Report on the National Contact Point’s stakeholder session on the OECD guidelines for multinational enterprises - December 12, 2016

Location: Global Affairs Canada, 111 Sussex Drive, Ottawa

Theme: Due Diligence on Responsible Business Conduct under the OECD Guidelines including in Global Supply Chains

Summary

On December 12, 2016, Canada’s National Contact Point (NCP) hosted its fifth stakeholder session on the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, with approximately 50 participants from civil society, industry associations, companies, labour organizations, non-governmental organisations, Government of Canada and academia.

The session begun with opening remarks by Mr. Duane McMullen, Chair of the NCP, followed by a presentation by Ms. Pascale Collas from the NCP Secretariat on Due Diligence in the OECD Guidelines for Multinational Enterprises including how Canada’s NCP operates. Mr. Peter Iliopoulos, Senior Vice President, Public and Corporate Affairs and Ms. Julie Cournoyer, Director, Corporate Social Responsibility (CSR) of Gildan Activewear (located in Montreal) then presented on the company’s activities on CSR. Both presentations were followed by a Q & A session. Participants then examined the concept of due diligence and discussed its application in break-out sessions followed by a wrap-up plenary, with closing remarks from Ms. Stefania Trombetti (Natural Resources Canada), Vice-Chair of Canada’s NCP.

Highlights of presentations

Due diligence ^{Footnote 1} in the OECD guidelines for multinational enterprises and how Canada’s NCP works (NCP secretariat)

The OECD guidelines:

• Are the most comprehensive code of business conduct, endorsed by 46 governments (binding for governments; voluntary for multinational enterprises)
• Apply to all sectors (including finance and investment), to all sizes of companies (including SMEs), and to all entities within the company (including local and parent companies)
• Describe adverse impacts as harms related to: disclosure; human rights; employment and industrial relations; environment; bribery; corruption; consumer interests
• Are implemented through National Contact Points (NCPs)
• Have a non-adversarial, solution oriented process (mediation)
• Are not a substitute for local law

Due diligence is the process through which a company can identify, prevent, mitigate and account for how they address actual and potential adverse impacts. To implement a due diligence process, a company should:

• Embed responsible business conduct (RBC) into its policy and management systems
• Identify and assess adverse impacts
• Prevent or mitigate impacts directly linked to business operations, products or services including by a business relationship (including with suppliers, sub-contractors; agencies, franchises and supply chain)
• Track performance, communicate
• Provide for/cooperate in remediation when appropriate

Canada’s National Contact Point:

A seven-department committee comprised of:

• Global Affairs Canada (Chair, Secretariat and Development representative)
• Natural Resources Canada (Vice Chair)
• Environment and Climate Change Canada
• Employment and Social Development Canada (Labour Program)
• Indigenous and Northern Affairs Canada
• Innovation, Science and Economic Development Canada
• Finance Canada
• Has 3 Social Partners:
• Canadian Labour Congress
• Confédération des syndicats nationaux du Québec
• Canadian Chamber of Commerce

Comparative Advantage of NCP System:

• Easy to lodge a complaint
• Extra-territoriality
• Non-adversarial, solution oriented process (mediation)
• Typically faster and cheaper than litigation
• Provides a forum and the conditions for the parties to find a remedy or define a path towards a remedy even though NCPs cannot offer a remedy.
• The NCP process can reinstate a dialogue and help build trust even if there is no eventual agreement between parties

What NCPs are not designed to do:

• NCPs are not judicial bodies and cannot impose remedies; cases are not legal
• NCPs cannot directly provide compensation nor compel parties to participate in a conciliation or mediation process

However, the Canadian NCP can impose consequences:

• If a company chooses not to engage or does not engage in good faith, it will face denial of access or withdrawal of Government of Canada trade advocacy and economic support in foreign markets
• The decision is made public and taken into account under CSR-related due diligence processes by Export Development Canada regarding the availability of financing or other support
• The sanction was applied for the first time in 2015 and has had concrete adverse consequences for the company involved.

How an NCP process works:

• A complaint is filed with the NCP and must be substantiated (e.g. supporting documentation)
• Phase 1: Initial Assessment to determine whether issues raised merit further examination (if not, move to Phase 3)
• Phase 2: Facilitated Dialogue – NCP offers its good offices to help the parties resolve the issues
• Phase 3: Final Statement
• Follow-up on recommendations/agreement, if any

Canada’s NCP (Note: statistics as of 12 December, 2016):

• 17 cases since 2000 with Canada as lead NCP or co-lead and 7 cases as supporting NCP
• 11 cases were offered good offices; 4 were not; 2 cases are currently in Initial Assessment phase
• Sectors: extractive 13; aquaculture 1; manufacturing 2; real estate 1
• Regions: Latin America 3; Africa 5; Asia-Eurasia 6; North America 3
• Complainant: non-governmental organization 12; union 4; individual 1

Presentation by Gildan senior executives on corporate social responsibility

Gildan is a supplier of quality branded basic family apparel which distributes products in print wear markets in the US, Canada, Europe, Asia-Pacific and Latin America. It owns and operates manufacturing facilities primarily in Central America, the Caribbean Basin, North America and Bangladesh. The enterprise is accredited by the Fair Labour Association (FLA) and is certified by the Worldwide Responsible Accredited Production. Its Environmental Management System (EMS) is based on ISO 14001.

