The Guidelines build on current social, environmental, and technological issues facing businesses following the last update in 2011.
The Organisation for Economic Co-operation and Development (OECD) released updated Guidelines for Responsible Business Conduct on 8 June 2023 (the OECD Guidelines).
Background to the OECD Guidelines
The OECD Guidelines, introduced in 1976, set out voluntary principles and standards to ensure multinational companies embed due diligence practices, to enhance sustainable development and address adverse social and environmental impacts. Currently, 51 countries adhere to the OECD Guidelines, including the majority of EU Member States.
Together with the UN Guiding Principles on Business and Human Rights and the International Labour Organization (ILO) Tripartite Declaration, the OECD Guidelines represent the current international reference for due diligence practices for businesses. The OECD Guidelines are fundamental to a number of international due diligence initiatives. For example, the proposed Corporate Sustainability Due Diligence Directive (CSDDD), which is currently being negotiated at the EU level, includes reference to the OECD Guidelines for the required due diligence process. The OECD Guidelines have previously fed into further supply chain regulation at Member State level, including the French Duty of Vigilance Law and the German Supply Chain Act.
In addition, the OECD Guidelines are particularly relevant in relation to the EU Taxonomy “Do No Significant Harm” (DNSH) criteria. For example, a company’s failure to participate in any National Contact Point (NCP) dispute resolution process involving the relevant company under the OECD Guidelines or an NCP finding a company to be non-compliant with the OECD Guidelines, will not be considered as aligned with the EU Taxonomy minimum safeguard requirements.
A number of updates to the OECD Guidelines reflect current social, political, and environmental issues, and align the OECD Guidelines with recent EU regulatory developments, including:
- Emission reduction targets — These should be science-based, in line with the Paris Agreement goals and up to date with the Intergovernmental Panel on Climate Change (IPCC) assessments. This reflects the EU Corporate Sustainability Reporting Directive (CSRD) as regards to transition plans, which should be Paris-aligned.
- Technology considerations — The OECD Guidelines introduce due diligence expectations regarding technology, including gathering and using data. Regulation of technology is becoming increasingly relevant, including in relation to AI with the upcoming Artificial Intelligence Act in the EU, alongside numerous regulatory developments globally.
- Value chain due diligence — The OECD Guidelines focus on due diligence on the downstream value chain (referring to the movement of finished goods from a business to its customer).
- Human rights — Particular consideration applies to at-risk individuals and groups, indigenous peoples, and due diligence in the context of armed conflict.
- Corruption —The updated OECD Guidelines include due diligence recommendations for all forms of corruption, while previously the OECD Guidelines referred only to bribery.
Comparison to CSDDD
Some elements of the proposed CSDDD align with the OECD Guidelines, as noted above regarding the due diligence process. Given the CSDDD is currently at the trialogue stage, the extent to which the CSDDD will incorporate the OECD Guidelines is not yet clear. Other elements differ in application; for example, while the OECD Guidelines focus on due diligence in the downstream value chain, this concept is currently being negotiated as regards to the CSDDD (in particular, the extent to which there will be upstream and downstream due diligence requirements under CSDDD).
Focus on Climate
The updated OECD Guidelines have a more significant focus and level of information regarding climate and the environment as compared to the previous version of the OECD Guidelines. This focus includes setting expectations on how enterprises should avoid and address adverse environmental impacts and contribute to reaching goals of climate change mitigation and adaption, as well as emission reduction targets (as noted above). The updated OECD Guidelines reference alignment with the Global Biodiversity Framework by requiring “heightened” due diligence in respect to biodiversity impacts in national parks, reserves, and protected areas. Further topics included relate to the promotion of circular economy approaches, and animal welfare considerations which are both new subjects for the revised OECD Guidelines.
Consequently, the updated OECD Guidelines further expand the focus on environmental matters, having previously been considered more focused on social and supply chain due diligence.
Latham & Watkins will continue to monitor developments in relation to the OECD and other legal initiatives on due diligence in the EU and globally.