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Purchasing power and responsible business conduct

Serena Lillywhite Sep 25, 2009
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The OECD 2009 conference on corporate responsibility—“Consumer Empowerment and Responsible Business Conduct” provided an opportunity to consider not only, the role of private consumers and their growing demand for sustainable products and corporate transparency, but also, the role of public authorities in their procurement of both goods and services. Further, the likely review of the OECD Guidelines for Multinational Enterprises (The Guidelines) in the near future makes an assessment of the Consumer Interests (chapter 7) timely. OECD Watch contributed to the OECD conference, and this article highlights some of the issues raised.

The OECD 2009 conference on corporate responsibility—“Consumer Empowerment and Responsible Business Conduct” provided an opportunity to consider not only, the role of private consumers and their growing demand for sustainable products and corporate transparency, but also, the role of public authorities in their procurement of both goods and services. Further, the likely review of the OECD Guidelines for Multinational Enterprises (The Guidelines) in the near future makes an assessment of the Consumer Interests (chapter 7) timely. OECD Watch contributed to the OECD conference, and this article highlights some of the issues raised.

 

Public procurement

 Government agencies are significant users of resources, both goods and services, and have a big impact on the market by virtue of their procurement activities. If governments expect the corporate and non government sectors to take sustainability objectives seriously, they must show leadership and play a more engaged and strategic role to promote responsible business conduct throughout their own supply chains. In all countries, governments are the single largest consumer. In most developed countries, public purchasing is estimated to be14-20% of a country’s gross domestic product.[1] In developing countries, these figures are considerably higher. For example, 70 % of public spending, or 1.9 billion Ugandan Shillings (approximately USD1.1 million), passes through the public procurement system. In Angola, public purchasing accounts for 58% of public expenditure[2]

Public authorities in the European Union yearly spend around € 1,500 billion on public procurement – approximately 16 % of GDP of the EU.[3]

Choosing to purchase environmentally and socially responsible products and services is a practical way that governments can demonstrate their sustainability credentials. For example, when sourcing uniforms, computer equipment, and furnishings, as well as tenders and contracts for service delivery—including public private partnerships and export credit and insurance—they must ensure full disclosure of supply chains, uphold national laws and international standards, and give preference to contractors who can demonstrate corporate accountability and meaningful reporting, in support of the OECD Guidelines

International initiatives demonstrate growing recognition of the importance of responsible public procurement. For example, the Belgian government has developed a mandatory guide for sustainable procurement. In Denmark, there are specific guidelines for government on the purchase of timber, and the Dutch government has committed to ensure 100% sustainable procurement procedures by 2010.The report by the European Coalition for Corporate Justice (ECCJ) on sustainable procurement (2007)[4], identifies these and other isolated initiatives throughout the European Union.

The EU should take a leading role in linking CSR to public procurement and provide guidance to national governments on how to include social and environmental concerns in public procurement policies.

With the global spotlight on regulatory frameworks, it is important that regional and bilateral trade and procurement agreements do not prevent the possibility of public procurement contracts giving preference to goods and services that have a high social and environmental benefit. There is nothing stopping governments showing leadership in this regard. There are no barriers posed by either the WTO, or the EU, for both OECD and non-OECD member countries, introducing responsible procurement policy and practice

OECD member countries, and non-member signatories to the OECD Guidelines, need to recognize their own purchasing power and responsibilities. As such, the Consumer Interests provision of the OECD Guidelines must be strengthened to include coverage of government procurement, thereby enhancing the synergy with other complimentary national initiatives. The Guidelines and NCPs can provide guidance to national governments on how best to include social and environmental concerns in public procurement, thereby raising the bar of responsible business conduct among participating enterprises throughout government supply chains.


The supporting role of the OECD Guidelines for Multinational Enterprises

The Consumer Interests provision of the Guidelines needs to be strengthened to make it clear that the issues at stake relate to good governance—transparency, disclosure, honesty, integrity, and credibility. These are fundamental to ethical business practice and corporate responsibility.

