Driving Responsible Business Practices: The Impact and Implications of the Revised OECD MNE Guidelines

The OECD MNE Guidelines serve as a crucial framework for multinational enterprises, providing a set of government-backed recommendations that promote economic, environmental, and social progress. First introduced in 1976, these guidelines address several critical business responsibility domains, including but not limited to:

• Human Rights
• Labor Rights
• Environment
• Bribery
• Consumer Interests
• Disclosure
• Science and Technology
• Competition
• Taxation

Over the decades, the guidelines have seen multiple updates, each reflecting the evolution of the global business landscape and emerging challenges. The latest version, adopted by the OECD Council of Ministers on June 8, 2023, incorporates current pressing issues such as:

• Climate Change
• Biodiversity
• Technology
• Business Integrity
• Supply Chain Due Diligence

This latest iteration also offers an updated implementation framework for National Contact Points for Responsible Business Conduct.

Notably, these guidelines, while comprehensive, are voluntary and non-binding. They are not designed to impose legal obligations but to complement and reinforce existing domestic and international laws and regulations that govern multinational enterprises' conduct.

In an interesting development, the recent adoption of the OECD MNE Guidelines coincides closely with the approval of the EU Directive on Corporate Sustainability by the EU Parliament on June 1, 2023. Both the OECD MNE Guidelines and the EU Directive emphasize corporate accountability, transparency, and sustainability, highlighting the pressing need for multinational enterprises to align their strategies with sustainable and responsible business practices. This synchronicity reflects a broader international consensus on the importance of responsible business conduct in today's global economy (comparison between these two is to come).

More details in the article below:

Detailed Analysis of the Guidelines

The Updated Guidelines

The 2023 edition of the OECD Guidelines for Multinational Enterprises (MNE) incorporates significant revisions that mirror current business and societal contexts. Key updates encompass areas such as climate change, technology, business integrity, and supply chain due diligence.

• Climate Change and Biodiversity: In response to mounting environmental concerns, the 2023 MNE Guidelines put a spotlight on climate change and biodiversity. They encourage enterprises to work towards economic, environmental, and social progress, while mitigating any negative impacts associated with their operations, products, or services.
• Technology: Given the pervasive role of technology and data in today's world, the 2023 Guidelines have broadened their scope to include the technology sector. They call upon businesses to respect human rights and safeguard user privacy and personal data.
• Business Integrity: The guidelines have also fortified their stance on business integrity. They now provide extensive guidance on anti-corruption practices, disclosure, and competition.
• Supply Chain Due Diligence: Supply chain due diligence is another area where the 2023 edition has emphasized. It urges businesses to conduct comprehensive, risk-based due diligence across their supply chains to identify, prevent, and mitigate both actual and potential adverse impacts.

In comparison to its predecessor, the 2023 edition of the guidelines offers a more thorough and wide-ranging approach to responsible business conduct. It not only extends the guidelines' reach to new sectors like technology, but it also underscores the importance of due diligence, particularly within supply chains.

For instance, in the 2011 Guidelines, it was suggested that companies should "respect the rights of workers employed by the MNE to establish or join trade unions (...)." However, the scope of this recommendation has now been expanded to encompass all workers across various business relationships. The updated guidelines emphasize the importance of companies providing training, up-skilling, and re-skilling opportunities for their workers in anticipation of forthcoming operational changes and evolving employer requirements. This includes preparing them for technological advancements, automation, digitalization, and the overall transition towards a more sustainable and just future.

In the revised guidelines, the OECD stresses the need for implementing strong compliance programs and conducting exhaustive due diligence to alleviate potential adverse impacts. They encourage businesses to perform risk assessments, establish systematic processes for identifying, preventing, and mitigating risks, and conduct regular audits to confirm compliance.

General Principles

In the new OECD guidelines 2023 responsible business conduct, risk-based due diligence is now required for all “business relationships” beyond contractual relationships, for both upstream and downstream. The new concept of business relationship includes business partners, sub-contractors, franchisees, investee companies, clients, and joint-venture partners. It does not include end-use individual consumers that are not tied to governments or business.

The 2023 OECD Guidelines emphasize the importance of thorough and risk-based due diligence. Multinational Enterprises (MNEs) are encouraged to conduct a comprehensive evaluation of their operations and supply chains to identify, prevent, and mitigate potential adverse impacts on areas such as human rights, labor rights, environment, and business integrity. This involves not only understanding and evaluating their own activities, but also assessing their business relationships and the potential impacts related to their operations, products, or services.

The due diligence process as recommended by the OECD involves proactive engagement rather than a one-off exercise. This means the due diligence should be continuous, iterative, and responsive to changes. The Guidelines further emphasize the importance of transparency and clear communication about how impacts are addressed.

Risk Assessment

The 2023 Guidelines place a strong emphasis on rigorous risk assessments as a crucial part of due diligence. The risk assessment process should cover both actual and potential adverse impacts and should be carried out regularly to account for changes in the business environment. This includes assessing risks that might be linked to an enterprise's operations, products, or services through a business relationship.

