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Update of the OECD Guidelines on Multinational Enterprises

The OECD Guidelines on Multinational Enterprises are non-binding principles concerning the conduct of multinational enterprises operating in or from the territories of adhering countries. The Guidelines were first adopted in 1976 as part of the Declaration on International Investment and Multinational Enterprises. Today, adhering countries include all 30 OECD Members as well as Argentina, Brazil, Chile, Egypt, Estonia, Israel, Latvia, Lithuania, Morocco, Peru, Romania, and Slovenia. Thus, the Guidelines are applicable to a large number of transnational corporations in their activities around the world.

Since their adoption, the Guidelines have been reformed on a number of occasions.  They were last updated in 2000 when significant additions were made to the text, including the insertion of standards relating to sustainable development, human rights, and core labour standards. The next review of the Guidelines is currently underway and it offers an opportunity to make the Guidelines an even more effective tool in promoting good business behaviour.

One of the major issues raised by the review is the need to update the Guidelines to give a better reflection of the requirement for companies to respect human rights of individuals in the countries where they are operating. At present, there is scant reference to human rights in the Guidelines. Paragraph 2 of the General Policies calls on enterprises to “respect the human rights of those affected by their activities consistent with the host government’s international obligations and commitments.”  The lack of any detail as to precisely what action in required has led to calls for further elaboration of the human rights responsibilities on multinational enterprises.  In particular, there have been calls for the Guidelines to incorporate the principles elaborated by Professor Ruggie, the UN Special Representative on Business and Human Rights.  This includes the so-called due diligence standard: “This concept describes the steps a company must take to become aware of, prevent and address adverse human rights impacts.” (2008 Report on Business and Human Rights, para. 56)  In other words, it requires some form of human rights impact assessment of activities before they take place, as well as monitoring of activities when they are underway.  An express requirement in the OECD Guidelines could mirror those provisions already contained therein on environmental impact assessment and monitoring.

Even without an express standard, however, some National Contact Points (NCPs) have made reference to the work of Professor Ruggie when considering the implementation of the Guidelines.  A leading example is the Afrimex complaint where the UK NCP concluded that Afrimex had failed to adhere to several aspects of the Guidelines when operating in the Democratic Republic of Congo.  In particular, it found that the company had failed to respect human rights.  The NCP concluded that Afrimex did not apply sufficient due diligence to its supply chain and the company failed to take adequate steps to contribute to the abolition of child and forced labour in the mines or to take steps to influence the conditions of the mines. Amending the Guidelines to reflect the due diligence standard is therefore no more than a codification of what is already expected from enterprises.

The environmental impact of transnational corporations is another issue that often receives a lot of attention. The Guidelines already recognise the need for enterprises to “take due account of the need to protect the environment, public health and safety, and generally to conduct their activities in a manner contributing to the wider goal of sustainable development.”  The Guidelines lists specific actions that enterprises should undertake in order to fulfil their responsibilities in this regard, including environmental impact assessment, consultation with local communities, monitoring of environmental impacts, and contingency planning. In addition, enterprises should strive to constantly improve their environmental performance by ensuring that the best available technologies are utilised across the company and by conducting research on improving environmental performance over the long term.

In the current review of the Guidelines, it has been questioned whether or not the environmental chapter should be amended to reflect increasing concern about climate change and eco-innovation. It is true that climate change is one of the greatest challenges facing the international community and that action by corporations is going to be crucial if climate change is going to be seriously addressed.  However, it is difficult to see whether any amendment to the Guidelines would add any additional duties on companies.  The concepts of environmental impact and environmental performance already in the Guidelines would presumably already cover carbon emissions and other impacts on the atmosphere.  It could be asked that if climate change is expressly added to the environmental chapter of the Guidelines, should other equally serious environmental threats also be specified, such as biodiversity loss.  The current approach of referring to “international agreements, principles, objectives and standards”, although vague, allows flexibility and it requires enterprises to address all environmental impacts of their activities, without giving priority to any single one.

Finally, the review of the Guidelines is anticipated to address the mechanisms for promoting compliance.  Currently, adhering countries to the OECD Guidelines are required to set up so-called National Contact Points (NCPs). The NCP plays two roles in relation to the Guidelines.  First, NCPs are supposed to raise awareness of the Guidelines with business community including investors (inward and outward), employee organisations, other non-governmental organisations, and the interested public. Secondly, the NCP should contribute to the resolution of issues that arise relating to implementation of the Guidelines in specific instances.  Countries have flexibility in the precise way in which they organize their NCPs subject to a requirement of “functional equivalance.” In practice, there is an enormous diversity in the approach to NCPS and this has been criticized by some commentators as undermining the effective implementation of the Guidelines.    The consultation on the update asks “whether the Procedural Guidance would need to be clarified or supplemented by new Commentaries or other means to give greater direction to the institutional structure and functioning of NCPs while maintaining the rights of adhering countries to adopt the most appropriate NCP structure that best fits their individual circumstances.” (Consultation on Update of the OECD Guidelines, para. 19)  Whilst it might not be possible to impose a single model on all adhering countries, further guidance could be given on good practice that could be followed in order to improve the efficiency of the NCP process.  This could include provisions for maximum time frames for the handling of complaints, requirements for a review procedure if any party is unhappy with the outcome of an investigation, and suggested mechanisms for following up successful complaints.  Arguably, the work of the UN Special Representative on Business and Human Rights in regard to remedies could play a leading role in this aspect of the reforms.  Professor Ruggie has called on remedies for corporate violations of human rights to respect key principles, including legitimacy, accessibility, predictability, equity, and transparency. (2008 Report on Business and Human Rights, para. 92)  With a more focused complaints procedure based upon these principles, implemented throughout all adhering countries, the OECD Guidelines would offer a greater opportunity to promote corporate responsibility.

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