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Recent decisions clarify investor responsibility to address human rights concerns

Recent decisions clarify investor responsibility to address human rights concerns

How the OECD Guidelines for Multinational Enterprises relate to investors

Several previous RI articles have reported on two related cases involving the application of the OECD Guidelines for Multinational Enterprises to the investment community and investor responsibility towards human rights concerns linked to a company in which the investors are minority shareholders.

The first involved Dutch pension investment giant APG. The second addressed Norway’s Norges Bank Investment Management (NBIM) that manages Norway’s enormous sovereign wealth fund. Both cases involved minority shareholdings in the same company – POSCO. The APG case highlights an important function of the OECD National Contact Point (NCP) system – providing an active mediation service between an OECD based company and those who bring a claim against it (typically NGOs and trade unions) about its application of the guidelines. The APG case concluded with a mediated agreement between the NGOs and APG. The NBIM case demonstrates another equally important function of the NCP system — explaining the application of the OECD Guidelines to different sectors and in different contexts – in this case the financial sector and more particularly, investors, as set out below.

The 2011 update of the OECD Guidelines for Multinational Enterprises added an entirely new chapter on human rights aligned with the more detailed UN Guiding Principles on Business and Human Rights, which were endorsed unanimously by the UN Human Rights Council in 2011.

The new chapter reflects the increasingly mainstream place of human rights on the business agenda, including for the financial sector. The underlying tenet of the UN Guiding Principles and the OECD Guidelines is that all businesses, including and especially state-owned enterprises, have a responsibility to respect human rights – and that includes the financial sector and investors. This is why the NBIM case is so timely.

When the parties to an OECD NCP case do not agree to participate in the mediated process, the NCP is able to issue a final statement clarifying the application of the OECD Guidelines to the situation presented to it. The final statement of the Norwegian NCP in the NBIM case does just that by setting out in a clear, step by step discussion, why and how the OECD Guidelines apply to investors and in particular, to minority shareholders. In doing so,

the statement provides valuable guidance to investors who are looking for direction on meeting their own responsibility to respect human rights. There is no doubt that OECD Guidelines apply to the financial sector. They specifically reference the financial sector and as the Norwegian and Netherlands NCP final statements point out, there are no exceptions. The OECD Guidelines therefore apply to all investors, including minority shareholders, whether state or privately-owned. While being a minority shareholder is not relevant to the existence of the responsibility to respect human rights, it is certainly relevant to how minority shareholders meet that responsibility (as explained below).

The UN Guiding Principles (and subsequently the OECD Guidelines) built on existing business approaches. Long before the UN process to develop the Guiding Principles, the business community and wider society had accepted that responsibility for human rights impacts runs along supply chains. In fact some of the earliest sparks in the business and human rights movement were the pictures of children sewing footballs and stories of workers burned to death in factories with locked doors. The associated clothing brands were targeted in the media, took responsibility for conditions in their supply chains, established elaborate new contractual requirements for their suppliers and equally elaborate risk management and monitoring systems that exist to this day and have spread widely to many other sectors.

The UN Guiding Principles and the OECD Guidelines built on this well-established concept of responsibility and crystallised it in an expectation that all businesses should seek to prevent and mitigate adverse human rights impacts “directly linked” to their products, services, or operations by a business relationship. There has been some confusion, particularly in the financial community, about what such direct linkage means; it’s been construed by some to narrow the concept almost to the point of meaninglessness.

Some mistakenly contend it requires that a financial institution must be directly linked to the human rights harm itself – rather than the correct interpretation where the linkage is a business relationship to a client or investee company that is the source of the human rights harm. The former interpretation is only possible by ignoring key parts of the relevant OECD text and the well-accepted business practice that gave rise to the concept.


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