From Soft to Hard Law and Interpretation: the Case of the OECD Guidelines for Multinational Enterprises and the Role of the National Contact Points

From Multinationals to Supply Chains

Although the Guidelines are generally aimed at multinational companies, they are applied broadly, so much so that they cover even pure contractual relationships (going well beyond the cases that usually represent contractual control according to national laws).⁹ Moreover, they apply to any corporate form and their application does not differ based on the type of activity or the purpose of the entity.¹⁰

Many cases concern business relationships where no corporate control existed. Furthermore, in supply chains, the responsibility of an entity is also found when the contested behavior is attributable to a sub-contractor with no direct business relation with the entity.

Contractors and supply chains were involved, for instance, in the notorious Rana Plaza accident. The case concerned an accident that occurred on 24 April 2013, when an eight-story commercial building, Rana Plaza, collapsed outside Dhaka (Bangladesh). The building contained five clothing factories. Most of the people in the building at the time were garment workers. The accident caused over 17 days of search and rescue, the evacuation of 2,438 people, the deaths of more than 1,100 people, with more being left with life-long debilitating injuries.¹¹

On 12 December 2014, the NGOs Clean Clothes Campaign Denmark and Active Consumers submitted a Specific Instance to the Danish NCP alleging that PWT Group (a clothing company) had not observed the OECD Guidelines due to a failure to carry out due diligence in relation to its supplier, the textile manufacturer New Wave Style Ltd, located in the Rana Plaza before the collapse of the factory. The NCP concluded that the company had violated the Guidelines for not having conducted proper due diligence. However, the supplier could not have sole responsibility for the accident. Indeed, not only various local garment producers were established in the same building, but suppliers did not necessarily work exclusively for one brand/western company.

The NCP devotes some time to due diligence in relation to a companyʼs suppliers: according to Chapter II, paragraph A12 of the Guidelines, a company should seek to prevent or mitigate an adverse impact where they have not contributed to that impact, when the impact is nevertheless directly linked to their operations, products, or services by a business relationship. This is not intended to shift responsibility from the entity causing an adverse impact to the enterprise with which it has a business relationship. In light of this, the NCP considered the following three points: (i) to what extent were the respondentʼs activities directly linked with the supplier; (ii) to what extent had the respondent carried out due diligence in accordance with the OECD Guidelines; and (iii) to what extent should building safety have been part of the respondentʼs due diligence at the time of the accident.

As for the first point (the respondentʼs relationship with NWS), the NCP states:

The New Wave Style factory manufactured products in the Rana Plaza building. The respondentʼs name is included on New Wave Styleʼs list of ‘Main Buyersʼ. The clothing brands Shine and Jackʼs were manufactured for the respondent at Rana Plaza. These brands are sold in the stores Tøjeksperten and Wagner, which are also owned by the respondent. A number of production documents from the respondent were found in the ruins. The respondent has also stated that New Wave Style has been a supplier to the respondent since 2010.

In multiple statements to the NCP, the respondent has asserted that it is unclear to the respondent what the relationship is between the collapse of the Rana Plaza building and the complainantʼs claim that the respondent has violated the OECD Guidelines. The respondent has also stated that New Wave Style was not manufacturing products for the respondent on the day that the building collapsed. The last time that clothing was manufactured at New Wave Style for the respondent was on 8 March 2013. The accident occurred on 24 April 2013.

Based on the above, the NCP finds that New Wave Style has been a supplier for the respondent since 2010 and thus PWT Group is directly linked with its supplier New Wave Style.

The NCP does not find it of significance that goods were not being manufactured at New Wave Style for the respondent at the time of the accident. No information was provided as to whether this was due to specific actions of the respondent, or whether the cooperation was suspended; therefore, this circumstance can be a matter of chance. Thus the NCP finds that the respondent and New Wave Style were directly linked at the time of the accident (ref the OECD Guidelines, chapter II, paragraph 12).

