Vale Columbia Center on Sustainable International Investment

Towards the successful implementation of the updated OECD Guidelines for Multinational Enterprises

by

Tadahiro Asami*

The Business and Industry Advisory Committee to the OECD (BIAC) has accepted[1] the updated OECD Guidelines for Multinational Enterprises (Guidelines), adopted on May 25, 2011 after a series of negotiations and consultations among members of the Organisation for Economic Co-operation and Development (OECD), adhering governments, BIAC, the Trade Union Advisory Committee to the OECD, and OECD Watch, an international network of civil society organizations. The Guidelines are the most comprehensive government-endorsed code of responsible business conduct. The Update upheld the voluntary and non-legally binding character of the Guidelines, and while the new text introduces important new elements, the Update is very carefully formulated and its changes are accompanied by extensive conditionalities.[2]

The new Guidelines more clearly define responsible business conduct of multinational enterprises (MNEs), particularly in the area of human rights. The incorporation of a human rights chapter in the Guidelines represents a significant milestone. The OECD and United Nations Special Representative John Ruggie worked together to draft this chapter. As a result, the Guidelines fully reflect the Guiding Principles on Business and Human Rights,[3] which were unanimously endorsed by the United Nations Human Rights Council in June 2011.

A key provision that has been newly introduced in the Guidelines states that MNEs should avoid causing or contributing to adverse impacts on the social, environmental and other interests to which the Guidelines relate. This provision covers MNEs’ activities and also the direct involvement of MNEs in activities in the supply chain.[4] When an adverse impact occurs to which MNEs did not contribute, MNEs are expected to examine possibilities to avoid such impacts if there is a direct linkage between the impacts and the activities of MNEs as a consequence of a business relationship. However, this is not intended to shift responsibility from the entity causing an adverse impact to the MNE with which it has a business relationship: the adverse impact provision is only applicable if there is at least some form of direct involvement of the MNE in the adverse impact.

A new provision expects companies to carry out risk-based due diligence to identify, prevent and mitigate actual and potential adverse impacts as mentioned above. This new provision is applicable to all chapters, apart from those dealing with science and technology, competition and taxation. The Guidelines do not formulate any procedural requirements for due diligence, except for in the human rights field.

The procedural aspects of the “National Contact Points” (NCPs) have been substantially improved, for example by establishing an indicative timeframe, the availability of adequate human and financial resources and measures to avoid unmeritorious claims or frivolous campaigns. However, NCPs’ role as mediators to resolve potential issues remains unchanged. No (quasi-judicial) prerogative to formulate a judgement on the behavior of companies was introduced.

From the business point of view, the success of the new Guidelines will depend primarily on two factors.

·       First, success depends on the extent to which the Guidelines are incorporated or referred to in MNEs’ own codes of conduct for improving corporate responsibility. The Guidelines expect the NCPs to play a role in the promotion of the Guidelines and also require the OECD Investment Committee to develop initiatives for the effective implementation of the Guidelines. BIAC is willing to contribute to these efforts by cooperating with the OECD.

·       Second, the extent to which emerging markets adhere to the Guidelines is fundamental to securing a global level playing field. The Guidelines are currently adhered to by the 34 OECD members and 8 non-OECD countries, but not by major emerging markets such as China,India, Indonesia,Russia, or South Africa. The OECD must undertake determined efforts to encourage emerging markets to adhere to the Guidelines.

The Guidelines form part of the OECD Declaration on International Investment and Multinational Enterprises (Declaration). Business considers this link essential, precisely because the Declaration also assures that adhering governments promote an open and predictable investment climate by granting MNEs national treatment and avoid conflicting requirements on them. Such a commitment by governments is essential for business to promote responsible business conduct in accordance with the provisions of the Guidelines. It is these mutual commitments by governments and business that make foreign direct investment prosper.

The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Tadahiro Asami, ‘Towards the successful implementation of the updated OECD Guidelines for Multinational Enterprises,’ Columbia FDI Perspectives, No. 56, January 17, 2012. Reprinted with permission from the Vale Columbia Center on Sustainable International Investment (www.vcc.columbia.edu).” A copy should kindly be sent to the Vale Columbia Center at vcc@law.columbia.edu.