The revisions provide clarity on the recommended scope of environmental and human rights due diligence
On 8 June 2023, the Organisation for Economic Co-operation and Development ("OECD") Ministerial Council agreed revisions to the OECD Guidelines for Multinational Enterprises ("the Guidelines"). Initially adopted in 1976, the Guidelines set out recommendations to business enterprises regarding responsible business conduct, covering focus areas such as anti-bribery, the environment, and labour rights. The agreed revisions are the first changes to the Guidelines made since 2011, when a chapter on human rights was added.
This bulletin outlines some of the key changes in the revised Guidelines and their Implementing Procedures (available here), which constitute what the OECD has referred to as a "targeted update". The key revisions covered are those relating to:
- recommended risk-based due diligence;
- specific environmental responsibilities; and
- OECD National Contact Points ("NCPs").
Risk-based due diligence
Drawing on the UN Guiding Principles on Business and Human Rights, the Guidelines recommend that businesses should conduct human rights due diligence. This entails a process of assessing and monitoring adverse human rights impacts which an enterprise may be causing, contributing to, or directly linked with via a business relationship. The Guidelines also apply this model of risk-based due diligence to other sustainability-related focus areas, recommending that businesses adopt a similar approach to adverse impacts connected with the environment, for instance.
The revised Guidelines contain a strengthened recommendation to "meaningfully" engage with stakeholders who may be significantly impacted by business activities as part of the due diligence process. In addition, the revised Guidelines include updated commentary, which makes express reference to the OECD's 2018 Due Diligence Guidance (available here).
The updated commentary provides clarity on the scope of appropriate due diligence. The updated commentary specifies that businesses may become directly linked with adverse impacts through relationships with downstream entities receiving their products or services, or with "investee companies, clients, and joint venture partners". Due diligence processes are therefore expected to cover such relationships.
Notable changes have been made in the revised environment chapter. The revised Guidelines build on an existing recommendation that businesses maintain environmental management systems. The revised Guidelines now expressly recommend that such systems provide for, or enable co-operation in, the "remediation as necessary" of adverse environmental impacts which a business has caused or contributed to. Such systems should also enable a business to exercise leverage on other entities to prompt remediation.
The revised Guidelines list climate change as an example of an adverse environmental impact. The updated commentary states that businesses "should ensure that their greenhouse gas emissions and impact on carbon sinks are consistent with internationally agreed global temperature goals", and that businesses "should avoid activities [that] undermine climate adaptation for, and resilience of, communities, workers and ecosystems". The updated commentary also states that businesses should pursue emissions targets which "take into account" scope 1 and 2 emissions, as well as scope 3 emissions "to the extent possible". The updated commentary further recommends that businesses prioritise emissions mitigation over offsetting.
Governments adhering to the Guidelines have been required to establish NCPs to facilitate the Guidelines' implementation. NCPs can receive complaints from affected individuals or communities regarding compliance with the Guidelines. According to a database maintained by OECD Watch, 22 complaints were filed during 2022 and 2023 to date. Of these, 14 related to the Mining sector. The remaining complaints related to the Oil & Gas, Agriculture & Food, Manufacturing, and Financial sectors.
The Guidelines' Implementing Procedures have been revised with the aim of improving how NCPs address complaints. NCPs are now required to "publish their case-handling procedures", and to "coordinate in good faith" with other NCPs where a complaint concurrently falls within their remit. NCPs are now also required to issue a public final statement when proceedings conclude, which should detail the extent of the parties' participation and may include the NCP's views on business compliance with the Guidelines where no agreement is reached between the parties, insofar as permitted under applicable law and case-handling procedures.
The revised Guidelines provide useful clarity on the recommended scope of environmental and human rights due diligence. They also reflect OECD priorities concerning climate change and the effective functioning of NCPs. Although largely incremental in nature, the latest revisions are of significance given the status of the Guidelines as a highly influential soft law instrument.
The OECD's 38 member countries, as well as 13 non-OECD members, are all adhering countries to the multilateral declaration underlying the Guidelines (see here). Moreover, the Guidelines and the aforementioned OECD Due Diligence Guidance are referred to in the recitals to the European Commission's proposed Corporate Sustainability Due Diligence Directive (see our previous post here). The Guidelines provide businesses a useful framework to ensure that they are equipped to deal with rising regulatory and stakeholder expectations regarding responsible business conduct.