According to the OECD Guidelines, companies must seek to prevent or mitigate an adverse impact where they have not contributed to that impact, when the impact is nevertheless directly linked to their operations, products or services by a business relationship, see the OECD Guidelines, chapter II, paragraph 12.

Therefore, according to the OECD Guidelines, the respondent was obliged to take appropriate measures to seek to prevent or remedy adverse impacts linked to the supplier New Wave Style, Rana Plaza.¹²

The respondent had stated that a due diligence had been performed some time before the accident. Nonetheless, the NPC considered that this did not adequately include checks of the safety conditions, or that evidence was given that such due diligence mechanisms were regular practice. Furthermore:

The NCP finds that the exercising of due diligence in relation to a business associate in Bangladesh was particularly required, as poor working conditions in large parts of the textiles sector in Bangladesh were known and reported upon (e.g. Foreign Trade Associationʼs April 2006 press release ‘European Commerce pushes for improvement of social standards in Bangladeshʼ and the March 2013 report by Clean Clothes Campaign and SOMO entitled ‘Fatal Fashionʼ).¹³

As already noted, responsibility extends to sub-contractors. In Adidas and Südwind, the Specific Instance was brought before the German NCP by three non-governmental organisations from Germany, the Netherlands and Indonesia, and directed against Adidas, a multinational sportswear manufacturer headquartered in Germany.¹⁴ The complainants believed that the respondent failed to fulfil its obligations under the Guidelines regarding certain events that occurred in its supply chain. These events took place in Indonesia at a factory that was acting as a sub-contractor to the respondentʼs main shoe manufacturing partner in that country. From the complainantsʼ point of view, the respondent did not adequately use its influence as a buyer to curb alleged anti-union behavior, layoffs, and address wage matters at the subcontractorʼs factory, thereby violating provisions set out in Chapters II (General Policies) and IV (Human Rights) of the Guidelines. The respondent rejected these allegations pointing to, inter alia, the activities it undertook to help resolve the situation as well as the relatively small size of its order volume that limited its leverage vis-à-vis the subcontractor.¹⁵

The mediation organised by the German NCP resulted in a mutually accepted understanding regarding the wage issue, but not the right to work and freedom of association issue, prompting the NCP to recommend that the company review its reporting and complaint channels in this context and that the submitters contribute to this. More specifically, the NCP encouraged the company to assess possible obstacles for whistle-blowers to come forward:

52. Without prejudice to the failure of the Parties to reach a comprehensive agreement on the issues raised through mediation, the NCP believes that the instrument of recommendation could potentially help to avoiding freedom of association issues similar to those considered in this complaint from re-arising, thereby contributing to the better implementation of the OECD Guidelines in the future. The NCP therefore avails itself of the opportunity to give one recommendation each to the Respondent and the Complainants.

53. As laid out in paragraph 13 above, it was only with a delay of several months that the Respondent learned of the events which had taken place at the Subcontractorʼs factory since the beginning of 2012. The Respondent explained this delay by the fact that in spite of a multitude of channels provided for reporting, neither an individual worker nor a trade union had brought these events to the Respondentʼs attention.

54. The NCP therefore recommends to the Respondent to review its reporting and complaint channels and to discuss with relevant stakeholders (trade union representatives, workers, business partners)

– which impediments might exist that might make potential informants refrain from using these reporting and complaint channels and

– how the effectiveness of these reporting and complaint channels could possibly be improved.

The cases described are just two examples among the many that apply the Guidelines to purely contractual relationships, where there is no corporate control relationship between the parties, and where, nevertheless, a company is considered liable for the violation of the standard by the other. Furthermore, the cases illustrate how the Guidelines have been applied to cases in which the violation was caused by a sub-subtractor, which the party has not directly selected and whose behavior it has no possibility to monitor directly. The excerpts quoted from the findings in Rana Plaza also indicate that the violation need not even be directly caused or have an immediate direct link with the consequences of the violation.

