Key Updates to the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct
On 8 June 2023, the Organisation for Economic Cooperation and Development (“OECD”) agreed key revisions to the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (the “Guidelines”) which will have an important impact on corporate sustainability, particularly in relation to businesses’ human rights and environmental responsibilities.
The update has been written by Francois Holmey and Amber Courtier who are members of Carter-Ruck’s International team.
The Guidelines, which were originally adopted in 1976 and last updated in 2011 (notably to align them with UN Guiding Principles on Business and Human Rights (the “UNGPs”)), have been adopted by 51 countries (including the United Kingdom and most EU countries) and represent one of the leading legal instruments for responsible business conduct. Whilst not legally binding, they are widely seen, together with the UNGPs, as one of the most authoritative international standards setting the expectations for multinational enterprises in relation to a wide number of different areas, including environmental protection, human rights, corruption and labour rights. Importantly, they also provide for a grievance mechanism through so-called National Contact Points (“NCPs”) that can consider and rule upon complaints of infringement of the Guidelines against multinationals, which can in turn have serious reputational and commercial implications for businesses involved.
The key changes
Even though the OECD has referred to the revisions as a “targeted update”, the amendments are fairly wide-ranging and include a number of important updates which seek to strengthen the substantive and procedural elements of the Guidelines. In brief, these amendments include the following in particular:
2. More specific recommendations on due diligence in relation to adverse corporate impacts, in particular in relation to human rights;
3. New recommendations in relation to at-risk persons and groups including those raising concerns regarding the conduct of businesses;
4. Specific inclusion of due diligence expectations on the development, sale and use of technology, including gathering and using data;
5. Expanded due diligence recommendations to all forms of corruption;
6. Updated recommendations on the disclosure of information for responsible business conduct;
7. Recommendations for enterprises to ensure any lobbying activities they may engage in are consistent with the Guidelines; and
8. Strengthened procedures to ensure better visibility and effectiveness for NCPs.
The revised Guidelines are particularly noteworthy in relation to their environmental, human rights, technological and procedural updates which are considered in further detail below.
Environmental Responsibilities
The revised Guidelines have significantly strengthened the provisions in relation to multinationals’ environmental responsibilities in a number of different areas.
Importantly, the revised Guidelines now include key new recommendations in relation to climate change. The revised Guidelines stress in particular that “enterprises have an important role in contributing towards net-zero greenhouse gas emissions and a climate-resilient economy” and that “enterprises should ensure that their greenhouse gas emissions and impact on carbon sinks are consistent with internationally agreed global temperature goals based on best available science, including as assessed by the IPCC”. In this regard, the revised Guidelines recommend that businesses adopt science-based strategies and transition plans on climate change as well as short, medium and long-term mitigation targets. This is particularly important in light of the increasing attention given worldwide to climate change litigation and recent high-profile claims against businesses and company directors in relation to greenhouse gas emissions – and these amendments will, no doubt, provide further momentum on this front.
Interestingly, the revised Guidelines also provide specific recommendations in relation to carbon credits and carbon offsets, which have increasingly been used and relied upon by businesses and which have received, on occasion, criticisms from civil society and the press. In particular, the revised Guidelines state that “enterprises should prioritise eliminating or reducing sources of emissions over offsetting” and that “carbon credits or offsets may be considered as a means to address unabated emissions as a last resort”. They also recommend that “carbon credits or offsets should be of high environmental integrity and should not draw attention away from the need to reduce emissions and should not contribute to locking-in greenhouse gas intensive processes and infrastructures”, a move which appears designed to avoid the risks of greenwashing and potential negative impacts of carbon offsets.
In addition, the revised Guidelines also now include specific provisions on biodiversity. In particular, they state that “enterprises should contribute to the conservation of biological diversity” and “should also avoid and address land, marine and freshwater degradation, including deforestation”. In terms of priorities for businesses in this area, the revised Guidelines recommend first seeking to avoid damage to biodiversity, then minimising it where avoidance is not possible and finally using offsets as a last resort for adverse impacts that cannot be avoided. They also, interestingly and for the first time, include specific provisions regarding respect for animal welfare standards.
More generally and importantly, the revised Guidelines also clarify that businesses’ due diligence processes should include environmental impacts, including in relation to climate change, biodiversity and deforestation. This reflects the significant impact that businesses can have on the environment and is in line with recent legislative developments (such as in France where the due diligence requirements under the Duty of Vigilance Law extend to both human rights and environmental impacts).
Human Rights Due Diligence
The previous revision of the Guidelines in 2011 aligned them with the UNGPs and incorporated, for the first time, provisions regarding businesses’ responsibility to respect human rights and human rights due diligence.
