After several months of consultation and
deliberations, the Organisation for Economic Co-operation and Development
(OECD) rendered public a revised draft Guidance on Due Diligence for
Responsible Business Conduct (RBC
Guide). Comments on the draft may be provided to the OECD by February 9, 2017.
Draft revisions will be carried out over the next few months with the proposed
adoption of the RBC Guide by the OECD Working Party on Responsible Business
Conduct in early summer.
BACKGROUND
Over the past few years, the OECD has published
several sectoral guidance documents on due diligence to manage and address
corporate social responsibility risks in the extractive and agricultural
industries and in relation to supply chains for minerals from conflict areas.
Further sector-specific guidelines will be released shortly regarding due
diligence for responsible business conduct in the garment industry and
for financial institutions.
The RBC Guide will encompass all industry sectors
and sit above the sector-specific due diligence guidelines. It is addressed to
multinational enterprises in all sectors and sizes, including small and
medium-sized enterprises, as well as affiliates and subsidiaries, operating or
based in the countries that have adhered to the OECD Guidelines for
Multinational Enterprises (MNE
Guidelines).
All of these non-legally binding guidelines are
adopted pursuant to the MNE Guidelines, which, similarly, provides a voluntary
set of recommendations that the adhering parties (including Canada) have
committed to promote. The MNE Guidelines are largely considered as the
international reference document for comprehensive principles and standards
covering responsible business conduct (RBC) including governance and ethics, human
rights, information disclosure, employment and labor, environment and
anti-corruption. It should be noted, however, that many of the MNE Guidelines
principles and recommendations have been adopted into legally-binding domestic
law in several countries, for example regarding corruption and bribery, modern
slavery and disclosure obligations.
The series of guidance documents on due diligence
are intended to facilitate the implementation of recommended practices and
address the increasing demand for a more rigorous approach to mitigating
adverse impacts caused by business activities. Due diligence for RBC is, thus,
viewed as the process through which enterprises identify, prevent, and mitigate
the actual and potentially adverse impacts of their operations.
In addition to the MNE Guidelines, a plethora of
international instruments encourage or require companies to audit, investigate
and address both their own adverse RBC impacts and those of their supply chain,
including the UN Guiding Principles on Business and Human Rights, International
Labour Organization Conventions and Instruments, the International Finance
Corporation’s Environmental and Social Performance Standards, as well as
domestic law and policies in many countries.
RBC GUIDE
The RBC Guide is a condensed version of the
sectoral-specific guidance documents. A Due Diligence Companion, described as a “living
document” containing examples, tips and good practices is also provided and is
to be used to further facilitate implementation of the RBC due diligence
practices. Together, the documents provide a high-level description of why and
how companies should put in place RBC risk due diligence procedures and, thereby,
implement the relevant provisions regarding due diligence in the MNE
Guidelines.
With respect to the core principles, adverse RBC
impacts are categorized in six subject areas: disclosure, human rights, workers
and industrial relations, environment, bribery and extortion and consumer
interests.
RBC due diligence differs in several ways from
commercial or compliance due diligence. The RBC process is intended to help
companies meet their responsibilities to prevent and address their adverse RBC
impacts. RBC due diligence is to not only identify RBC impacts, but also to
prevent or mitigate impacts and report on how such impacts have been addressed
by the company. Companies are expected to not only respect legally binding
domestic law but to observe the MNE Guidelines. Where the MNE Guidelines exceed
what is required under domestic law, companies are instructed to comply with
the higher standards.
Importantly, the RBC Guide acknowledges that many
MNEs have large numbers of business relationships and suppliers. Practically,
it may not be possible to conduct a thorough review of all of these
relationships to identify and address potential adverse RBC impacts. Companies
are encouraged to take a risk-based approach and prioritize those areas where
there are risks of severe RBC impacts, particularly where human rights abuses
are at stake.
In terms of the practical steps to implement a RBC
due diligence regime, the RBC Guide proposes six main actions: embed RBC in
policy and management systems; identify and assess adverse RBC impacts; prevent
and mitigate adverse RBC impacts; track performance; communicate and provide
for, or cooperate in remediation, when appropriate.