These are situations that clearly depart from the dynamics of civil liability under our domestic legal systems. Of course, the consequence of the application of the Guidelines does not impact on liability but imposes the obligation to execute a due diligence covering all the described aspects to avoid, or at least mitigate, the risk of their occurrence. However, the change in perspective is relevant.

Financial Investors and Minority Shareholders

Minority shareholders and financial investors are also covered by the Guidelines. This occurs even though such minority shareholders or financial investors have no control over the management of the challenged entities. Furthermore, NCPs have established, after various discussions and confrontations, that the Guidelines also apply to the financial market: financial institutions have, on the one side, the duty to generally implement investment policies favoring investment in entities and projects ensuring business responsibility, as well as in business sectors where sustainability is promoted, and, on the other side, to perform accurate due diligence for any specific investment they adhere to.¹⁶

Subsequent cases concerning Norges Bank Investment Management (NBIM) helped set such principles. In the very first case, concerning minority shareholding, Norges Bank, as the operational manager of the Government Pension Fund Global (the GPFG), argued in a letter to the Investment Committee of 21 June 2013, that the Guidelines apply to companies in the GPFGʼs investment universe, but generally not to minority shareholders in relation to their investee companies. Further, it stated:

the complexity of the relationships in the financial sector and the multitude of business models within this sector warrant a careful and thorough assessment of the proper functioning of the Guidelines within the sector. It is also NBIMʼs opinion that the applicability of the Guidelines to minority shareholders warrants a separate and thorough assessment.¹⁷

Subsequently, and along the same line, the Dutch NCP and the Norwegian NCP in two Specific Instances concerning the involvement of respectively APG and NBIM with the enterprise POSCO, concluded that financial institutions and investors, including minority shareholders, are covered by the term ‘business relationshipsʼ in the Guidelines.¹⁸ The Dutch NCP, however, also agreed with APG that further clarification of the applicability of the Guidelines in the day-to-day business of FIs was necessary.¹⁹

In December 2014, the Norwegian NCP received a further request for review from some NGOs alleging that the Korean company Daewoo International, its parent company POSCO and NBIM had breached the human rights provisions of the Guidelines. The allegations assumed that Daewoo International and POSCO, domiciled in the Republic of Korea, did not comply with the Guidelines. The NGOs had asked NBIM to contact the companies with a view to getting them to stop their alleged undesirable activities which were stated to include violations of labour rights in their Uzbekistan subsidiaries. The request to the NCP concerned NBIMʼs handling, investigations and follow-up of the alleged violations.

The complaints raised questions about what type of due diligence could be expected of a minority shareholder, and questions of principle concerning the application of the OECD Guidelines in relation to financial institutions. To that end,

NBIM has submitted that the OECD Guidelines do not apply to minority shareholding nor in this Specific Instance. The NCP does not share this view. The OECD Guidelines apply to the financial, sector, as they do to all sectors. They do not make any exception for sub-groups of investors, nor do they exempt minority shareholders. The OECD Chapter on Human Rights converge with the UN Guiding Principles on Business and Human Rights, which are applicable to minority shareholders of institutional investors. The Norwegian NCP has consulted with the Dutch and UK NCPs, which in recent cases applied the Guidelines to the actions of multinational enterprises in the financial sector, including investors as majority and minority shareholders. All three NCPs have come to the conclusion that the OECD Guidelines apply to minority shareholders.

Consequently,

The question is thus not whether the OECD Guidelines apply to the financial sector and minority shareholding but how they apply.

In situations where the enterprise has a large number of business relationships, the NCP recognizes that it may not be feasible to conduct significant research on all companies in the portfolio prior to each investment. However, in such situations the enterprise is expected to develop a risk-based approach to human rights beyond the mere financial risks. NBIM already takes such an approach to certain human rights risks, such as child labor.

