 million. Brands can no longer look for excuses, they must pay up.”
Statement by the National Contact Points for the OECD Guidelines on Multinational Enterprises: This statement was adopted by National Contact Points on June 25, 2014, during their 15th Meeting. It was presented to the informal Ministerial Meeting on Responsible Business Conduct.
3. Due Diligence and Stakeholder Engagement in the Extractive Industry
Ministers call for an increase in implementation of the OECD Due Diligence Guidance in all supply chains to focus on transparency, full disclosure and a conflict free environment. Overall, panelists of all sessions expressed the desire for the NGO sector and the extractive industry to become even greater powerful enablers for human development with additional support from their respective governments.
Resource extraction presents a range of risks and challenges for development, in the form of increased exposure to corruption, social and environmental sustainability issues, and the potential link with armed conflict and instability. The need to reduce some of these risks by improving the governance of natural resources has gained a global profile, starting with stakeholder engagement. Increasingly international frameworks are set, and implementation is now of the essence.
At the informal OECD Ministerial Meeting, European Commissioner of Trade, Karel de Guscht states the EU recently adopted the “integrated approach”, which includes the initiative to set up a EU system for supply chain certification of responsible EU importers of tin, tantalum, tungsten and gold originating in conflict-affected and high-risk areas. This initiative is based on the OECD Due Diligence Guidance for responsible supply chains and is currently before European Union co-legislators. The “integrated approach” also intends to provide public procurement incentives for companies carrying out due diligence for the minerals in their supply chain.
The importance of ensuring due diligence and meaningful stakeholder engagement do not need to focus on just the assurance aspect but also to make sure that its being done because it is not always the case. It is really about ensuring there is a process for the local communities to be able to directly participate in decision making processes that are going to impact their lands and livelihoods.
The question concerning, what is meaningful stakeholder engagement and how to do that within the framework of due diligence was repeatedly brought to the attention of all panelists. A majority consensus agreed that you must ensure all projects proceed with out communities being intimidated, coerced or manipulated and rather these communities must give consent and to be provided with information in a timely manner. Companies must be engaged with communities at the exploratory phase of a project.
Recommendations and suggestions for best practice include: a) the full support and continued dialogue with government’s b) company impact assessments must be made publicly and the community be given the chance to add their own assessment concerning whether human and environmental rights will be violated or not and c) negotiate the benefit sharing agreements.
Read the OECD Guidance helping the extractive industry tackle RBC challenges on the ground. There can be no successful stakeholder engagement process by locking out local project-impacted communities out of who will benefit, how will benefits be shared and to make sure the benefits last.
4. Fundamental Importance of Investment in Private Sector & Agriculture Supply Chains
The tone of the Global Forum discussed the major risks faced by investors and the measures that governments and businesses can take to mitigate risks and to ensure that agricultural investment brings economic and social benefits to host countries and communities. The OECD and the Food and Agriculture Organisation (FAO) have been developing a project aiming to help investors identify and promote Responsible Business Conduct along agricultural supply chains. This tool is now in the advisory group stage for further guidance. There is another tool with a wider scope that is being developed by the Committee on World Food Security (CFS) regarding Principles for Responsible Investment in the agriculture and food systems. The CFS tool will be negotiated in August 2014 and endorsed in October 2014 at the next plenary meeting at CFS. These are important tools for all stakeholders to have to ensure that investment is conducive to sustainable development.
Investment is a good thing. Public investment in people is absolutely essential in the agricultural sector. There isn’t enough public money in the world to do what needs to be done in developing countries concerning agriculture demands. The private sector is going to have to engage. The issue is how do can we ensure that the appropriate distribution of the benefits, such as the community individual’s benefits as well as the investors’ benefits, which both are legitimate but to balance them out. It’s also worth underscoring that governments themselves in the host countries are ultimately responsible. The private sector has responsibilities, in which they must exercise due diligence. For example, a valuable brand should be careful of where to invest and locate the project because assurances and protection must exist between the community and investors. Governments, at the end of the day, need to know the requirements to attract capital into their countries. The final point is that guidelines help in principle but they do nothing in practice unless they’re implemented on the ground. And they will not be implemented unless people have the means to do so.
5. Special Events: RBC Updates re Myanmar & Central Asia and South Caucasus
Responsible business conduct is crucial for open and stable international investment climates. The Myanmar special event focused on why responsible investment is essential for Myanmar’s continued development. The findings of the new Myanmar – OECD Investment Policy Review and recent RBC-specific initiatives in Myanmar were presented. For example, concerning the government side, regulatory and legal frameworks are improving, although more needs to be done both in adopting the relevant principles and standards but especially in implementing them on the ground. The main recommendations centered on screening, such as monitoring compliance with commitments by investors and evaluate periodically the aims and effectiveness of the screening mechanism, including through public consultations. More information about the government role in protecting rights and promoting RBC can be found in the Investment Policy Review. In addition, the panelists provided reform suggestions in numerous policy areas, including RBC and sustainable investment in the agriculture sector.
The Central Asia and South Caucasus special event focused on building healthy business environments and how investors can play a crucial part for further inclusive and sustainable development. The findings of the new Central Asia and South Caucasus – OECD Guidelines for Multinational Enterprises and recent RBC-specific initiatives in both regions were presented. The first in a new series of country reports targeting the Central Asia and South Caucasus region, Responsible Business Conduct in Kazakhstan provides concise and basic information to investors on the existing responsible business conduct expectations in Kazakhstan. One important barrier continually mentioned in the session over responsible business conduct in Kazakhstan concerns the lack of knowledge of issue from stakeholders. The recommendation is for investors to educate themselves and put principles to practice on the ground.
As mentioned above, Kazakhstan is the first country to be reviewed and a report on Georgia is scheduled for release in the second half of 2014. This work, supported by the Government of Austria, is consistent with the OECD cooperation with Kazakhstan and the OECD-Eurasia Competitiveness Programme, launched in 2008 to support Eurasian economies in developing more vibrant and competitive markets. At this point, Georgia needs to work on its Corporate Social Responsibility (CSR) handbook as it has shown limited success as stated by Michael Cowgill, Board of Directors, American Chamber of Commerce, Georgia, and President, Georgian American University. The challenge is to make companies understand the benefit of implementing CSR and the need for greater resources to Small and Medium-Sized enterprises (SME). The recommendation for Georgia is to have senior employees take a moment to understand and promote CSR within their own surroundings but it is noted that managers do not like to be told what to do and how to act.