{"id":56211,"date":"2021-09-14T14:44:44","date_gmt":"2021-09-14T13:44:44","guid":{"rendered":"https:\/\/www.lse.ac.uk\/granthaminstitute\/?post_type=news&p=56211"},"modified":"2024-08-16T10:20:45","modified_gmt":"2024-08-16T09:20:45","slug":"reviewing-the-oecds-guidelines-for-multinational-enterprises-guiding-responsible-business-conduct-in-the-face-of-climate-change","status":"publish","type":"news","link":"https:\/\/www.lse.ac.uk\/granthaminstitute\/news\/reviewing-the-oecds-guidelines-for-multinational-enterprises-guiding-responsible-business-conduct-in-the-face-of-climate-change\/","title":{"rendered":"Reviewing the OECD\u2019s Guidelines for Multinational Enterprises: guiding responsible business conduct in the face of climate change"},"content":{"rendered":"\n

The OECD’s ‘Guidelines for MNEs’ were last updated in 2011, before the signing of the Paris Agreement and the growing consensus on the need for net-zero greenhouse gas emissions. In this commentary, Joana Setzer, Catherine Higham and Vibha Mohan provide evidence to complement the OECD’s own ‘stocktake’ of the Guidelines by reviewing key developments in understanding of responsible conduct in the climate context.*<\/a> They draw in particular on important climate litigation cases.<\/p>\n\n\n\n

Earlier this year the Organisation for Economic Co-Operation and Development (OECD) published a draft stocktaking report<\/path><\/svg><\/a> on the implementation of its Guidelines for Multinational Enterprises <\/em>(MNEs)(‘the Guidelines<\/path><\/svg><\/a>’). These Guidelines are designed to act as “one of the world’s most authoritative international instruments for responsible and sustainable business”. <\/p>\n\n\n\n

As the draft stocktake report acknowledges, the “environmental agenda has evolved significantly since 2011”, which is when the Guidelines were last updated. A key development has been the signing of the Paris Agreement in 2015 and the consequent global consensus<\/path><\/svg><\/a> on the need for global greenhouse gas emissions to reach ‘net zero’ in the second half of this century. Achieving this goal will require a whole-economy shift, one which, as the report rightly recognises, requires a fundamental rethink of how business and investment decisions are made. The Guidelines do not explicitly mention climate change, but they encourage reporting on greenhouse gas emissions reductions (see Chapter VI 6 (b), (c), (d) and Commentary, paragraph 33).<\/p>\n\n\n\n

Adding to this stocktaking exercise, here we take a deeper look at how the Guidelines and the non-judicial dispute resolution mechanism before National Contact Points<\/path><\/svg><\/a> (NCPs) have been applied to date to the greatest global challenges of our time: climate change, biodiversity loss and environmental degradation.<\/p>\n\n\n\n

We review key developments in the broader understanding of responsible business conduct in the climate context. We draw on a range of sources, particularly evidence from the field of climate change litigation, which acts as a critical avenue for the contestation of climate action and inaction, as well as the clarification of policies and legislation. Since 2015, the global body of climate change litigation has more than doubled<\/a> in size, with a small but significant number of cases brought against corporate actors.<\/p>\n\n\n\n

In particular, we assess the nine climate-related NCP complaints brought to date under the Guidelines, which are summarised in the Climate Change Laws of the World database<\/path><\/svg><\/a> maintained by the Grantham Research Institute. Some of these are referenced in the OECD’s stocktake report but it gives little critical examination to the process and outcomes of these complaints. We highlight inconsistencies in the approaches adopted by NCPs between these and related cases, which strengthens the case for a substantive update to the relevant chapters of the Guidelines, or subsidiary guidance on climate-related issues.<\/p>\n\n\n\n

Finally, we provide a short set of recommendations to the OECD Secretariat and the Working Party on Responsible Business Conduct.<\/p>\n\n\n\n

Responsible business conduct in the climate context<\/h2>\n\n\n\n

If the Guidelines are to remain a relevant guide for MNE conduct – and for effective intervention by the NCPs, government-supported offices whose core duty it is to advance the effectiveness of the OECD Guidelines – in the years to come, there are five key issues to which they must be better adapted.<\/p>\n\n\n\n

(i) Due diligence in the climate context<\/h3>\n\n\n\n

Under the Guidelines, corporate due diligence is “the key process for operationalizing” business responsibilities. However, as established by feedback from the NCPs, outlined in the stocktake report, there remains a significant need for greater clarity on what positive due diligence obligations on climate amount to. This need is especially clear when we consider the category of human rights due diligence in the climate context.<\/p>\n\n\n\n

The fundamental interlinkage between climate change and human rights has been firmly established<\/path><\/svg><\/a>, with more than 100 cases<\/path><\/svg><\/a> being brought before domestic and international courts and tribunals based on human rights grounds. The concept of “human rights due diligence” was incorporated into the Guidelines in 2011. Subsequently the application of this concept to climate change has been confirmed by the work of UN Special Rapporteur on Human Rights and the Environment, David Boyd, in a 2019 report <\/path><\/svg><\/a>on climate change and human rights, and by the UN Office of the High Commissioner for Human Rights, in a 2020 “key messages” report<\/path><\/svg><\/a>, as well as by domestic courts and tribunals.<\/p>\n\n\n\n

