OECD doubles down on climate and human rights in newly revised guidelines

The updated framework is billed as the first international agreement to define the climate responsibility of companies.

The OECD has today signed off on measures to raise the bar on climate and human rights expectations for international businesses and to make its grievance mechanism more effective.

The changes are part of a wide-ranging update to the OECD’s influential guidelines for responsible business conduct, which are in use across some 50 OECD and non-OECD countries. The guidelines have been criticised in recent years for being “outdated” and “increasingly out of sync” in the face of new sustainability norms and challenges.

The revision, launched at the annual OECD ministerial meeting in Paris, will see the framework rebranded as the Guidelines for Multinational Enterprises on Responsible Business Conduct. The guidelines were last updated in 2011.

A priority for the OECD is to enhance the enforcement of the guidelines by the National Contact Points (NCPs), a network of government-backed offices which decide alleged breaches by companies. NCPs do not have powers to impose penalties but are a popular alternative to judicial proceedings due to the cheaper costs and lower standards of proof involved.

If a complaint is upheld, the relevant NCP will facilitate a process of conciliation and mediation to resolve the dispute.

However, there has been a long-standing tendency for submissions to be filed at NCPs which are seen as more favourable to a particular case, a phenomenon known as “NCP shopping”, rather than within the jurisdiction where the issues had arisen.

This has been reinforced by concerns over perceived ineffectiveness in some jurisdictions where NCPs have repeatedly declined to accept cases or issued verdicts favourable to corporates, particularly those seen as being controlled by their host governments or are severely resource constrained.

As part of the measures announced today, each NCP will be required to undergo a mandatory peer review process by other contact points. Previous peer review exercises, which were undertaken on a voluntary basis, have been effective in improving NCP performance and broadening their resources, according to the OECD.

The OECD will formally take up instances where there have been undue delays in processing complaints or when an NCP has “dropped off the map and become virtually inactive for a period of time” directly with the host government, in response to previous instances where this has been observed, OECD staff said to Responsible Investor.

The bloc has also published a list of effectiveness criteria for the operation of NCPs, which will include a clear expectation for NCPs to issue a verdict regardless of whether or not a named organisation in a complaint has engaged with the process.

The measures are aimed at achieving “functional equivalence”, or ensuring that complaints are handled with the same level of rigour by all NCPs, the OECD’s head of responsible business conduct, Allan Jorgensen, told RI.

“At the moment, we see a lot of cases going to NCPs which are better resourced and better functioning which is a problem. Of course, this not a surprise given complainants have an interest in achieving a positive outcome.”

OECD Watch, an NGO which monitors the guidelines, described the updates as “generally strong” but said it had hoped to see the inclusion of penalties for parties which choose to not engage with the NCP remediation process, and stricter requirements around NCP organisational structures to maintain independence from host governments.

“The guidelines are not yet ‘fit for purpose’ due to shortcomings in the OECD’s rules for NCPs. This means that legislation mandating due diligence in alignment with the guidelines are needed more urgently than ever,” said OECD Watch director Marian Ingrams to RI.

The updates come as EU lawmakers signed off on the bloc’s flagship due diligence legislation which will require companies to put in place internal grievance mechanisms to field social and environment-related complaints.

The OECD’s  Jorgensen said while the EU discussions focused on operational-level grievance mechanisms, it was critical that any resulting legislation recognises all the different grievance channels – including the NCPs – which aim to provide access to remedy.

Climate alignment

Companies operating in OECD countries will now be expected to align their operation with climate goals by adopting decarbonisation targets and reporting their progress, as per the guideline’s environmental chapter which – as expected – has been significantly revised.

There are also new expectations that companies will prioritise cutting down emissions instead of using offsets. The utilisation of carbon credits should only be a “last resort” alternative and cannot be used to prolong the life of fossil fuels and carbon-intensive processes, according to the OECD.

“The guidelines are the first government-backed international agreement to define the responsibility of companies for aligning with globally agreed internationally agreed temperature goals,” said OECD responsible business head Jorgensen.

Under the guidelines, companies must take steps to prevent reprisals against any party which express concerns over their business operations, particularly in relation to human rights and environmental defenders. Such cases have previously been documented by OECD Watch and other NGOs.

Other updates to the guidelines include stricter rules on protecting worker rights across the value chain, recognising adverse impacts on biodiversity and other environmental areas, and ensuring training and support schemes for workers in line with a Just Transition.