The RBC Guide indicates that RBC policies and
management systems should be commensurate with the nature and context of a
company’s operations. Where the risk of adverse RBC impacts is higher, the
company should be adopting more in-depth controls. Once in place, such policies
and management systems should be kept under regular reviews and be updated, as appropriate.
When identifying, assessing and addressing potential
adverse RBC risks, companies are instructed to prioritize their actions and
resources on “severe” adverse RBC impacts, which should be the driving
consideration. According to the draft RBC Guide, a company should focus on
identifying and responding to potential severe impacts, even if unlikely, over
more probable but less severe adverse impacts.
This approach to prioritizing severe risks over more
likely risks moves away from the traditional “heat map” or “risk matrix”
approach to assessing risks, which seek to strike a balance between severity
and probability — the red zone being in the quadrant where risk events are
determined to be both more likely and more severe. This departure is no doubt intended
to counter cases where the probability of high-impact risk events could be
underestimated. Severe adverse RBC impacts would include “serious damage to the
environment, to human health and safety, to public health and the human rights
of groups at risk of further marginalization.”
The identification and assessment process should
allow companies to determine whether they have caused or contributed to
potential or actual adverse impacts, or whether adverse impacts are directly
linked to their operations products or services. The response to such risks
differs in each case. According to the RBC Guide, when a company has caused, or
contributed to, an adverse impact, it has the responsibility to cease or
prevent such impact and provide for, or cooperate in, remediating such impact
if it does occur. If an adverse impact is directly linked through the products,
operations or services in the context of a business relationship (supply
chain), the company is instructed to use its leverage to influence the entity
causing the adverse impact to prevent or mitigate the impact.
The RBC Guide takes a pragmatic and realistic
approach to addressing impacts deep in a supply chain. In certain cases there
may be practical limitations and a company may have little or no leverage to
influence change. Where a company has identified an actual or the potential for
severe impacts caused by an entity within that company’s supply chain and does
not have any influence, the RBC Guide calls for disengagement “as a last
resort”. Responsible disengagement from a problematic business relationship is
complex and involves a review of legal and social implications.
Step 4 and 5 of the RBC due diligence regime is to,
respectively, track and report on performance. Increasingly, companies are putting
into place internal and supply chain audits to assist in identifying risks of
adverse impacts and tracking the effectiveness of the response plans. The three
key disclosure actions expected under the RBC Guide include:
1.
Timely disclosure of
accurate information on all material matters regarding a company’s activities,
structure, financial situation, performance, ownership and governance
2.
Providing additional
information to improve understanding of a company’s operations
3.
Communicating with
stakeholders on how the company has addressed actual and potential adverse RBC
impacts
While the objective of due diligence for RBC is to
avoid adverse impacts, if they do occur, the RBC Guide indicates that
remediation is expected if a company has caused or contributed to such impacts.
Remediation is defined as both the “processes of providing remedy for an
adverse impact and to the substantive outcomes that can counteract, or make
good, the adverse impact including: apologies, restitution, rehabilitation,
financial or non-financial compensation, punitive sanctions, as well as
prevention of harm through, for example, injunctions or guarantees of non-repetition.”
Remedies will vary depending on the nature of the harm. For example,
environmental harms may require restoration of the damages environment and
administrative sanctions. Remedies for anti-bribery and corruption typically
result in fines to the state.
CONCLUSION
The RBC Guide is intended to facilitate the
implementation of, and provide a common approach to, due diligence across
business operations and thereby will help avoid a multiplication of varying
expectations. It is a useful tool although it remains cast at a high-level. The
sectoral-specific guides provide greater detail on each step in the due
diligence and clarify expectations.
Through due diligence, companies can assess and
address potential adverse RBC impacts (namely, those related to human rights,
the environment, labor relations, bribery and corruption, stakeholder
engagement and disclosure) by evaluating their activities and business
relationships in light of the obligations and expectations they have under the
growing body of domestic law, international law and voluntary standards
regarding responsible business conduct. In so doing, companies are placed in a
better position to anticipate and address reputational risks and can better
avoid and defend against legal actions.
-JDSupra B A
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