Published on 20 November 2023 in Client Alerts

OECD adopts new Guidelines for Multinational Enterprises on Responsible Business Conduct

Background

On 28 June 2023, the OECD released the “Guidelines for Multinational Enterprises on Responsible Business Conduct” (“Guidelines”), replacing the 2011 version of the Guidelines.  The Guidelines aim to promote positive contributions by enterprises to economic, environmental, and social progress, in line with internationally recognised standards.

The Guidelines are voluntary and are not a substitute for domestic and international legal obligations which apply over and above these commitments.

Key Highlights of The Guidelines For Enterprises

1. Disclosure on the part of the enterprise

Disclosure obligations under the Guidelines are twofold, requiring information on: (i) financial and operational matters relevant to investors, and (ii) activities that may not appear to be financially material, but that are relevant to people and the planet.

The second set of requirements mandate disclosure of information on enterprises’ plans to implement due diligence practices, and identification of areas where enterprises may have actual or potential adverse impacts on people, society, and the environment. Enterprises must also disclose how they have embedded policies on responsible conduct within their management.  The Guidelines emphasise materiality in disclosure, and these requirements should not be interpreted as placing an unreasonable administrative burden on enterprises.

2. Human rights in business conduct

Businesses have the obligation to work within the framework of internationally recognised human rights.  The Guidelines emphasise the importance of human rights in business relations and adopt a due diligence-based approach to risk management for human rights violations.  These requirements are to be read with the 2018 OECD Due Diligence Guidance which identifies specific risk issues across industries.

3. Maintaining employment and industrial relations

The Guidelines mandate the maintenance of employment relations in line with prevailing international practices and applicable domestic legislations.  The updated Guidelines enhance health and safety requirements for work environments by incorporating the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work.  The Guidelines promote the protection of fundamental rights, including the freedom of association, the right to collective bargaining and the abolition of forced labour. The Guidelines focus on the equality of opportunity in selection, remuneration, training and promotion, particularly for women and other vulnerable groups.

4. Environment

The Guidelines seek to align business conduct with internationally agreed goals on environmental preservation. Businesses are to undertake risk-based due diligence and establish an effective environmental management system to mitigate adverse environmental impacts including climate change, biodiversity loss and deforestation. Businesses must adequately train employees in sustainable practices and the management of hazardous and non-hazardous waste.

5. Corruption

The Guidelines impose due diligence obligations regarding corruption and bribery, in addition to the obligation not to engage in such practices.  The recommendations encourage organisations to carry out effective internal controls, including ethics and compliance programs to tackle bribery in business relations.  The Guidelines further provide recommendations to ensure that businesses maintain integrity while carrying out lobbying activities.

6. Taxation

Businesses must comply with the tax regime in host-States and are mandated to pay taxes without evasion.  The Guidelines recommend that multinational enterprises treat tax compliance as an element of their broader risk management system.

Conclusion

The updated Guidelines emphasise risk-based due diligence throughout the recommendations and require enterprises to consider and mitigate the adverse effects of their business activities.  It is especially important for multinational enterprises to comply with internationally recognised standards, in addition to the domestic laws and policies applicable to their operations.