OECD MNE Guidelines: A responsible business choice

Far from being a snubbed “CSR Cinderella”, the OECD Guidelines for Multinational Enterprises are being widely used by companies seeking to be recognised as leaders in responsible business practice and sustainable development. But if governments want them to be used even more widely, then they must take action to promote them further.

The global landscape of international initiatives to promote responsible business practice has become increasingly–and perhaps confusingly–crowded over the last decade. A diverse array of voluntary instruments has emerged, including hundreds of corporate codes of conduct, certification and labelling schemes, model codes, and sectoral initiatives, all designed to assist private and civil society organisations as they try to assess and respond to issues such as sustainable development, climate change or poverty alleviation.

Some of these initiatives have been developed by single organisations or sectors, while others have been developed through “multi-stakeholder” partnerships of business and non-profit organisations. Moreover, the current negotiation of the first ever guidance standard on ‘social responsibility’ by the International Organization for Standardization (ISO), expected for 2010, suggests that the trend to develop new voluntary instruments will continue.

The trend raises a number of policy questions for governments and businesses alike. These include how well the various initiatives relate to agreed intergovernmental policies, the extent of their uptake and use, and their impacts. For OECD member countries there is an especially troubling question: have these new private corporate social responsibility (CSR) initiatives made the OECD Guidelines for Multinational Enterprises (MNEs) a kind of “CSR Cinderella” – attractive, but destined to be left behind?

As explained below, recent research among European companies suggests that the MNE Guidelines are well known and respected, but can still be more widely used.

In the universe of CSR initiatives, the OECD MNE Guidelines occupy a special place. Dating back to 1976, and revised in 2000, they are in fact one of the very earliest examples of comprehensive guidance on how to ensure that business operations are in harmony with government policies and the societies in which they do business.

Unlike privately developed initiatives, the Guidelines have been developed and adhered to by all 30 OECD governments, in close consultation with representatives of business and employee organisations and with NGO support. Some 11 non-OECD countries also adhere to the Guidelines and others are being considered.** This means that, together with the ILO Tripartite Declaration (1977) and the United Nations Global Compact (2000), the MNE Guidelines are today still one of the few responsible business guidance instruments that enjoy formal government recognition.

But a key question is how companies actually use these instruments. While some private initiatives are membership-based, and therefore the number of users can be reasonably accurately assessed, less is known about usage of the MNE Guidelines, since reporting on their use by companies is not required. This information gap is now gradually being filled, thanks to CSR and ‘sustainability’ reporting.

A survey conducted in July 2008 by Vigeo, a European agency that assesses and rates corporate CSR performance, sought to clarify how the largest publicly-listed European companies were using the three main governmentally-developed or endorsed instruments from the OECD, UN and ILO. These three were selected in part because they had been specifically endorsed by the 2007 G8 Summit.

The survey was carried out in consultation with the OECD and the Global Reporting Initiative (GRI), which is a sustainability reporting framework. Vigeo examined 89 responses from European companies to a survey, and supplemented these with independent analysis of 281 individual company CSR and sustainability reports carried out for the OECD.

Vigeo’s first finding shows that a clear majority of the respondent companies believed their CSR approach had been “based on or inspired by” the UN Global Compact, the ILO Tripartite Declaration and the OECD MNE Guidelines (see graph 1, below).

Click here for bigger graph

Furthermore, the survey also revealed that a large majority of companies had adopted the practice of referencing these internationally recognized guidance instruments in their annual CSR or sustainability reports. The UN Global Compact, which is based on ten short universal principles covering human rights, labour standards, environment and anti-corruption, was referenced in reports by 87% of respondents. The ILO Tripartite Declaration and OECD MNE Guidelines were referenced by 53 % and 39% of respondents respectively. Given that companies are not requested to reference their use of these instruments, this is a respectable performance.

The Vigeo survey also specifically explored business attitudes to the value of the MNE Guidelines. A large majority of companies thought that the Guidelines could help companies in reporting on their social responsibility to their stakeholders, and only a small minority thought they offered ‘nothing concrete’ (see graph 2). Indeed, over three quarters considered that the Guidelines could help prevent risks of social and environmental dumping in the world market. Barely over a quarter agreed with the proposition that the Guidelines could constitute a constraint, which penalised developed countries in competition with developing countries.