NBIM should build on its experience from focusing on childrenʼs rights to find ways to integrate also other human rights into their risk management system, provide more information on the processes it uses, and seek opportunities to enhance its data collection regarding human rights.²⁰

In IUF, EFFAT-IUF, SEIU and UGT v NBIM, the parties reached an agreement on 9 March 2022. The submission from four trade unions concerned allegations of gender-based violence and harassment in McDonaldʼs and related due diligence by two institutional investors: APG Asset Management (APG) and Norges Bank Investment Management (NBIM). The US NCP handled the specific instance concerning McDonaldʼs; the Dutch NCP handled the specific instance relating to the Dutch investor APG; while the Norwegian NCP handled the specific instance relating to NBIM, which was concluded with the mentioned agreement. The parties agreed, inter alia, that GBVH is a material risk that companies in the fast-food restaurant sector need to adequately address in order to create a safe and respectful environment for workers. They further agreed to make efforts to pay more attention to the issue, including through individual and collective action, as appropriate. The agreement equally affirmed that NBIM uses its best efforts to implement the due diligence recommendations of the OECD Guidelines.

The agreement noted that institutional investors have a role to play in contributing to responsible business conduct by considering associated risks throughout the investment process and to use leverage to influence investee companies to prevent or mitigate adverse impacts. It further stated that institutional investors should undertake human rights due diligence to identify actual and potential adverse impacts, and, where directly linked to an entity causing or contributing to adverse impacts, seek to prevent and mitigate adverse impacts by using leverage.

The fact that even minority shareholders must comply with the Guidelines is not surprising considering the conclusions reached in the previous section, which assumes the responsibility (for performing due diligence) even in the event of a lack of any form of control. The applicability to the financial sector also seems undisputed today, in the light of the numerous obligations also established at the domestic level for sustainable finance. These principles are less in conformity with the general theory of foreign investment law in respect of the obligations required of a foreign investor who intends to invest in a host state, although this area of law is also opening up to the principles of sustainability.²¹

Interests Protected Under the Guidelines

NCPs offer, if not an alternative method of resolving disputes, a means of responding to requests through which a party raises a concrete reservation on behaviour under the Guidelines also when the conditions for legitimation in a court do not arise under a specific legal order.

Under the Guidelines, companies have duties towards those having a stake in their activities. No definition is provided in the Guidelines of ‘stakeholderʼ, and it could be broadly stated that anyone bearing some interest in, or being somehow affected by the business of the enterprise, would want to have its interest or position protected. Leaving aside possibly more straightforward categories, such as workers, employees and consultants, minority shareholders or counterparties, the Guidelines explicitly also refer to local communities.²²

In Survival International v WWF,²³ the submission concerned the rights of the Baka population of southeast Cameroon in respect of the environmentally protected areas which the government of Cameroon introduced with the financial and logistical support of WWF, but—acccording to the submitting party—without the free, prior and informed consent (‘FPICʼ) of the Baka community. Consequently, the Baka population was allegedly denied or had seriously curtailed access to their traditional territories and natural resources on which they depend. The submitting party further stated that the Baka people were subjected to violent abuse by the eco-guards and other law enforcement officials who patrol the protected areas with WWFʼs support.

The submitting party claimed that the WWF violated the OECD Guidelines by failing to conduct a due diligence assessment and not making its support for the demarcation of the protected areas conditional upon the FPIC of the Baka. Moreover, WWF should have supported eco-guard patrols only if effective steps were taken to ensure that the patrols focused on commercial poachers rather than Baka hunting for subsistence, and that eco-guards should be held accountable if they used or threatened violence against the Baka. The result of the non-intervention of WWF was reputedly a denial of Baka rights to their land and natural resources.