The revised Guidelines retain these core principles and take them slightly further, by seeking to clarify and strengthen them. In particular and importantly, the revised Guidelines clarify the scope of the due diligence expected by businesses to include downstream entities. The revised text in particular covers “relationships with business partners, sub-contractors, franchisees, investee companies, clients and joint venture partners” as well as “entities in the supply chain which supply products or services that contribute to the enterprise’s own operations, products or services or which receive, license, buy or use products or services from the enterprise”. The revised Guidelines therefore cast the net widely in relation to the scope of the relationships covered by human rights due diligence. The exact scope of the due diligence has always been, and continues to be, a matter of debate – and is indeed one of the areas that is currently being negotiated in relation to the EU’s proposed Directive on Corporate Sustainability Due Diligence which is considering limiting the relevant scope to “established business relationships” (for a commentary, please see here) – so it is interesting to see the OECD setting a high standard in this regard and one which will, no doubt, be relied upon by civil society as a benchmark going forwards.
In addition, the revised Guidelines also incorporate a reinforced recommendation to “meaningfully” engage with stakeholders and to consider distinct and intersecting risks associated with their business activities, in particular adverse impacts on individuals who may be at heightened risk due to marginalisation, vulnerability or other circumstances.
Technological Due Diligence and Artificial Intelligence
Interestingly, the revised Guidelines also include new provisions in relation to the development of new technologies and artificial intelligence.
In particular, the revised Guidelines state that enterprises involved in the development of new technology should anticipate and address ethical, legal, labour, social and environmental challenges raised by novel technology, while promoting responsible innovation and sharing information with local regulatory authorities and worker representatives. Businesses are also encouraged to consider the OECD’s Recommendation on Artificial Intelligence which seeks to promote safe, fair and responsible use of AI. More generally and importantly, businesses are also expected to carry out risk-based due diligence with respect to actual and potential adverse impacts related to science, technology and innovation.
While these provisions are fairly high-level, it is interesting to see their inclusion as they are clearly seeking to address some of the perceived risks associated with recent technological developments and AI in particular, which has risen to prominence in the public debate in recent months. It may well be that technological developments in this area alone may prompt further updates to the Guidelines in the future.
Procedural Revisions for NCPs
While the most important updates largely relate to the substantive provisions, the revised Guidelines also include a number of interesting changes with respect to the procedures for NCPs, which are designed to enhance their visibility and effectiveness.
In this regard, NCPs are now required to “publish their case-handling procedures”, which NCPs are encouraged to develop in consultation with stakeholders. The revised Guidelines also now include provisions that seek to address the potential issue of forum shopping by stating that, generally, the “NCP of the country in which the issues have arisen would be the lead NCP” in relation to any given dispute. NCPs are now also required to issue a “final statement” making the result of the proceedings publicly available, which should at a minimum describe the issues raised and may include the NCP’s views on business compliance with the revised Guidelines.
Comment
The revised Guidelines contain a number of important substantive and procedural updates which seek to strengthen and clarify their provisions, particularly in relation to climate change and human rights.
While the Guidelines are not legally binding, they are highly influential and the updates will have a significant impact on corporate sustainability for a number of reasons.
Firstly, the revised Guidelines are one of the main standard-setting instruments for responsible business conduct. Policy makers are therefore likely to consider and rely upon them closely when drawing up and negotiating mandatory legislation in this field. This is particularly the case for instance in relation to the ongoing negotiation for the EU’s proposed Directive on Corporate Sustainability Due Diligence (please see here).
Secondly, the updates are likely to prompt (i) an increase in the number of complaints against businesses before NCPs, and (ii) a higher risk of infringement of the Guidelines given that many of the substantive provisions have been strengthened. While NCPs are not able to award damages, a negative finding / final statement by, or even just a complaint brought before, an NCP can have a significant negative impact on a business both in reputational and commercial terms. In particular, it is not unusual for suppliers, funders and customers of businesses to diminish, or even terminate altogether, their relationships with businesses which are the subjects of such complaints.
Thirdly, the updates are likely to provide further momentum behind initiatives seeking to hold business actors accountable on various other fronts. This is particularly the case in relation to climate change litigation and innovative law suits seeking to hold businesses and business directors accountable for greenhouse gas emissions.
Businesses, civil society and policy-makers alike should therefore all familiarise themselves closely with the revised Guidelines. Businesses in particular would be well-advised to conduct a thorough review of the updates and consider whether any of their corporate policies (particularly in relation to human rights and environmental protection) and due diligence processes should be updated as a result – both to minimise the risk of a complaint and to ensure that they remain at the forefront of international standards and expectations for responsible business conduct.