Click here for bigger graph

Another trend highlighted by the Vigeo survey was the use of more than one instrument in developing a company’s CSR approach. For example, over 80% of the respondents that refer to the OECD MNE Guidelines in their reports also refer to GRI. This trend is supported by independent research for the OECD which suggests that over 30% of companies of the companies covered by the Vigeo survey and participating in the UN Global Compact also refer to OECD MNE Guidelines.

Nearly three quarters of this group also refer to GRI. In fact, some 86% of respondent companies to the Vigeo survey said they use the GRI framework in preparing their CSR or sustainability reporting. This is consistent with the findings of consultants KPMG International, which show that GRI is used by three-quarters of Fortune Global 250 companies.

Importantly, the trend towards making specific voluntary reference to international instruments does not appear to be limited to European companies. Research by myself and Kernaghan Webb, Associate Professor in the Department of Law and Business at Ted Rogers School of Management in Toronto, suggests a similar pattern of behaviour among multinational companies around the world seeking to be recognised as leaders in the field of responsible business practices.

In fact, over a quarter of companies listed on the 2008 Dow Jones Sustainability Index (DJSI) reference the Guidelines in their 2007 CSR reports. European companies make up the bulk of references, but Canadian and Japanese companies also feature. We also find the Guidelines being cited by almost a quarter of companies listed on the 2008 Innovest/Corporate Knights Global 100 “Most Sustainable Companies”. These include companies from Australia, Canada, Switzerland and the USA.

And on the 2008 FTSE4 good Global Index, 14% of companies reference the Guidelines. While these are predominately European companies, the list includes US and Australian companies.

The same research points to the OECD Guidelines being among the most widely used global corporate responsibility instruments or initiatives, together with the ISO 140001 environmental management system standard, the GRI Guidelines, the UN Global Compact and various ILO instruments.

OECD and other governments that have adhered to the MNE Guidelines can take some comfort from the fact that the Guidelines are among the most popularly cited instruments used in the CSR space. This suggests they have both an inherent business value and recognised special status. The advent of CSR reporting should also be welcomed, as it has not only made corporate practice more transparent but also provided the business community with a platform for recognition of their values and performance.

However, the research invites wider and as yet unanswered questions. These include the overall level of awareness within the business community of the MNE Guidelines, and how comprehensively they are being followed. OECD Watch, a coalition of 84 civil society organisations, has highlighted a number of perceived deficiencies in the implementation of the Guidelines and recommended reforms.

Yet governments can expand and deepen the uptake of the Guidelines in a number of relatively easy ways, for instance, by encouraging National Contact Points to play a more active role in promoting awareness of the Guidelines in the business sector, and welcoming the growing practice of referencing use of the Guidelines in CSR and sustainability reporting. Going further, governments could require companies tendering for government business or seeking investment guarantees to demonstrate an awareness of the Guidelines. And governments could support research to explore how companies can optimise the value of the Guidelines and complementary CSR tools.

In tackling increasingly urgent global challenges such as poverty and climate change, it will be essential to have fully focused and engaged companies playing by the same rules. The OECD MNE Guidelines have a key role to fill in making sure they do.

* A former diplomat to the OECD, Paul Hohnen is a consultant on responsible business initiatives and sustainable development.

** The 11 non-OECD adherents to the OECD MNE Guidelines are Argentina, Brazil, Chile, Egypt, Estonia, Israel, Latvia, Lithuania, Peru, Romania and Slovenia.

References

  • KPMG International (2008) “International Survey on Corporate Responsibility Reporting” October.
  • OECD (2008) “Overview of Selected Initiatives and Instruments Relevant to Corporate Social Responsibility”, Paris.
  • Vigeo (2008) ‘La norme publique internationale dans la conception et l’exercice de la responsabilité sociale des grandes entreprises européennes : Enquête sur la prise en compte volontaire des instruments internationaux par les entreprises européennes engagées en faveur de la responsabilité sociale’, October; see www.vigeo.com

For more on:

The OECD MNE Guidelines, see www.oecd.org/daf/investment/guidelines

UN Global Compact, see www.unglobalcompact.org

ILO Tripartite Declaration, see www.ilo.org

ISO forthcoming social responsibility standard, see www.iso.org/sr

©OECD Observer No 270/271 December 2008-January 2009




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