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OECD clarifies role of minority investors under its guidelines for multinational enterprises

International body addresses issue of investor responsibility

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The Organisation for Economic Cooperation and Development (OECD) has clarified how institutional investors have a “direct linkage” with investee companies in the context of its Guidelines for Multinational Enterprises corporate responsibility framework.

The issue of minority investors’ responsibilities under the guidelines has been the subject of heated debate; in 2013 the Norwegian central bank said the guidelines were “untenable” for investors such as the country’s giant sovereign fund.

Now the OECD has issued guidance to clarify the issue, concluding that minority investment does count as a “business relationship”.

“A minority shareholding can therefore in principle be seen as a business relationship under the Guidelines, even if this is not spelled out in the text of the Guidelines itself,’’ it states in the new Responsible Business Conduct for Institutional Investors document (link).

It says the existence of what it terms RBC (responsible business conduct) risks or actual RBC impacts in an investor’s own investment portfolio means, in the vast majority of cases, there is “direct linkage”.

The move was welcomed by Dutch pension management giant APG, which was subject to complaints by NGOs along with Norges Bank Investment Management in a test case in 2012. The cases went to the ‘National Contact Points’ (NCPs) in the Netherlands and Norway, the OECD system for mediating disputes.

This triggered the process that has resulted in the new guidance, said Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct.

Anna Pot, Manager of Responsible Investment at APG, who was involved in the consultative process that developed the new guidance, said it helps to clarify expectations of investors.

“It became clear that there’s confusion amongst investors, amongst stakeholders but also amongst NCPs about what is expected of investors like us.” Speaking on a webinar to launch the report, she said the guidance helps manage expectations and implement policy internally.

She said: “Let’s face it, we have colleagues in investment teams that, in the end, need to implement it. And they’ve not been educated in such a way in business schools.” It would also help to clarify APG’s role as actor in the market.

Although she raised the point that some of the OECD terminology (RBC, ‘due diligence’) is different from institutional investment terms, at the end it is all about “knowing what you own”.She referred to a tricky time in the negotiations about the impact of the term ‘linkage’. But, she said, “In the end we’re all on the same page. Institutional investors, we’re all humans and we don’t what to be associated with bad things. In terms of due diligence, we want to make sure that if we come across such things that we act on it.”

She called on the OECD to really make sure that institutional investors can live up to the expectations of the guidance.

Calling the OECD guidelines “the Paris agreement of responsible business conduct”, Nieuwenkamp called the paper a “unique resource” for investors and the first official publication to give guidance to institutional investors on the issue. He pointed out that in 2016, almost 20% of complaints to the NCPs were against the financial sector.

Barbara Bijelic, Legal Expert, Responsible Business Conduct at the OECD, said the clarification about “linkage” is important.

“At the beginning of this process there was a real lack of understanding and misunderstanding about how this language actually pertains to value chains and particularly in the context in which an investor has a minority shareholding in an investee company.”

“We’ve managed to come to the conclusion that yes, impacts in an investment portfolio may be directly linked to investors through a minority shareholding.” But this does not mean the responsibility shifts to the investor to remediate or mitigate impacts by companies. Rather it’s up to investors to use their influence to change corporate behavior.

She highlighted some successful NCP complaints: drugs firm Mylan (lethal injections), Soco (Virunga national park), POSCO (Odisha mining). And In 2016 AFLCIO filed three resolutions for companies to engage with the NCP mechanism.

“These are just a few concrete examples of how we’ve seen asset owners and managers have real life impact on their investee companies and it highlights some of the results we’re trying to achieve with this paper.”

The paper was launched on a Principles for Responsible Investment webinar and the PRI says it encourages its signatories to consult the paper and use it as a resource to apply responsible investment approaches which conform to international standards.

In tandem with the release of the paper, the PRI has launched a new collaborative engagement with Aviva to engage companies that have been linked to some of the most severe instances of social and environmental impacts brought to OECD National Contact Points.

The next project under the OECD’s finance umbrella will focus on corporate finance and lending.