Our key takeaway: The updated OECD Guidelines for Multinational Enterprises represent a treasure trove of expectations for business - they reflect what the world expects of companies operating today in 2023. As a recap for novices, there are two authoritative standards out there that represent what the world expects of companies: the UN Guiding Principles on Business and Human Rights (UNGPs), and the OECD Guidelines for Multinational Enterprises. The OECD Guidelines echo the UNGPs’ expectations of companies when it comes to human rights due diligence, and extends this due diligence to environmental impacts, and other areas. These soft law instruments are significant, because they shape everything that follows for companies when it comes to human rights and the environment: laws, investor expectations, consumer expectations, business partner expectations etc. So all companies’ eyes should be on this update, as a way of seeing what is expected of companies today.
When it comes to human rights, there is now a strong emphasis on human rights defenders, including Indigenous Peoples. Meaningful stakeholder engagement is the name of the game - and plays a role throughout due diligence. There is recognition of the role of governments in creating an enabling policy environment. Companies are expected to consider the road ahead on just transition - as well as other changes (automation, digitalisation, etc.) - and consider their role in training for up-skilling and re-skilling to anticipate future changes in operations and employer needs. Where there may be changes to operations that would have major effects upon the livelihood of their workers, companies should provide reasonable notice to worker representatives and government authorities, and responsible disengagement principles are still firmly on the table.
The Guidelines expect companies to conduct risk-based due diligence to assess and address adverse environmental impacts, which may include climate change; biodiversity loss; degradation of land, marine and freshwater ecosystems; deforestation; air, water and soil pollution; and mismanagement of waste, including hazardous substances. Environmental impacts include both those environmental impacts on the planet, as well as those that impact people. The Guidelines apply the three modes of involvement contained in the UNGPs to environmental impacts - but with an important clarification. The Guidelines specifically say that while in some instances it will be possible to assess, based on available science and information, to what extent a company is contributing to an adverse environmental impact, in other instances such an assessment may be based on the extent to which its activities are consistent with relevant standards and benchmarks. In other words: because of the difficulty in assessing contribution to adverse environmental impacts, companies can be viewed as contributing to adverse environmental impacts if its activities are not consistent with relevant standards and benchmarks.
The strong inter-connection between environment and human rights is made, with a specific focus on health and safety, impacts on workers and communities, and access to livelihoods or land tenure rights. Companies are expected to recognise the imperatives of a just transition and assess and address social impacts, including on the workforce, both in their transition away from environmentally harmful practices, as well as towards greener industries or practices, such as the use of renewable energy. 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. Greenhouse gas emissions and impact on carbon sinks should be consistent with internationally agreed global temperature goals (Paris Agreement, IPCC), which includes taking into account scope 1, 2, and, to the extent possible based on best available information, scope 3 GHG emissions. Companies are also expected to prevent or mitigate adverse impacts on biodiversity, guided by the biodiversity mitigation hierarchy. Sustainable consumption and production are also top of mind for companies in the Guidelines. And there’s more but we’ll stop here. We told you - a treasure trove!
The Organisation has updated its ‘OECD Guidelines For Multinational Enterprises on Responsible Business Conduct’ (2023). These are recommendations “jointly addressed by governments to multinational companies to enhance the business contribution to sustainable development and address adverse impacts of business on people, planet, and society.” This “2023 update reflects a decade of experience since their last update in 2011 and responds to urgent social, environmental, and technological priorities facing societies and businesses.” They came into force on 8 June 2023, on the occasion of the 2023 OECD Ministerial Council Meeting. Some key updates:
- Business relationships: The updated Guidelines clarify that the scope of business relationships covered by the due diligence expectation includes “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.” This includes relationships beyond contractual, “first tier” or immediate relationships. When it comes to individual consumers, they are natural persons not generally considered as business relationships, but a company can still contribute to adverse impacts caused by them.
- Human rights and labour rights: When it comes to human rights, there is now a specific call-out for human rights defenders. The text emphasises that companies should “pay special attention to any particular adverse impacts on individuals, for example human rights defenders, who may be at heightened risk due to marginalisation, vulnerability or other circumstances, individually or as members of certain groups or populations, including Indigenous Peoples” - with a specific note on the need for Free, Prior and Informed Consent (FPIC). The Guidelines specifically underscore stakeholder engagement as a key part of due diligence, outlining what good engagement looks like (e.g. two-way, conducted in good faith, responsive to stakeholders’ views, timely, accessible, appropriate, safe, and adapted to remove potential barriers to engaging with stakeholders in positions of vulnerability or marginalisation). In the specific context of “armed conflict or heightened risk of gross abuses,” companies should conduct “enhanced due diligence in relation to adverse impacts, including violations of international humanitarian law.” When it comes to employment and industrial relations, the text now reflects the need to provide a safe and healthy working environment in line with the ILO Declaration on Fundamental Principles and Rights at Work. It speaks specifically about debt bondage in the context of human trafficking and forced labour. There is an emphasis on the “changes, risks and opportunities linked to automation, digitalisation, just transition and sustainable development”, with the need for employers to consider training for up-skilling and re-skilling to anticipate future changes in operations and employer needs. Should companies anticipate changes in their operations which would have major effects upon the livelihood of their workers, they are expected to provide “reasonable notice to the representatives of workers and relevant government authorities.”
- Environment, climate change and biodiversity: When it comes to the environment, the revised text sets out the expectation that companies “conduct due diligence to assess and address adverse environmental impacts associated with their operations, products and services, including in relation to climate change and biodiversity.” In addition to the general expectation of risk-based due diligence to assess and address adverse environmental impacts, the text provides a non-exhaustive list of environmental impacts that may be associated with their activities: “a) climate change; b) biodiversity loss; c) degradation of land, marine and freshwater ecosystems; d) deforestation; e) air, water and soil pollution; f) mismanagement of waste, including hazardous substances.” Under the Guidelines, environmental impacts are understood as “significant changes in the environment or biota which have harmful effects on the composition, resilience, productivity or carrying capacity of natural and managed ecosystems, or on the operation of socio-economic systems or on people.” The Guidelines use the three modes of involvement of the UNGPs (cause, contribute and direct linkage), and transfers them to connection with environmental impacts. Specifically, the Guidelines recognise that “while in some instances it will be possible to assess, based on available science and information, to what extent an enterprise is contributing to an adverse environmental impact, in other instances such an assessment may be based on the extent to which its activities are consistent with relevant standards and benchmarks.” The Guidelines also specifically recognise that adverse environmental impacts “are often closely interlinked with other matters covered by the Guidelines such as health and safety, impacts to workers and communities, access to livelihoods or land tenure rights, and that environmental due diligence will often involve taking into account multiple environmental, social and developmental priorities.” The Guidelines call on companies to recognise the imperatives of a just transition and “assess and address social impacts, including on the workforce, both in their transition away from environmentally harmful practices, as well as towards greener industries or practices, such as the use of renewable energy.” For instance, when it comes to carbon credits, “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.” Companies 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 Intergovernmental Panel on Climate Change (IPCC)”, which includes taking into account scope 1, 2, and, to the extent possible based on best available information, scope 3 GHG emissions. When it comes to biodiversity, companies should prevent or mitigate adverse impacts on biodiversity, guided by the biodiversity mitigation hierarchy, and place emphasis on sustainable consumption and production.