Line of Trust – Part 2: Duty of Diligence
Recommended by the Organization for Economic Co-operation and Development (OECD), “duty of diligence” places transparency at the top of company objectives for addressing risk. In the second of our Line of Trust interview series, we spoke with Shivani Kannabhiran, Agricultural Sector Lead for Duty of Vigilance at OECD, and Maylis Souque, Secretary General of the National Contact Point in France (NCP France), to find out more.
For many companies, the term "risk" refers to the risks they themselves run. So, when performing a risk analysis, businesses usually focus on financial, market, operational or reputational risks. However, today, that is not enough. Business activities can pose a range of other risks, including corruption and negative impact on workers, human rights, the environment, consumers and corporate governance.
Companies have a duty of diligence to identify, prevent and mitigate the negative impacts – real and potential – of their activities, their supply chain and their business relationships.
To ensure this due diligence is observed, two bodies are working hard to put in place recommendations and processes: the OECD and the NCP.
OECD and NCP – at the Forefront of Transparency and Due Diligence
OECD was set up in 1961 to promote the market economy, pluralist democracy and respect for human rights. The OECD Guidelines for Multinational Enterprises include protection of the environment, human rights, due diligence and responsible business conduct, including within supply chains.
It brings together all the components of the process that companies must implement to identify, prevent and mitigate the real and potential negative impacts of their activities, their supply chain and their business relationships.
46 governments adhere to the OECD Guidelines for Multinational Enterprises. As a result, the National Contact Point (NCP) has been set up to take charge of promoting and monitoring compliance with the guidelines.
Shivani Kannabhiran from OECD explains: "OECD guidelines are the first international standards on responsible business conduct and are in line with the recommendations of the United Nations and ILO guidelines. These principles are recommendations from OECD, governments and others, outlining responsible business conduct for companies.
"It covers a wide range of issues, including the fight against corruption, competition and taxation, as well as human rights and the environment. Globally, in fact, these are risks with negative impacts on people and the planet."
So what is due diligence?
Shivani says: "Business due diligence are management actions that aim to identify, prevent, mitigate and address risks to people and the planet. It is the actions that companies need to take in their business operations, but also in their global supply chain."
Why implement this duty of care?
So why do companies have a duty of care to observe this due diligence? Maylis Souque from NCP France says: "From the point of view of the company, the interest is to manage risks, and to anticipate and adapt to crises.
"Companies that have these risk management systems are at an advantage. Doing due diligence means being more sustainable. So, for example, in the case of public procurement the company will have a positive highlight to present to investors, business relations and public authorities.
"In addition, it is important to note that a government that adheres to OECD guiding principles, will, in turn, also expect companies to respect and observe these guidelines."
Are OECD guidelines compulsory?
Maylis continues: "OECD guidelines are not legally binding. So, in this context, it is a voluntary process. However, it is one which can be subject to harsh consequences if a company has an appointment with the NCP to explain itself and find solutions. This can result in a reputation issue fairly quickly. It can also be an opportunity to better understand these standards and implement them with the support of NCPs and stakeholders.
"In France, we have the Duty of Vigilance Act, which fully incorporates this methodology. We also have the PACTE law, which integrates and requires companies to make their decisions via the board of directors to take into account the social and environmental issues of their activities.
"In addition, in early 2020, the European Commission announced that it was going to present a new initiative on these subjects – the Initiative on Sustainable Corporate Governance. There will be a public consultation, and, at the beginning of 2021, the European Commission will present a proposal for European legislation. This may be a directive on the due diligence of companies.
"It's really very important to put in place these recommendations that have been developed for businesses. It's not overly complicated. It's complex, of course, but we have the tools, we have the support. We're here to help."
SGS and Transparency-One
SGS and Transparency-One support the global supply-chain industry by helping companies to discover, analyze and monitor all suppliers, components and facilities in their entire supply chain. It uses real-time, supply-chain data to reduce risk, identify component origins and ensure compliance.