The Circle is closed

News item | 09-11-2016 | 11:24

Article 1 of the (2011) OECD Guidelines for Multinational Companies states: “The Guidelines aim to ensure that the operations of these enterprises are in harmony with government policies, to strengthen the basis for mutual confidence between enterprises and the societies in which they operate, to help improve the foreign investment climate and to enhance the contribution to sustainable development made by multinational enterprises”.

The Guidelines are focusing on responsible business conduct by Multi-National Enterprises (MNE’s) in their entire value chain. The Guidelines are an example of “soft law” by the (46) governments as they are voluntary, yet not non-committal: governments may attach certain sanctions to non-compliance and, moreover, there is “no law-free zone” as the Guidelines reflect good business practice.

The Guidelines are comprehensive, as they include human rights, employment & industrial relations, environment, disclosure, corruption/bribery, consumer interest, taxation, science & technology, competition. Central themes are: initial and ongoing due diligence on own risks and on actual or possible adverse impacts on stakeholders and society-at-large; scoping the nature of responsibility of the MNE’s in their entire value chain (“cause, contribute or directly linked” to impacts); leverage (alone or with others) to prevent, reduce, mitigate adverse impacts. 

The Guidelines offer the opportunity for affected people to seek remedy through the mediation process by the National Contact Point (NCP in each of the OECD (34) member and (12) adhering countries. This process also offers the opportunity for forward looking learning: “from accidental pain in the valuechain to systemic gain”, by improving practices and policies.

The Guidelines have been drafted and the performance thereon are being monitored on a multi-stakeholder basis, i.e. governments, business (BIAC), trade unions (TUAC), NGO’s (OECD Watch).

The Dutch Sector Covenant Process, initiated by the government for a number of high impact business sectors, lead by business, with active involvement of civil society organisations is based on the Guidelines (as well as on the UN Guiding Principles for Business & Human Rights).

The UN Sustainable Development Goals: “doing good”

The Sustainable Developments Goals (SDGs) were adopted by the UN General Assembly in 2015. With its 17 Goals it offers a wide-ranging aspiration (and commitment by governments) to create a more sustainable, inclusive and fair world by 2030.

Its scope is global (adopted by 198 countries), universal (setting national and international targets), with a range of  (169) targets and (230) indicators for governments to act upon, and to report periodically in the UN fora.

The issues addressed in the Goals include: poverty, food security/nutrition, health, education, gender, water/sanitation, sustainable energy, economic growth & employment, inequality, cities, sustainable consumption and production, climate change, natural stewardship, institution building and, importantly, (multi-stakeholder) partnerships.

Although this is an agenda set by governments, it is recognised that the private sector must play a key role in the implementation of the SDGs. Some leading businesses have already committed to embrace the SDGs in their corporate strategies (and performance reporting), focusing in particular on a few Goals of their own, yet considering the other Goals as well. In the Netherlands already a number of (multi-stakeholder) private sector initiatives and solution partnerships have been taken, for instance the SDG Charter Coalition.

The Theory of Change: “a Shared Strategy for the Commons”

With the OECD Guidelines as normative baseline for business and the SDGs as aspiration (“for all, by all”), we now have a catalytic Agenda to address “the tragedy of the commons” by implementing together, through partnerships by public and private sectors, “the strategy for the commons”.

The combined, complementary frameworks will assist us in developing coherent and consistent supportive legislation and government policies; for business to sharpen their “purpose” in society, their governance and to “sustainabilise” and stabilise their value chains; for innovation in technology(-sharing) and business models by all, using i.a. better data and metrics; for civil society organisations to be more constructively engaged in government and business interventions.

Goal #17 is particularly important: “getting farther by going together”, with shared outcomes on all other 16 Goals. Matching the broad societal agenda with business objectives to realise shared outcomes will be our key challenge.

Also, the SDGs offer an opportunity to restore the core capital for government and business: societal trust

The role of Government: “stepping up to the plate as convener and facilitator”

Government has a key facilitating role to play in realising our 2015-2030 Agenda towards a better world. It should amend its more reactive “additionality-“ approach (acting when markets are failing) to a more pro-active catalysing “complementary” role, at least during the next 5-7 years, to create a pro-SDG environment for itself, business and civil society.

