Banks and the OECD Guidelines
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The OECD Guidelines
The OECD Guidelines for Multinational Enterprises are recommendations from governments to multinational enterprises on responsible business conduct around the world. They define standards for socially and environmentally responsible corporate behaviour and establish a grievance mechanism procedure to address complaints between corporations and the communities or individuals negatively affected by corporate activities. The Guidelines are adhered to by 48 countries (all 36 OECD member states and 12 other adhering states). The Guidelines are currently undergoing a revision process which is expected to lead to a new version later in 2023.
The OECD and non-OECD adhering governments last updated the Guidelines in May 2011, introducing substantial new provisions in areas such as human rights, due diligence, and supply chain responsibility, and bringing the Guidelines substantially into line with the UN Guiding Principles on Business and Human Rights.
In 2020, the OECD Working Party on Responsible Business Conduct (WPRBC) initiated a stocktaking exercise to assess the OECD Guidelines, their implementation and the OECD’s work on Responsible Business Conduct. In June 2021, OECD Watch published "Get Fit: Closing gaps in the OECD Guidelines to make them fit for purpose" which explains why and how gaps in the OECD Guidelines for Multinational Enterprises should be closed to ensure they remain fit for purpose. As they stand, the OECD Guidelines are outdated and incomplete, missing major and pressing societal issues such as climate change, digitalization, tax avoidance, land rights, and security for human rights defenders.
BankTrack and the OECD Guidelines
BankTrack has participated in the 2023 consultation for an updated version of the Guidelines, in support of better safeguards for human rights and enviromental defenders and improved consideration and protection of the rights of Indigenous peoples. BankTrack was a member of the Advisory Group to the OECD Project for Responsible Business Conduct in the Financial Sector (2015 to 2022) to encourage higher standards in the implementation of the OECD Guidelines for Multinational Enterprises. As part of this, we provided input on its three guidance papers for Institutional Investors (2017), Corporate Lending and Underwriting (2019) and Project Finance (2022). In 2019 we published a briefing paper with OECD Watch summarizing areas where the Corporate Lending guidance paper had made important progress.
In addition to this, BankTrack has engaged with National Contact Point (NCP) complaints against financial institutions through giving advice to communities and civil society organisations. This included bringing a climate change complaint alongside other organisations to the Dutch NCP against ING in 2017; supporting a complaint against ANZ in Australia - which in 2021 led to the development of the first real grievance mechanism in the banking sector as well as remedy for victims; and in 2021 seeking guidance on nominee shareholdings following a complaint against UBS.
We maintain the following reference pages on OECD complaints:
National Contact Points
The OECD Guidelines establish a unique complaint procedure ( or “Specific Instance Procedure”) in the form of National Contact Points (NCPs). Every government that adheres to the Guidelines is required to establish an NCP to promote the OECD Guidelines and handle complaints against companies that have allegedly failed to adhere to the Guidelines’ standards. For details, advice, and support in making use of the complaint procedure see the OECD Watch page on Filing OECD Guidelines complaints.
Due Diligence Guidance
In addition to the Guidelines, the OECD published ‘Due Diligence Guidance for Responsible Business Conduct’ in May 2018. This provides practical support to multinational enterprises on the implementation of the OECD Guidelines. OECD Watch commended the Guidance as it settled certain critical issues and concepts around due diligence and it dispels many common misunderstandings. The OECD has also published a number of sector specific guidance which helps enterprises identify and address risks to people, the environment and society associated with business operations, products or services in particular sectors.
OECD Responsible Business Conduct in the Finance Sector Project
The OECD’s Proactive Agenda Project on Responsible Business Conduct (RBC) in the Finance Sector was a multi-stakeholder project running from 2015 to 2022 which elaborated guidance for the finance sector on implementation of the OECD Guidelines. BankTrack served as an Advisory Group member to the project, providing input and comments on all three papers.
Phase one of the project delivered a guidance document on ‘Responsible business conduct for institutional investors’ in March 2017. Important things to note regarding this guidance are:
- Investors, including minority shareholders, are at least “directly linked” to all impacts of all companies in which they hold shares, except in some extremely rare situations.
- In some situations, such as where an investor has substantial shareholding in or a seat on the board of an investee company causing an adverse impact, the investor can be considered to be “contributing” to adverse impacts caused by that investee company. This means the investor is also responsible for (contributing to) remediating impacts.
The second phase of the project delivered guidance on ‘Due Diligence for Responsible Corporate Lending and Securities Underwriting’, in October 2019. Throughout this phase of the project, BankTrack provided comments on three draft documents, participated in regular Advisory Group calls, and gave its view of the guidance at an ‘Expert Working Session’ held by the OECD in September 2018. The guidance elaborates on the OECD Guidelines and represents an important step forward in encouraging responsible conduct by financial sector actors. Important things to note regarding this guidance are:
- The guidance clearly recognises that banks providing loans and underwriting services can contribute to adverse human rights and environmental impacts through both actions and omissions.
- The guidance clarifies in several places how and why banks should establish and/or participate in grievance mechanisms.
- There is a clear recognition that banks can take steps to promote greater transparency with respect to client relationships without being in breach of a bank’s duties around client confidentiality.
- There are clear references to the Paris Climate Agreement and SDGs, and a statement that financial institutions can contribute to sustainability goals first and foremost by seeking to avoid and address environmental and social risks associated with their activities.
- Banks may engage in public policy advocacy to seek to raise minimum standards as part of their approach to using leverage.
- Recognition of the importance of ensuring the views of impact rightsholders or their legitimate representatives are considered by banks during due diligence.
Phase three of the project resulted in a final guidance paper on 'Responsible business conduct due diligence for project and asset finance transactions', published in October 2022. This paper built on the guidance elaborated in the Corporate Lending paper, providing more targetted recommendations for project finance transactions, and included an overview of the overlaps and gaps in scope between the Equator Principles and OECD Guidelines.