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Development Co-operation Report 2016
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branch I. The SDGs as sustainable business opportunities and five approaches to make it happen
  branch 6. Promoting sustainable development through responsible business conduct

by

Tihana Bule

Cristina Tebar Less

Directorate for Financial and Enterprise Affairs, OECD

Investment can help raise standards of living through job creation, skills and technology development, and distribution of wealth. Achieving these impacts, however, depends on the quality of the investment as much as the quantity. Irresponsible business practices not only erode the investment and business environment; they can result in economic loss, environmental degradation, poor labour conditions, and in the most serious of cases, injury and loss of human life. Responsible business conduct principles and standards emphasise the integration of environmental and social concerns within core business operations. This chapter discusses how responsible business conduct can directly contribute to achieving the Sustainable Development Goals, while also being good for business. It examines the main global guidelines, principles and standards, as well as the role of governments.

Challenge piece by Marco Lambertini, WWF International. Opinion pieces by Peter Bakker, World Business Council for Sustainable Development; Sharan Burrow, International Trade Union Confederation.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

The challenge: Can smart investment make sustainable development a reality?

Marco Lambertini, Director-General, WWF International

Since the Rio Earth Summit in 1992, the international community has worked toward a shared vision of sustainable development. Now, with the Sustainable Development Goals (SDGs), the United Nations (UN) member states have committed their highest level of political will to ensuring that human well-being is advanced within the planet's ecological boundaries.

Yet if the SDGs are going to be more than aspirational words on paper, we must secure the positive participation of business and industry at the global, regional and national levels. In developing countries, private investment already makes up 60% of external financial inflows, contrasted with flows from public sources – such as official development assistance – which in Africa, for example, amount to a mere 1% of capital inflows (World Bank, 2013).

At the same time, funding alone is not enough to bring about lasting change. Alongside the significant increases in investment that are required to achieve the SDGs, substantial policy reform will be needed, as success will depend on the behaviour and practices of those directing the financial flows. Unless multinational enterprises are brought into alignment with the sustainable development agenda, irresponsible actors will hold the power to undermine the potential of the SDGs. For example, in 2012, community groups and UN experts protested against plans for an open-pit coal mine in Bangladesh that would displace up to 130 000 very poor people and destroy their agricultural land, fisheries and freshwater sources (UN, 2012). Yet despite these severe human rights, environmental and food security concerns, the company behind the project, Global Coal Management Plc, did not abandon it.

A sustainable future for our world hinges on responsible business conduct. Multinational enterprises have a large influence in many countries that rely on foreign financing for their development. Yet responsible businesses that seek to comply fully with national and international laws and standards when endeavouring to operate abroad can often be at a disadvantage compared to actors who may act less responsibly. Despite this, some companies are already realising their potential to play a positive role. As just one example, WWF is working with the global fashion firm H&M to minimise the company's negative impact on the water supply in high-risk river basins in the People's Republic of China and Bangladesh. As textile production can be water intensive, H&M is increasing the efficiency and cleanliness of its operations, as well as collaborating with local stakeholders on sustainable management of shared freshwater resources.

The OECD and its member countries can play a unique and critical role in supporting the global proliferation of good business practice. The OECD Guidelines for Multinational Enterprises (OECD, 2011) are the most respected standards for corporate behaviour worldwide. By strengthening the implementation of these guidelines, the OECD can promote reform and improve the enabling environment for responsible investment. This, in turn, will encourage sustainable development by giving responsible businesses an advantage that benefits their bottom lines, while at the same time advancing development targets. This shift will not happen on its own, however; like-minded governments, companies, investors, civil society groups and consumers must work in concert to facilitate change for the better.

One of the OECD's potentially strongest tools for advancing responsible business conduct at home and abroad – the National Contact Point system of the OECD Guidelines for Multinational Enterprises – needs to be significantly improved. This innovative grievance mechanism is intended to provide remedy for corporate wrongdoing. However, an analysis conducted by the OECD Watch network (Box 6.4), of which WWF is a member, found that of the 250 complaints filed with the National Contact Points network since 2000, only 3 have led to an actual improvement in the conditions of the victims of corporate abuse. Only a further 12% of claims recorded beneficial results of any sort, such as improved company policies. OECD Watch is asking for a revision of the procedural guidance governing National Contact Points in order to ensure that the network is strengthened. This one reform may seem small when looking at the enormous ambitions of the 2030 Agenda for Sustainable Development. It may not seem as glamorous as the Pope's climate encyclical or the G8's recognition that we are in the last fossil fuel-based century, but it could have enormous and far-reaching impact.

The fact is that each and every decision we make related to responsible business conduct and private investment will have historic implications in determining whether 2015 will be remembered as a turning point in the course of human history.

 

The positive effects of investment – be it foreign or domestic – in promoting development are well documented. Under the right conditions, investment can raise overall productivity and ultimately lead to an increase in a country's standard of living. It can contribute to job creation, the development of human capital and the efficient distribution of wealth, while supporting technology development and the transfer of knowledge and skills. Foreign investment, in particular, can provide advantages beyond the direct contribution to the capital stock (Chapter 2). It can serve as a conduit, enabling domestic industries to access international markets and linking them with multinational enterprises and global value chains (OECD, 2015a).

These benefits, however, are not a given. The growth and development impact of investment depends as much, if not more, on the “quality” of the investment as on the quantity. For many years, low environmental and social standards have been viewed favourably by investors looking to minimise costs in the short term, as well as by some countries looking to attract investment. It is becoming increasingly clear that this race to the bottom is not a sustainable model.

The 2015 Addis Ababa Action Agenda calls on the private sector to adopt principles for responsible business and investment and engage as partners in the development process (UNGA, 2015). It also calls on the private sector to invest in areas critical to sustainable development and shift to more sustainable consumption and production patterns. At the same time, it commits governments to developing policies and strengthening regulatory frameworks to better align private sector incentives with public goals, and to encourage the private sector to adopt sustainable practices and foster long-term, quality investment.

This chapter examines the guidelines, principles and standards related to responsible business conduct and discusses how it can contribute to implementing the Sustainable Development Goals (SDGs). It focuses on two aspects:

  1. the role of businesses in integrating environmental and social considerations into core business decisions to manage risks (for example, when operating in low-capacity and high-risk areas and sectors) and to ensure that their activities do not cause or contribute to negative outcomes
  2. the role of governments in actively promoting and enabling responsible business conduct, fostering a dynamic and well-functioning private sector, while protecting the public interest and stakeholder rights.
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