This was by no means the only case where the rights of local communities arose before a NCP.²⁴ In fact, the frequent issue of protection of rights of local communities, especially when representing minorities or vulnerable groups, has taken the OECD to delve into the specific matter of protection of indigenous populations and publish the Guide for National Contact Points on the Rights of Indigenous Peoples when Handling Specific Instances.²⁵

The starting point for the Guide is the Commentary to the Human Rights chapter of the OECD Guidelines, according to which enterprises should

respect the human rights of individuals belonging to specific groups or populations that require particular attention, where they may have adverse human rights impacts on them. In this connection, United Nations (UN) instruments have elaborated further on the rights of indigenous peoples; persons belonging to national or ethnic, religious and linguistic minorities; women; children; persons with disabilities; and migrant workers and their families.²⁶

On the other side, interests of local communities expand when environmental damages are invoked. To this end, in Survival International Italia v Salini Impregilo, the NGOs addressed the Italian NCP on behalf of indigenous people of the Omo region (South-West Ethiopia) and of the Lake Turkana in Kenya, and against behaviours of the Italian company in its construction of the dam Ibe III over the Omo River.

The NGOs complained that the construction of the dam had caused the natural flooding cycle of the river to cease, and the substantial depletion of the water resources needed for recessive agriculture and to irrigate the pastures on which the downstream communities depended for their livelihoods. Furthermore, the dam and related irrigation projects would allegedly lower the level of the lake by 20 meters, with serious consequences for its salinity and therefore for the potability and fish stocks of the basin.

These elements would allegedly violate, in addition to the obligations of the Guidelines, also the African Charter on the Rights of Men and Peoples, because: (i) the communities had not been adequately consulted, in violation of their right to self-determination; (ii) the communities lost or were at risk of losing vital livelihoods; and (iii) communities were denied the right to development, due to failure to carry out an adequate environmental impact assessment of the project.

Salini rejected the totality of claims. Nonetheless, aside from the assessment of the various individual points, the duty clearly emerged for an investor to make an environmental due diligence as well as an environmental and social impact assessment, in addition to identifying mitigation measures to reduce the impact of the project.²⁷

In this context, brief mention must also be made of Climate Network and Concerned Scientists Norway v Statoil, addressed by the Norwegian NCP. In June 2007, Statoil ASA entered the Canadian oil sands industry with the purchase of the North American Oil Sands Corporation (NAOSC), and subsequently obtained a licence for an oil sands project to produce 80,000 barrels of oil per day (the Kai Kos Dehseh project). The objective of the project was to operate and continue to develop a steam-assisted gravity drainage (SAGD) bitumen recovery operation near Conklin, Alberta.

Two NGOs (Norwegian Climate Network and Concerned Scientists Norway) objected to the project arguing that the extraction of oil sands is incompatible with international efforts to limit global warming to an average increase of 2 °C above preindustrial levels. The complainants thus had as a stated interest that the company concerned should withdraw from the oil sands.

To begin with, the NCP considered that the interest of the NGOs was a shared concern that humankind, especially future generations, will suffer, and biological diversity will be greatly reduced due to the consequences of climate change. The NGOs aimed for a Norwegian climate and energy policy that is coherent with the gravity and extent of the climate crisis, as described by the Intergovernmental Panel on Climate Change (IPCC). No specific local community was thus identified, but the interest at stake concerned the whole humankind. The NCP accepted such interest as valid to accept the claim.

However, it decided not to proceed. The NCP admitted that the complaint concerned some of todayʼs most pressing issues—greenhouse gas emissions and climate change. The risks of major greenhouse gas emissions and the cumulative environmental impacts from oil sand extraction are serious. In this particular case, however, the complaint seemed to be directed more towards Canadaʼs policy of allowing oil sands development than towards the manner in which Statoil had operated in the context of this policy. The complaint did not concern the issue of whether Statoil, through its activities, had breached international standards or national rules that are covered by the OECD Guidelines. In order for the OECD Contact Point to be mandated to process a complaint, it must concern specified violations of the Guidelines that can be attributable to the company in question, but this did not seem to be the case.²⁸

These latter cases open a further chapter of extreme importance. It is not just a matter of noting the specific importance that environmental issues and climate change have in the application of the Guidelines. This element would be significant per se, and it is known that today even some domestic courts are starting to apply international standards on climate change directly to companies. However, the fact that communities are considered relevant stakeholders, and in charge of protecting collective interests or even general interests, is also extremely important.