More specifically it should:

1. strengthen the “do no harm”- Guidelines, by introducing selective legislation, such as on mandatory due diligence in the valuechain, human rights (such as the UK Modern Slavery Act), greenhouse gas emissions;
2. change existing legislation, regulations, policies, subsidies which are counter-productive to the SDGs;
3. improve the effectiveness of the Guidelines by applying it to all businesses (including SME), including the government in its role as “market actor”; also, access to remedy need to be strengthened (adding a voluntary“tribunal” process);
4. strengthen the OECD Guidelines process through much improved functional equivalence among countries, more coherence on policies and outcomes, guidance papers and linkage papers on topical issues;
5. develop, in cooperation with business, new coherent and consistent enabling policies and instruments to “crowd in” business into the SDG Agenda, provided business adheres to the Guidelines’ framework.

The role of Business: “no planet, no people: no profit”

Business should recognise that it should redefine its role in society through redefining its purpose: create value for customers, wealth for investors, long term value for its stakeholders, while adopting ethical standards, doing no harm to social wellbeing, natural ecosystems and biodiversity, climate. Its governance structure and public accountability processes should reflect this approach.

“Nothing is impossible,  particularly when it is inevitable”: reading the signs on the wall and take early action is part of effective leadership.

It should also consider that preventing potential costs of conflict with stakeholders, the arising of new  societal liabilities, “stranding” of assets, the loss of reputation/brand/value are important business case factors.

More specifically it should:

1. explicitly adopt the OECD MNE Guidelines framework as baseline and the SDGs as important factors in its strategy, and report thereon (eg. by applying GRI Standards and Compass);
2. measure, monetise and effectively address all material externalities (both negative impacts and positive effects, without undue “netting”) in its value chain: true pricing, true Profit & Loss;
3. enter into “solution partnerships” to realise SDGs;
4. stimulate consumers to buy “sustainably and responsibly”.
5. actively participate in national and international sector-/theme- “tables”.

The role of Civil Society Organisations: “activism & constructivism”

NGO’s and trade unions should recognise that, notwithstanding serious negative impacts for which case-specific “naming & shaming” is justified, the concept of “knowing & showing and, even, joining” the broader Agenda (as described herein) in a diverse and dynamic world in which no one is perfect, deserves a fair chance and a constructive approach. Civil society organisations play an even more important role in keeping the normative baseline during the implementation of the SDG “promise” with speed and scale.

The special role of the Financial Sector: “restoring trust by embracing the societal agenda”

Next to adopting the roles of business mentioned above the financial sector should play, in serving society, a particularly important role as “gate-keeper” of high standards, and as ambitious and responsible “enabler” by its capital-mobilisation role.

More specifically it should:

1. pro-actively engage with its business relationships in its valuechain on adopting the OECD Guidelines and embracing the SDGs;
2. contributing to “making markets fit for sustainable and responsible purpose” by raising the disclosure standards of its business relationship;
3. consider impact investing “the new normal”, rather than a new asset class.

Where is the Consumer: “the hidden change-maker”?

The Consumer is the big absentee in the Agenda. Through his conscious choices he may make major contributions. He needs to be more aware of the intrinsic value of products (or, rather, the lack thereof).

More specifically he should:

1. require more information about origin, externalities embedded in a product
2. make informed and responsible decisions, including paying a higher “true price”

Closing Comment

Our mission is now well defined: we have “do no harm”-framework (through the 2011 OECD MNE Guidelines) and a “doing good”-agenda (through the 2015-2030 SDGs). Collective action with ambition is now of the essence. We have no excuse anymore not to adopt, embrace and act upon this.

The Circle is closed!

Herman Mulder
Independent member of the Dutch National Contact Point (2007-2016)
Chairman of the SDG Charter Foundation
Chairman of the True Price Foundation

The Hague, 3 November 2016