NCPs need to be more rigorous in their assessment of corporate deception and misrepresentation through fact finding when specific instances are raised that involves this principle. When a company claims to be doing 'the right thing' in the public domain (website, annual reports, media etc) and then is found not to be, there is a responsibility for NCPs to accept such cases under the specific instance complaint mechanism. It is effectively about 'misleading consumers'. For example, in the GSL case, GSL claimed to be ‘committed to promoting best practice in human rights in its policies, procedures and practices’[5], however the day-to-day management of Australia’s immigration detention centers showed otherwise.

The Consumer Interests provision needs to also make reference to certification and labeling schemes. While consumer demand for fairtrade, ethical goods is growing, so is skepticism with regards to the integrity of some certification and labeling schemes. “Certification fatigue” is an issue in many industrialized countries, and there is an important and complimentary role for governments to play through the introduction of benchmarking mechanisms to provide greater clarity and guidance to consumers. Further, government endorsement through standardized benchmarking would contribute to the OECD’s aim to build trust and confidence among both consumers and markets. This is seen as an essential response to the global financial crisis.

In countries where ethical labeling and certification is less well established, the fatigue has not set in; governments have a key role to play in raising awareness. Among both consumers of their rights,  and also, the value to enterprises in credible certification schemes that promote responsible business conduct and consumer empowerment through improved disclosure and transparency of both social and environmental impacts of business operations.


Strengthening the OECD Guidelines to promote consumer empowerment, decent work, and environmental protection

 The Guidelines Consumer Interests chapter is weak, lacks ambition and does not comprehensively reflect the scope of consumer concerns. This may well explain why so few specific instances to date cite this principle. The current emphasis on product quality, health and safety ­(while important), is too narrow, and does not address the impact of production processes on workers, communities, human rights and the environment, and indeed consumers interest in these issues.

 At the OECD June conference on Consumer Empowerment and Responsible Business Conduct, specific recommendations were made by OECD Watch with regards to the Consumer Interest chapter, and in light of the likely Guidelines review. These included:

  • Reference to public procurement in the preface to the guidelines, thereby linking government purchasing to responsible business conduct

  • Specific links to supply chain disclosure to enable consumers to make informed decisions. This would include reference to country of origin, conditions of production and transparency of cost structures. This would shift the focus from the narrow emphasis on “make it right and make it safe”

  • Provision for consumer right to information, particularly with regard to applicability of the Guidelines to entire production chains, and a right to redress for violations throughout the chain

  • Reference to government incentives, contracts, subsidies and export, credit and insurance grants. Non-compliance with the Guidelines must be reflected in access to / withdrawal from incentive schemes (e.g. World Bank corruption sanction process)

  • Synergy and harmonization with the Disclosure chapter (3) and similar instruments, such as the UN Guidelines on Consumer Protection

  • Reference to material foreseeable risks (social and environmental), particularly with regard to the role of financial institutions in shaping sustainable and responsible consumption of financial products and services; and

  • Reference to credible certification and labeling that is enforceable, independently monitored, verified and supported by government benchmarking.

Consumers, consumer associations, non-government organisations and trade unions are important drivers of change, however, it is unrealistic for governments to expect consumers alone to bring about responsible business conduct. Governments must act to regulate and sanction as appropriate, ensure the Guidelines empower consumers and promote responsible business conduct.

 


[1] OECD (2002), ‘The relationship between Regional Trade Agreements and the Multilateral Trading System’, Working Party of the Committee.

[2] http://www.ilo.org/wcmsp5/groups/public/---ed_norm/---relconf/documents/meetingdocument/wcms_091400.pdf, p.8

[3] European Coalition for Corporate Justice (ECCJ) (2007), ‘Sustainable Procurement in the European Union – Proposals and Recommendations to the European Commission and the European Parliament’, Advocacy paper.

[4] ECCJ, 2007, ‘Sustainable Procurement in the European Union – Proposals and Recommendations to the European Commission and the European Parliament’, Advocacy paper.

[5] In June 2005 five NGOs lodged a complaint with the Australian National Contact Point against Global Solutions Limited (Australia) Pty Ltd (GSL) alleging breaches of the Human Rights and Consumer Interests provisions of the Guidelines. A mediated outcome was achieved and GSL undertook to improve their day-to-day operations of the immigration detention centers. See www.bsl.org.au for more details.

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