In this specific context, a further obligation is also introduced for companies that make investments in a host country, to inform the communities affected by such investment, involve them in relevant decisions, and mitigate the negative effects on them of the investment. The Transparency Act does not concern environmental matters, but it does concern the protection of human rights, for which these cases, mutatis mutandis, assume specific importance also for the application of the Act.

Mediation and Beyond: Changing the Future Rather Than Sanctioning the Past

Finally, the NCPsʼ procedures are not intended for compensation but to change future behavior. The NCPsʼ mechanism is construed as a procedure where parties stand one opposing the other and where individual, concrete behaviors are assessed. However, the mechanism is established not to sanction past conduct. Through it, companies are rather guided to change their policies and business behaviours for the future and commit to the achievement of objectives of a general interest together with their business plans (or to achieve their business plans through behaviours that mitigate the risk of infringing the common interest).

The above-described Rana Plaza case represents one of the most concrete examples of change produced by the action of the NCPs. In fact, in the light of the many companies and stakeholders involved, this case could not be a matter for a sole NCP and was dealt with through coordination of various national and international bodies, under an articulated set of measures.

Significant steps have since been taken to address the challenge in Bangladesh, although criticism still exists of the efficiency of some of such measures. These include: (i) measures undertaken by the Bangladesh government under the Bangladesh National Tripartite Plan of Action on Fire Safety and Structural Integrity; (ii) measures adopted by the multilateral policy community, ILO Better Work Program, and the EU-US-Bangladesh-Sustainability Compact; and (iii) supply chain initiatives such the Bangladesh Accord on Fire and Building Safety and the Alliance for Bangladesh Worker Safety. Compensation schemes for the victims have also been set up both nationally (in the form of the Prime Ministerʼs Relief and Welfare Fund) and internationally (in the form of the Rana Plaza Donors Trust Fund).

Moreover, various actions were taken by the NPCs themselves. The French NCP released, at the request of the French Minister of Trade, a comprehensive report on the challenges and solutions at hand for building a safer and more responsible textiles and garment supply chain. The report contains recommendations for multinational enterprises, governments and consumers on the observance of the Guidelines. It includes mapping of the supply chain, risk assessment, audits, traceability, labelling, communication, transparency, and remediation. The Italian NCP adopted an ‘Action Plan for Bangladeshʼ to promote responsible business conduct in the textile and garment supply chain through due diligence processes, multi-stakeholder initiatives and international framework agreements (agreements between MNEs and global trade union federations). One of the outcomes is a report containing operational recommendations on the observance of the Guidelines for the textile and garment supply chain. Similarly, the Belgium NCP highlighted the need for a comprehensive approach to due diligence and responsible supply management and called upon Belgium firms to sign the Bangladesh Accord on Fire and Safety. The Belgium NCP also supports initiatives from sectoral organisations or companies with the objective to improve respect for the human rights and workersʼ labour conditions at national and international level.²⁹

The Rana Plaza case did not represent an isolated case. However, it was exceptional for its size and consequences, as well as for the multiplicity and complexity of the parties involved, thus also as for the remedial measures adopted.

It is, however, a rule that NCPsʼ procedures terminate either by agreement of the parties or recommendations by the NCPs for future action, where very often also the stakeholders having started the procedure are called upon to collaborate for future action. Indeed, the follow-up reports, which take stock of concrete implementation of commitments undertaken or recommendations given, are an essential part of such mechanisms, and monitor the actions taken by all stakeholders involved in the progressive amelioration of the contested practice.

Although at this stage little detailed information is yet available to assess the way the Norwegian Consumer Authority will implement the Transparency Act, the international standards referred to in the Act engender active consideration of whether the Authority will adopt an approach more prone to affect future behaviour than sanctioning past conduct.