The OECD is consulting on changes to guidelines for multinational enterprises, with investors demanding greater protection for defenders and more focus on value chains.
Investors have welcomed the Organisation for Economic Co-operation and Development’s (OECD) planned update to its Guidelines for Multinational Enterprises, which propose the inclusion of the International Sustainability Standards Board (ISSB) and new requirements on biodiversity and climate action.
The OECD Guidelines have been an important tool for investors in informing their approaches to human rights and responsible investment. They are voluntary but widely considered a global standard for responsible business conduct and human rights.
Norges Bank Investment Management (NBIM) has said it draws upon the guidelines for its responsible investment policy and its expectations of companies. Nick Robins, Professor in Practice – Sustainable Finance at the London School of Economics’ Grantham Research Institute on Climate Change and the Environment, also said the guidelines were a responsible business “conduct anchor” for government policies such as the EU’s sustainable finance taxonomy.
But the Investor Alliance for Human Rights (IAHR) has said the guidelines, while being a valuable tool, were somewhat out of date, with many issues important to assisting institutional investors in meeting their responsibility to respect human rights and the environment not adequately addressed.
This is the first update to the guidelines since they launched in 2011, said Robins, adding the OECD is aiming to get the update released in June.
New climate and biodiversity requirements
NBIM said it welcomed a new reference to the ISSB in the guidelines’ chapter on disclosures. However, the IAHR has said it is unclear why the ISSB is singled out in the guidelines, along with the Global Reporting Initiative, when EFRAG (European Financial Reporting Advisory Group), which it said promoted a double materiality approach, was not. NBIM has suggested that that the guidelines use the same definition of financial materiality as the one used by the IFRS Foundation which oversees the ISSB.
NBIM also welcomed the revisions to the ‘Environment’ chapter in the guidelines that focus on climate action and also biodiversity. A new proposed paragraph says companies’ environmental management systems should include practical actions to respond to the climate emergency, including science-based policies and targets, covering scope 1 and 2, and to the extent possible scope 3 emissions.
The new paragraph also says that carbon credits, or offsets, many be considered as a last resort to address unabated emissions and that companies should report publicly on their use in a distinct way from reporting on emissions reduction.
Another new proposed paragraph, says enterprises should contribute to the conservation of biological diversity, habitats and ecosystems, and should also avoid and address marine, freshwater, land and forest degradation, including deforestation.
NBIM welcomed the addition of a new expectation for companies to provide a safe and healthy working environment. On the chapter on ‘Consumer Interests’, NBIM welcomed the new requirements on preventing unreasonable risk to the health or safety of consumers and the enhanced e-commerce disclosure expectations.
Protection of defenders
NBIM also welcomed a new requirement in the guidelines that companies make public their policy commitment to respect human rights. It has said that this requirement should also include a company’s value chain, with the IAHR in agreement, adding that the guidance should make clear that a company’s due diligence covers risks and impacts within the entire value chain.
The IAHR, representing over 200 institutional investors with US$12 trillion in assets under management, said the guidelines should recognise the right of defenders to protest any business activity, whether or not it’s illegal or inconsistent with the guidelines. It adds that the text should also outline specific safeguards enterprises can take to protect defenders, including pre-emptively engaging with defenders to avoid harms and discouraging retaliation against them by state and private actors in the context of business relationships.
It also calls for the OECD to ensure human rights are better integrated and cross-referenced throughout the guidelines, and says that it should include disclosure requirements from companies on how remuneration is tied to sustainability and text on board level oversight of human rights responsibilities.
The Business and Human Rights Resource Centre has also responded to the OECD’s consultation, with its suggestions for revision including the OECD clarifying that in situations of armed conflicts, businesses including investors need to adopt a conflict-sensitive approach and conduct heightened human rights due diligence, which requires them to identify and address their adverse impacts on human rights as well as on the conflict.