Column Herman Mulder, Dutch NCP member

Weblogbericht | 13-09-2016 | NCP

Initial and on-going, existing and potential, risk-based and adverse impact-sensitive due diligence by corporations is one of the cornerstones of the OECD MNE-Guidelines. Soon further general guidance from the OECD Working Party on RBC will be presented for consultation among interested stakeholders.

This raises a number of issues:

the scope of due diligence should not be limited to multi-national (and state-owned) enterprises (as foreseen in the OECD MNE Guidelines) but, at least, also to any “undertaking with a public interest”, as referred to in the EU Directive 2014/95 on non-financial reporting;

the due diligence requirement is so important that governments should consider legislation on this theme in general or, at least, on selective issues (such as human rights), rather than continue with the voluntary nature of the OECD MNE Guidelines; in this context the burden of proof may be shifted on the company; “enforcement” of such legislation may be left to stakeholders in the public domain (such as in the UK Modern Slavery Act);

The due diligence is not limited to the supply chain, but extends into the entire value chain, so to include downstream/customer considerations as well;

The Board responsibility for this theme must be clearly established, including the recognition that the scope of this duty extends throughout the value chain of the corporation. This is to be included in the external auditor’s opinion.  

A theme which, so far, has not been widely considered in this context is due diligence in connection with individual products and services. Not only investors and other business-relationships should be able to satisfy themselves that a corporation, as institution, is compliant with international standards, but the consumer, still the big absentee in the “responsible and sustainable business” space, should also be able to ascertain that a product is also compliant. Product-specific life-cycle analyses (LCAs, applying circular economy principles) and true pricing (monetisation of all material social, environmental and tail “externalities”: www.trueprice.org) should be subject to the same due diligence requirements, and publicly reported on.

Also, comprehensive due diligence should offer the corporation (including financial institutions) and its stakeholders an opportunity to agree how the decision- making process within a corporation operates: are decisions taken on a balanced basis as, typically, no decision is perfect and always choices between options (and possible impacts) need to be made. Risk- and impact- management means taking an informed decision having considered all options, with subsequent accountability to its stakeholders.

Lastly, corporations should also consider the Sustainable Development Goals in their due diligence: business may be a “force for good” for all its stakeholders and society!