These risks span several dimensions, including, but not limited to, social, environmental, legal, and economic risks. The goal of these assessments, as per the Guidelines, is not merely to avoid adverse impacts on the enterprise itself, but more importantly, to prevent and mitigate adverse impacts on people, the planet, and society.

Testing of Compliance Programs

The 2023 Guidelines suggest that compliance programs should not only exist on paper but should also be effectively operational. This means they need to be tested and audited regularly for effectiveness. The Guidelines recommend that these audits should be conducted in a transparent manner, with results communicated to relevant stakeholders, including the governing authority of the enterprise.

The Guidelines further indicate that non-compliance should be met with appropriate consequences, and corrective actions should be taken swiftly. This process should involve a clear understanding of the reasons for non-compliance, taking appropriate corrective actions, and then reassessing to ensure the effectiveness of those actions.

In essence, the OECD's Guidelines encourage a culture of ongoing monitoring, reporting, and improvement, thus emphasizing the importance of a dynamic and responsive approach to compliance.

Environmental Responsibility

The updated guidelines introduce a comprehensive environmental risk-based due diligence framework. This framework encompasses a wide range of environmental concerns, including but not limited to climate change, biodiversity loss, land degradation, marine and freshwater ecosystem deterioration, deforestation, air, water, and soil pollution, as well as the proper management of hazardous waste. Importantly, this due diligence requirement extends to both a company's own operations and its business relationships, going beyond the provisions found in existing laws.

• Emission reductions expectations and targets: The new guidelines emphasize the adoption, implementation, monitoring, and reporting of specific greenhouse gas (GHG) emission reduction targets. These targets should cover different timeframes, including short, medium, and long-term goals. The scope of these targets should address not only scope 1 and scope 2 emissions but also, where feasible, scope 3 emissions. Furthermore, the guidelines recommend regular review of a company's emissions, aligning them with internationally agreed-upon global temperature goals as assessed by the Intergovernmental Panel on Climate Change (IPCC).
• Focus on emission reduction: The updated guidelines encourage companies to prioritize the reduction of emissions as a primary strategy rather than relying on measures such as offsetting, compensation, or neutrality to address their environmental impact.
• Biodiversity and Conservation: Promotion of biodiversity conservation: The new guidelines place significant emphasis on companies actively contributing to the conservation of biological diversity. This includes efforts to prevent or mitigate adverse impacts on biodiversity and promoting restoration, afforestation, reforestation, as well as reducing degradation in terrestrial, marine, and freshwater ecosystems.
• Animal Welfare: Observance of international animal welfare standards: The guidelines recommend that companies observe internationally recognized animal welfare standards, as guided by established guidelines provided by the World Organization for Animal Health (WOAH).
• Sustainable Consumption and Production: Encouragement of sustainable consumption and production: Companies are now encouraged to promote "sustainable consumption and production" by developing products or services that have minimal environmental impacts. Specifically, these products or services should be safe in their intended use, possess durability, be repairable, and enable reusability, recycling, or safe disposal. The guidelines also highlight the importance of embracing the principles of the circular economy to achieve sustainable outcomes.

Technology and Innovation

• Risk-based due diligence approach: The new guidelines introduce an enhanced risk-based due diligence approach that addresses the actual and potential adverse impacts throughout various stages of technology, data, and scientific research and innovation. This approach extends to activities such as development, financing, sale, licensing, trade, and use. By adopting this approach, companies are encouraged to proactively identify and mitigate risks associated with these activities.
• Technology transfer and diffusion expectations: The updated guidelines feature expanded expectations regarding the transfer and diffusion of technology. Companies are encouraged to engage in voluntary, safe, secure, and mutually agreed terms when transferring or diffusing technology. These expectations take into account the protection of intellectual property rights, confidentiality obligations, privacy, personal data protection, export controls, and non-discrimination principles. By adhering to these guidelines, companies can facilitate responsible and equitable technology sharing while upholding essential legal and ethical considerations.
• Digital Engagement and Protection: Children and youth engagement in the digital environment: Recognizing the significance of protecting children and youth, the guidelines now place a strong emphasis on prioritizing their best interests, particularly in the digital environment. Enterprises are recommended to consider the well-being and safety of young individuals as a primary consideration. By doing so, companies can implement measures that ensure responsible and age-appropriate digital engagement, safeguarding the interests and rights of children and youth.

==> The revised guidelines pose a risk of catalyzing future policy developments, particularly in Europe. This is especially relevant in light of the EU directive on corporate sustainability, which we will later compare to these guidelines. The influential nature of the OECD Guidelines is expected to impact negotiations for the UN Binding Treaty on Business and Human Rights. Additionally, certain additions, such as those related to just transition and worker skilling, may have implications for future ILO negotiations. Overall, these guidelines hold significant potential to shape regional and international policy discussions, including the ongoing developments in the EU directive on corporate sustainability.