A significant corporate due diligence obligation was recognised in the recent decision by the Hague District Court in the case of Milieudefensie [Friends of the Earth Netherlands] v. Shell<\/em><\/a>,<\/u><\/em> when the Court ordered Shell to reduce its emissions. The Court found the unwritten duty of care under Dutch tort law to be informed by the responsibility to respect human rights that is reflected in the OECD Guidelines.<\/p>\n\n\n\n

Recognising the need for further clarity, the UN Working Group on Business and Human Rights is currently developing an Information Note<\/path><\/svg><\/a> to address this issue. We would urge the OECD to follow suit and provide greater clarity on positive due diligence obligations on climate change.<\/p>\n\n\n\n

(ii) Obligations to reduce emissions<\/h3>\n\n\n\n

The early climate-related NCP complaints, filed before the finalisation of the Paris Agreement in 2015, dealt with specific, substantive emission-reduction obligations. There are two such cases: a complaint by Norwegian Climate Network and Concerned Scientists Norway against Statoil ASA<\/path><\/svg><\/a>, concerning the incompatibility of oil sands operations with the sustainability provisions of the Guidelines, and a complaint by NGO Germanwatch against Volkswagen<\/path><\/svg><\/a>, alleging violation of climate obligations. Both complaints were rejected by the respective NCPs on the grounds that the issues raised were outside the scope of the OECD Guidelines.<\/p>\n\n\n\n

In rejecting the Norwegian case, the NCP observed that the complaint concerned state conduct and that it lacked particularised allegations against the enterprise; the Complainant did not remedy this when it was suggested by the NCP. In turn, the Volkswagen case was determined before the entry into force of the 2011 Guidelines, and therefore before human rights standards were recorded into the text.<\/p>\n\n\n\n

Since these complaints were filed, there has been a significant shift in global understanding of the responsibility to reduce greenhouse gas emissions arising from an enterprise’s operations. Many MNEs now recognise they have an urgent responsibility to develop central emissions reduction policies. This is evidenced by the more than 3,000 companies, including a fifth of FTSE 100<\/path><\/svg><\/a> companies, that have joined the UNFCCC’s Race to Zero<\/path><\/svg><\/a> initiative.<\/p>\n\n\n\n

In part, this recognition is based on the more comprehensive understanding of the way in which human rights due diligence obligations in the climate context translate into a requirement to develop Paris Agreement-aligned business plans that has emerged from recent cases such as the Shell case. However, such human rights principles are just one source of this obligation. As the Climate Principles for Enterprises<\/path><\/svg><\/a> demonstrate, other sources of corporate obligations on climate change can be found in environmental principles such as the polluter pays principle<\/a> and the precautionary principle, tort law, obligations towards future generations, and international and soft-law. Companies must increasingly understand that these obligations must extend to both direct and value chain<\/a> emissions for which they may be responsible.<\/p>\n\n\n\n

While litigation concerning companies’ contributions to emissions has focused on a small group of major emitters from the energy sector, more recently this has expanded<\/path><\/svg><\/a> to include companies in other high-emitting industries, such as meat and dairy. Reflecting the changes in the international context since the early complaints to NCPs on emissions reductions were decided, more recent related complaints filed before NCPs have been treated differently (as we shall see below). As these more recent cases demonstrate, the Guidelines in their current form can and should be interpreted in a way that aligns with the goals of the Paris Agreement.<\/p>\n\n\n\n

However, as the feedback from NCPs summarised in the stocktaking report suggests, more detailed guidance on this alignment and the interpretation of climate obligations in light of the Paris Agreement and the other norms discussed above will help achieve consistency in the way complaints concerning emissions reductions are handled, and better assure alignment with the Paris temperature targets.<\/p>\n\n\n\n

(iii) Disclosure obligations<\/h3>\n\n\n\n

In contrast with the cases concerning substantive emission-reduction obligations described above, recent assessments by NCPs have been more progressive in how they consider the need for credit and finance agencies to address their due diligence and disclosure obligations in the climate context.<\/p>\n\n\n\n

In the broader environmental context, NCPs have been clear that financial institutions are required to actively engage with the potential environmental impacts of the projects and organisations to which they provide services. For example, the Dutch NCP, deliberating on the submission against Rabobank<\/path><\/svg><\/a> by Friends of the Earth Europe and Netherlands, noted that the disengagement of financial institutions like the Rabobank is not favourable to the goal of sustainability. The NCP further emphasised the value of constructive due diligence in the financial sector. This finds resonance in the specific instance against Atradius Dutch State Business<\/path><\/svg><\/a>.<\/p>\n\n\n\n

Disclosure by MNEs is integral to public understanding of corporate operations and their social, economic and environmental impacts. For instance, the Polish NCP has assessed the specific instance against the financial institution PZU<\/path><\/svg><\/a> regarding the adverse effect of its provisions of finance to companies involved in coal mining. The NCP highlighted a lack of transparency and recommended that PZU continue to honour its commitments relating to disclosing relevant non-financial information.<\/p>\n\n\n\n

Other cases have moved beyond the issue of transparency and engagement and are starting to tackle questions regarding substantive emission-reduction obligations for indirect greenhouse gas emissions:<\/p>\n\n\n\n