‘NCP shopping will always happen’: Industry and regulators react to updated OECD guidelines

Investors and regulators welcome proposed updates to guidelines, which have been criticised for not keeping up with ESG developments.

The world’s most prominent grievance mechanism for corporate misbehaviour is expected to remain open to selective complaints despite an ongoing revision to its governance, according to Dutch asset manager APG.

National Contact Points (NCPs) are a network of offices providing arbitration for alleged breaches of the OECD Guidelines for Multinational Enterprises. The landmark “soft law” framework sets a benchmark for responsible business across some 50 OECD and non-OECD countries.

NCPs have the autonomy to decline or to hear complaints. If a complaint is upheld, the relevant NCP will facilitate a process of conciliation and mediation to resolve the dispute.

A priority of the ongoing review of the Guidelines is to address the phenomenon of “NCP-shopping”, or a tendency for complaints to be filed at NCPs which are seen as more favourable to a particular case, rather than within the jurisdiction where the issues had arisen.

At the same time, concerns have lingered over perceived bias in some jurisdictions, particularly those seen as being controlled by their host governments.

Dutch civil service pension fund ABP has been named in past complaints made via NCPs. A spokesperson for its manager APG told Responsible Investor that despite the efforts to address it, “NCP shopping will always happen as stakeholders will try and find a way to communicate their concerns – including to a broader audience”.

“Ideally the NCP in the country where the company is domiciled should take the lead,” the person added. “Also, we think NCPs can learn from each other, and over time share and publish guidance.”

“We hope civil society groups and others will find us and communicate their concerns directly,” they added.

The draft revised guidelines, announced by the OECD earlier this year, introduced stronger language to improve coordination between NCPs that are involved in a specific dispute to determine which one is best placed to hear a complaint.

Norway state fund manager Norges Bank Investment Management (NBIM), which has also been named in past NCP complaints, said that the draft should go further to “avoid strategic filings driven by the expertise and effectiveness of the NCP, rather than by the link between the issue at hand and the jurisdiction where the enterprise is located”.

Wide-ranging updates

Inclusive Development International (IDI), an NGO filer of complaints to NCPs, called for increased resources to be allocated to NCPs, and more punitive judgments in the event of breaches to the OECD Guidelines and non-compliance with judgements.

IDI co-founder Natalie Bugalski said: “NCPs are a very tenuous lifeline in the world of corporate accountability because they have very little power and there are so few avenues for redress available to communities that suffer human rights abuses due to corporate misconduct.

“Consequences for companies which refuse to implement remedial measures could include exclusion from trade promotion privileges, public procurement contracts, and export finance and credit guarantees.”

The remaining updates to the guidelines are wide-ranging and include proposed revisions to almost every major topic covered by the framework. These include new requirements for companies to carry out due diligence and remediation in relation to environmental and human rights harms, avoid interfering in unions, and governance-related reforms on issues ranging from pay to corruption.

The guidelines have been criticised in recent years for being “outdated” and “increasingly out of sync” with new norms and challenges for responsible multinational behaviour. They were last updated in 2011.

Kiran Aziz, head of responsible investments at Norwegian pension fund KLP, said that the updated guidelines would benefit from more stringent expectations on responsible taxation and the environment.

Companies should increase transparency over their corporate tax practices – particularly in relation to the public disclosure of country-by-country reporting, she said, and show that they are committed to paying taxes in the countries where they create value.

“We also appreciate the strong focus on mapping environmental risk and impacts, rather than the financial risk to the company, but recommend the text makes clear that the purpose of mapping impacts is to actually implement strategies which reduce those harms,” she added.

Allan Jørgensen, who heads the OECD’s work on responsible business standards, confirmed that the updated guidelines are expected ahead of the OECD’s annual ministerial meeting in June.

Data and regulatory impacts

The guidelines are referenced and underpin much of the current regulatory and product infrastructure within sustainable finance, but the latest revisions are not expected to prompt industry-wide reform.

RepRisk, a leading provider of ESG risk data used by investors to flag controversies, said that its existing methodology already incorporated many of the risk factors proposed by the OECD in the updated draft framework.

Its chief commercial officer, Alexandra Mihailescu Cichon, said that RepRisk did not expect any significant impact on its methodology but would aim to make any necessary updates within months after the publication of a new revision if needed.

A key priority would be to ensure that the company’s research scope aligns with the standards and definitions as required by the OECD or any other body – for example our definition of “human rights”, or “biodiversity risk”, she said.

A statement provided to RI by the Federal Ministry for Economic Affairs and Climate Action of Germany noted that recently introduced supply chain diligence rules, which are based on the OECD Guidelines, would not need to be revised as the updates “will not go beyond our law”.

Similarly, there are no plans to reassess new due diligence rules introduced in Japan last year, which are influenced by the OECD Guidelines, according to a government spokesperson.

The European Commission said to RI that the updates “will ensure the guidelines remain fit for purpose” and noted that the bloc’s taxonomy required compliance with the framework for eligible activities. The EU Council, which represents member states, said it would provide any feedback to the OECD directly.