Stephanie Maier: Forty years of OECD Guidelines – our fiduciary duty to support them

Applying modern responsible investing ‘technology’ to hold companies to account for responsible business conduct.

The Organisation for Economic Co-operation and Development’s (OECD) Guidelines for Multinational Enterprises (the Guidelines) seek to enhance the contribution to sustainable development made by multinational companies. We have our own responsibilities under the Guidelines, which are applicable to financial institutions and minority shareholders as well as multinationals. But beyond that, it is our fiduciary duty to act as good stewards of the companies we invest in. We do so for the benefit of our clients and to make a positive contribution to economic, environmental and social progress.

Our voting policy formally includes support for the Guidelines and we expect investee companies to engage transparently and with due consideration for the OECD National Contact Points (NCPs). We engage extensively with investee companies on many issues covered by the Guidelines and specifically on cases that have been brought to the UK NCP for mediation. In two such cases, Vedanta Resources and SOCO International, we publicly challenged their response to the complaints and broader concerns.

The need to strengthen National Contact Points
In 40 years of the OECD Guidelines, around 330 cases have been presented to the NCPs for mediation. This is the key mechanism to hold companies accountable to the Guidelines and while the number of cases being brought has increased over the years, it still seems underused.

A well-functioning NCP network is critical to ensuring that investors can play an appropriate role in upholding the Guidelines. Effective engagement requires timely and accurate information. While there are some excellent examples of effective engagement, such as the UK NCP, this is not so with the majority of NCPs. In turn, this limits the ability of institutional investors to effectively engage. We would also urge the broker community to promote appropriate disclosure and assessment among the companies which they cover.

The explicit involvement of investors is supported by Roel Nieuwenkamp, Chair of the OECD Working Party on the Guidelines: “The OECD guidelines expect investors to do their environmental and social due diligence on the companies they invest in and to use their influence to promote responsible business. We recognise that often investors alone cannot solve all the concerns with their investee companies. The OECD expects in those cases that investors collaborate.”

Taking action
Launched at the OECD Global Forum on Responsible Business Conduct on 8 June, we announced a pilot project designed to enable investors to use their collective influence to strengthen implementation of the OECD Guidelines.The quality of information available from the NCPs on alleged breaches has challenged investor engagement with companies. During the pilot project, we will sponsor an independent research provider, VigeoEIRIS, to conduct detailed research and analysis on a sample of selected cases and to develop engagement recommendations in order to enable high-quality, collaborative engagement dialogues with companies.

We intend to use the PRI Collaboration Platform (previously Clearinghouse) to mobilise investors to engage with companies to address alleged breaches of the OECD Guidelines. Fiona Reynolds, Managing Director of the PRI, says: “Investors have a key role to play in encouraging companies to take tangible steps to address environmental and social risks, including negative environmental and social impacts that come to light through the OECD NCP process. We are delighted to support investors in engaging companies on these issues by hosting the pilot project on the PRI Collaboration Platform.”

In response, Roel Nieuwenkamp says: “This engagement mechanism is exactly what is meant by due diligence and using the positive force of finance for corporate responsibility. We sincerely welcome Aviva Investors’ leadership and the collaboration with PRI. It is important to scale up these forms of collaboration in the financial sector. I recommend all investors join this initiative to fulfil their fiduciary duty.”

The OECD Guidelines for Multinational Enterprises remain the most complete single set of guidelines on responsible business conduct set out by a multilateral governmental institution. And, the only one with a monitoring process with the power to name and shame companies found to be in breach.

The Guidelines now look like a beautiful 40-year-old classic car, with an underpowered engine that has never been given enough fuel to go fast or far enough. We now need to apply modern responsible investing ‘technology’ so we can complete the journey of holding companies to account for their responsible business conduct.

Stephanie Maier is Head of Responsible Investment Strategy & Research at Aviva Investors.

Links to relevant reports
SOCO International activities in DR Congo (Block V) and One year on: Review of progress by SOCO International on EIRIS ESG recommendations represent examples of reports commissioned by Aviva Investors to support engagement in the case of the complaint from WWF International against SOCO International plc.