ENABLING RESPONSIBLE SUPPLY CHAINS OECD Guidelines for Multinational Enterprises and Risk-based Due Diligence

November 2015APBF

Cristina Tebar Less

• Integrating RBC in investment policy: providing enabling policy environment to ensure that investment contributes to sustainable development

• Guidelines for business setting out society’s expectations of RBC and providing tools to business to meet these expectations (due diligence guidance)

• Monitor national contract points to support implementation of business responsibility standards (ca 350 cases, 90 countries)

OECD focus on Responsible Business Conduct

• Government-backed international instrument for promoting responsible business conduct

• Recommendations from governments to businesses operating in or from adhering countries

• Cover all major areas of business ethics – human rights environment, labour, bribery, disclosure,

• Implementation- complaints mechanism to address adverse business impacts

• Endorsed by business, trade unions and civil society organizations

• Open to OECD and non-OECD countries

OECD Guidelines for Multinational Enterprises

Business responsibility includeso Avoid causing or contributing to adverse impacts

through their own activities , and addressing them

o Seek to prevent or mitigate adverse impacts directly linked to their operations, products or services by a business relationship – including via supply chain

Recommended tool: risk-based due diligence as part of risk management system to identify, prevent and mitigate actual and potential risks

Responsibility throughout business relations

Managing risk through due diligence • Rationale: Integrate risk-based due diligence in

company’s risk management system to identify, prevent and mitigate actual and potential risks (e.g., human rights, labour, environment, bribery)

• Methodology: multi-stakeholder approach; all actors involved in developing the standard

• Promotion: make due diligence standard known • Implementation: help companies apply due

diligence standards; advise on policies needed to provide enabling policies.

Key steps of due diligence

• Step 1 – Establish strong management systems: Policy, internal capacity, supplier engagement, internal controls over supply chain

• Step 2 – Identify, assess and prioritise risks in the enterprise supply chain: map supply chain, prioritize based on severity of harm (sector, counterparty, and site for high-risk issues)

• Step 3 – Manage risks in the supply chain: inform senior management, fix internal systems, build leverage, use existing supply chain networks, workers reps, non-traditional partnerships, build capacity

• Step 4 – Verify supply chain due diligence: where relevance, monitor, audit assurance, etc.

• Step 5 – Communicate and report on supply chain due diligence: with due regard for commercial confidentiality and competitive concerns

OECD Due Diligence Guidance for Responsible Supply Chains

OECD Due Diligence Guidance for Responsible Mineral Supply Chains

Objective To provide clear, practical guidance for companies to ensure they do not

contribute to conflict or human rights abuses through their mineral and metal production and procurement practices

Method and scope 5-step risk-based due diligence process, applies to all companies

throughout the mineral supply chain that produce or potentially use minerals from conflict-affected or high-risk areas

Applicable to all minerals, on a global scope

Role of stakeholders Companies: Implement due diligence and the 5-step framework, possibly

through industry associations or initiatives Governments: Create the enabling environment for responsible mineral

supply chains Civil society: Monitor mining sector governance and company activities

throughout the global mineral supply chain 10

Objective

Offer practical guidance for the extractive sector in line with the OECD MNE Guidelines on due diligence for stakeholder engagement.

Approach

• Framework for managing risks with regard to stakeholder engagement to ensure they play a role in avoiding and addressing adverse impacts.

• Recommendations at the site level, and for management

• Specific guidance: engaging with women, indigenous peoples, workers and artisanal miners.

Process

• Mandate by governments Developed via Multi-stakeholder advisory group

• Public consultation

• Endorsement by stakeholders, approval by governments in 2015

Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractives Sector

OECD Guidelines expect companies to engage with stakeholders to provide meaningful opportunities for their views to be taken into account in relation to planning and decision making for projects or other activities that may significantly impact local communities’.

Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractives Sector

• Long project life cycle

• Immobile production

• Significant investment and infrastructure

• Potentially significant social and environmental footprint

About 20% of all specific instances brought to the NCP mechanism involve the extractive sector.

Characteristics of the Extractives Sector:

Promoting responsibleagricultural supply chains

A FAO-OECD guidance14

The FAO-OECD Guidance

Help enterprises observe the OECD Guidelines and other major responsibility standards (e.g. Principles for Responsible Investment in Agriculture and Food Systems)

Developed through a multi-stakeholder advisory group involving large agro-food industry, investors, governments, civil society

Endorsed by stakeholders, approved by governments end 2015

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Due Diligence Guidance• Principle-based due

diligence Guidance around 5-step framework

• Due Diligence Guidance for salient risks in the sector

• Pilot in 2016

Responsible Supply Chains in the Textile & Garment Sector

Implementation Platform• Small & Medium Sized

Enterprises (Research & Capacity Building)

• Effective monitoring & mitigation methods (Research)

• Access to remedy (Research)

Outreach• Training & engagement

with adherent and non-adhering import and export countries on due diligence in the textile and garment sector

Textile & Garment Sector Supply Chain

Aggravating factors

Fast fashion & low prices

Short-term contractsPurchasing

practices Business models

Illegal sub-contracting

Use of temporary workers,

homeworkers, migrant workers

Sumangli scheme

Small holder farmers;

Use of temporary workers

Inflexible delivery dates

Business models

Forced & bonded labour

Child labour

Occupational health & safety

Excessive working hours

Freedom of Association & Collective bargaining

Wages

Chemical use & water contamination

Example salient risks

Objective: Outline practical approaches and provide guidance for financial service providers to meet expectations of the OECD MNE Guidelines through their due diligence, across a range of financial services.

Challenges: extensive and complex business relationships,rapidity of transactions, and operations which do not fit neatlyinto the model of suppliers and buyers in a supply chain

Demand: Growing attention to responsible business conduct inthe financial sector. Ca 10% of cases filed before NCPs concernthe financial sector; since 2000, 36 cases have been filed, 19 ofthem since 2011

OECD PROJECT ON RESPONSIBLE BUSINESS CONDUCT IN THE FINANCIAL SECTOR

Responsible supply chains in legislation

• US and EU (forthcoming): mandatory reporting on minerals sources from conflict

• UK: anti-slavery legislation• France: mandatory due diligence for large

companies, mandatory reporting of investors’ carbon footprint

• EU: RBC in new Trade and Investment Strategy, partnership agreements (e.g. Singapore)

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Outreach to ASIA

• Members of OECD: Japan and South Korea

• Policy reviews and analysis of RBC policies: Myanmar, Malaysia, Philippines, Cambodia, Lao, Vietnam

• PoW on RBC with China, conference on responsible minerals supply chains Dec. 2015

• Conference on responsible supply chains with India Nov 2015 21

Contact: Cristina Tebar Less, Head of

Responsible Business Conduct Unit (OECD Investment Division)Cristina.tebar-less@oecd.org

OECD Website:http://mneguidelines.oecd.org

http://mneguidelines.oecd.org/implementation