OECD Guidelines for Multinational Enterprises on Responsible Business Conduct – key changes

We previously highlighted that the OECD had launched a revised version of its Guidelines for Multinational Enterprises on Responsible Business Conduct (the “Guidelines”). This “targeted update” was the first since 2011 and included a number of changes to the Guidelines.

What are the Guidelines and why are the changes important?

The Guidelines set expectations covering all key areas of business responsibility, including human and labour rights, the environment, bribery, corporate disclosure, competition, and taxation. 

While voluntary, there has been a great deal of business convergence around the Guidelines, and they are considered an important “soft law” instrument.

The changes to the Guidelines come against the backdrop of heightened stakeholder expectations on businesses’ sustainability credentials and a shifting sustainability landscape, which contains a number of new regimes (particularly in the EU) that make reference to or incorporate the Guidelines. 

The changes are therefore important not only in their own right as a leading standard on multinational behaviour but because they could impact interpretation of and compliance with new regimes.

Key takeaways

• Expanded scope and expectations: The updated Guidelines cover a broader range of topics (most notably with the environment chapter being expanded to explicitly cover topics like climate change and biodiversity) and set higher expectations for multinational conduct.
• Increased focus on due diligence: Running throughout the updates there is heightened focus on due diligence in its broadest sense, covering end-to-end identification and management of risks relating to the various topics covered by the Guidelines. This includes engagement, remedy and disclosure.
• Strengthened mandate of National Contact Point mechanism: The updated Guidelines seek to reinforce the mandate of the NCPs (which is the Guidelines’ in-built grievance mechanism) and increase their effectiveness as a “non-judicial grievance mechanism”.

Expanded scope and expectations

The changes made to the environment chapter are potentially the most far-reaching of any of the updates to the Guidelines. 

These have seen the Guidelines move beyond a more traditional environment, health and safety focus to capture a wider range of adverse environmental impacts. 

The expanded scope covers (on a non-exhaustive basis): 

• climate change; 
• biodiversity loss; 
• degradation of land, marine and freshwater ecosystems; 
• deforestation; 
• air, water, and soil pollution; and 
• mismanagement of waste, including hazardous substances.

In particular, in relation to climate change, there is now an expectation under the Guidelines that enterprises ensure their GHG emissions are consistent with internationally agreed goals. 

There is also a recommendation that companies adopt science-based climate policies, strategies, and transition plans, including short-, medium- and long-term targets (covering Scope 1, Scope 2 and, to the extent possible, Scope 3, emissions). 

The Guidelines also make clear such targets should only use offsets “as a last resort” and encourage companies to make sure reporting on offsets is distinct from and complementary to their reporting on emissions reductions.

For many, these changes will not be new in practice. These changes, and indeed those throughout the Guidelines, do more to bring the Guidelines in line with the wider landscape (e.g. alignment with the environmental topics under the EU Taxonomy and EU Corporate Sustainability Reporting Directive ("CSRD")) than introduce fundamentally new expectations. 

This can also be seen in those changes to the Guidelines which clarify the existing position, notably around the scope of the term "business relationships" - where the changes align closely with the concept in the UN Guiding Principles on Business and Human Rights ("UNGPs"), whose "cause, contribute, linkage" framework is now referenced frequently in the Guidelines.  

As well as expanding in scope, what the updates Guidelines do well is acknowledge the linkages between the various topics covered, in particular calling out the frequent overlap seen in relation to environmental impacts and matters relating to workers, communities and human rights. This emphasis on a “just transition” highlights the need for enterprises to address sustainability topics in a holistic fashion and work to avoid operating in siloes.

Increased focus on due diligence

The influence of the UNGPs on the updated OECD Guidelines can also be seen in the increased focus on and new text relating to due diligence (which has been explicitly added to various chapters beyond that on human rights). 

This is timely given the current trend of due diligence regimes being introduced in the EU and makes clear that, regardless of the final position adopted by European bodies on the new Corporate Sustainability Due Diligence Directive ("CSDDD" or "CS3D"), there will be an expectation in soft law that enterprises use risk-based due diligence to assess and address adverse impacts within their operations and across their business relationships (which includes subcontractors, investee companies and joint venture partners).

The Guidelines emphasise that as part of their due diligence process, enterprises must engage “meaningfully” with stakeholders who may be adversely affected by their activities (particularly those who may be marginalised or vulnerable). “Meaningful” engagement is described as engagement that is two-way and conducted in good faith, that is responsive to stakeholders’ views, and is done in a way that is timely, accessible, appropriate, safe and removes barriers to engagement. 

The Guidelines also make clear the need for grievance mechanisms and the promotion of an environment in which individuals feel safe to raise concerns. Building on the topic of grievance mechanism, there is also a more explicit focus on the provision of, or cooperation in the provision of, remediation.

A key part of due diligence under the UNGPs and the OECD Guidelines is reporting. The updated Guidelines explicitly call out the need for enterprises to repot on “sustainability-related information”, including policies established, measures taken and performance. Following the lead of the new EU sustainability reporting regime under the CSRD, the Guidelines appear to recognise the concept of "double materiality" and call out that “risks and impacts that may not seem to be financially material but that are relevant to people, and the planet may be financially material for an enterprise at some point”. 

Strengthened mandate of National Contact Point mechanism

The effectiveness of National Contact Points ("NCPs") has varied significantly to date depending on their jurisdiction and level of resource, with the OECD Watch recently finding that “most NCPs are underachieving on indicators that matter most to civil society.” 

The revised Guidelines seek to clarify the mandate of NCPs as that of a “non-judicial grievance mechanism”, and strengthen their authority to deliver that mandate through the addition of certain key provisions:

• If the parties to the complaint fail to resolve their issues through the NCP "good offices" process or if the NCP considers that one or more of the parties is unwilling to engage or to participate in good faith, the NCP will still issue a statement and make recommendations as appropriate on the implementation of the Guidelines.
• The NCP may also, at its own discretion, set out its views in its final statement on whether the enterprise observed the Guidelines and inform relevant government agencies of the good faith engagement, or absence thereof, of the parties. 
• NCPs are now expected to follow up on agreements they facilitate or recommendations they make and are encouraged to publish follow up statements.

These amendments signal a move towards NCPs acting in a similar manner to courts, with strengthened authority to make findings and clearer consequences for parties who choose not to engage with the NCP process. 

This strengthened mandate, particularly when combined with the expanded scope of the Guidelines (especially in relation to climate change), poses an increased risk to those stakeholders view as failing to engage with and perform on the sustainability agenda. 

Even more importantly, NCPs will hear complaints against companies regardless of whether they have committed to implement the Guidelines or not – so these changes concern all multinationals, not just those who have adopted the Guidelines. 

For more information on NCPs, see our previous briefing.

Conclusions

The updates to the Guidelines are overdue and bring them into line with the direction of travel we have seen over recent years. 

Substantively, they may not necessarily introduce fundamentally new ideas but - given their in-built grievance mechanism, commonly accepted status, and incorporation into new regimes - they are important for businesses to be aware of as yet another instrument stakeholders can use to push the sustainability agenda.