Participants heard about Gildan’s leading CSR policies and programs and its compliance with industry standards such as leading working conditions (24-hour access to on-site medical clinics, free transportation and subsidized meals, access to financial aid programs, extensive training, etc.), environmental monitoring and community engagement. Elements of the company’s due diligence process such as regular unannounced audits, acquisitions risk assessment and the performance evaluation of third parties were also presented.

Summary of break-out group discussions

The following presents highlights of the brainstorm discussions among participants on 6 different questions around due diligence. It does not necessarily represent the views of the NCP or the Government of Canada.

Q1. How is Responsible Business Conduct (RBC)/Corporate Social Responsibility (CSR) different from:

• Traditional financial due diligence processes?
• Environmental and social impact assessments?

• Financial due diligence was viewed as the assessment of the soundness of a company in terms of its financial arrangements, e.g. its ability to repay its debts (credit), revenue flows, and cost structures, etc.
• Environmental and social impact due diligence was viewed as the assessment of real or potential negative consequences on a community or a society and its physical and social environment resulting from a company’s operations.
• RBC/CSR was viewed as a general approach to prevent negative impacts on people and on the environment in which businesses operate by undertaking a risk analysis and implementing an operational plan to address and mitigate any potential risks.

Q2. How are enterprises hurt when they don’t conduct RBC/CSR due diligence?

• Failure to undertake RBC/CSR due diligence (particularly in the extractive sector) could result in damage to a company’s reputation and additional costs involved in resolving issues which could have been predicted and/or mitigated.
• Enterprises incur costs in time and opportunity if they do not fix the problem and prevent its recurrence.
• Dissatisfaction from local communities threatens business operations.

Q3. How important is it for an enterprise to develop a systematic approach to RBC/CSR due diligence and what is the role of senior management and employees?  

• Dedicated corporate leadership and broader buy-in from all stakeholders are key
• A systematic approach, clearly communicated and measurable, can engage senior managers and integrate employees in the process to meet and/or exceed RBC/CSR regulatory standards.
• Senior management should use incentives to induce behavioural change or applying sanctions for the lack thereof.
• Good practices require constant dedication and implementation throughout the life-cycle of a project.

Q4. How can an enterprise leverage other enterprises, such as its suppliers, sub-contractors, franchisees or business partners, to conduct due diligence and prompt responses to actual or potential RBC/CSR impacts?

• Enterprises can use “hard” leverage, such as financing and local human rights provisions in contracts, and “soft” leverage such as raising awareness clearly and repetitively, using influence, setting a policy dialogue for standards and consumer pressure.
• An unanswered question remains: “where will influence come from?”
• Outreach should be part of a responsible business model which underlines competitive advantages of a robust RBC/CSR program.

Q5. What forms can remediation/remedy take?

• Remediation depends on the type of issue that is raised, (e.g. social/ labour/ environmental), the severity of the issue and the impacts on the society in which the enterprise operates.
• Resources must be made available to complainants.
• When voluntary compliance is challenging, mandatory mechanisms need to be considered.
• Governments could establish benchmarks and policies for grievance mechanisms.

Q6. What is the relationship between stakeholder engagement and RBC/CSR due diligence and how should companies go about engaging stakeholders?

• Transparency and communication are key but meaningful disclosure, especially acknowledgement of issues, is difficult.
• Engaging with stakeholders is difficult in conducting due diligence, especially with supply chains and contractors.
• A case needs to be made for the economic benefits that accrue to a company that has an RBC/CSR policy and that adheres to international standards.
• Existing labour organizations, civil society organizations and non-governmental organizations need to be consulted to report and monitor companies’ activities
• What is the legitimate voice of a community?

Next steps

• Canada’s NCP will undergo a peer review by the OECD in February 2018 to identify strengths and areas for improvements.
• Stakeholders are to be invited to participate in the 2017 OECD’s public consultation for the general responsible business conduct draft due diligence guidance that it is developing and in the various pilot projects associated with existing due diligence guidance.

Contact Canada’s NCP via e-mail: ncp.pcn@international.gc.ca