OECD Releases Guidance on Due Diligence for Responsible Business Conduct
The Organisation for Economic Co-operation and Development (OECD) has released a guidance paper on due diligence for responsible corporate lending and securities underwriting, aimed at promoting responsible business practices and mitigating potential harm to the environment and society.
What is Due Diligence?
Due diligence is an ongoing process that identifies, prevents, mitigates, and accounts for actual or potential adverse impacts in a company’s own operations, supply chain, and business relationships. This approach differs from traditional due diligence in banking, which primarily focuses on assessing reputational, legal, and financial risks to the bank.
Key Focus Areas
The OECD guidance emphasizes that due diligence for responsible business conduct (RBC) addresses actual or potential adverse impacts related to:
- Human rights, including workers’ rights
- Environmental concerns
- Bribery and corruption
- Disclosure
- Consumer interests
The paper highlights that RBC is not just about avoiding reputational damage but also about preventing harm to people and the environment.
Embedding Responsible Business Conduct
The guidance notes that due diligence should be supported by efforts to embed responsible business conduct into policies and management systems, enabling companies to remediate adverse impacts they cause or contribute to. Effective due diligence can help banks:
- Increase their positive contributions to society
- Improve stakeholder relationships
- Protect their reputation
Key Takeaways
Here are some key takeaways from the OECD guidance:
- Due diligence is preventative in nature, aiming to avoid causing or contributing to adverse impacts on people, the environment, and society.
- Banks should consider RBC risks independently of their financial impact, adopting an outward-facing approach to risk management.
- Effective due diligence can help companies anticipate and prevent or mitigate adverse impacts, leading to long-term benefits for both the company and society.
Implications
The OECD guidance is expected to have far-reaching implications for banks and other financial institutions, as well as businesses more broadly. By prioritizing responsible business conduct, companies can not only avoid reputational damage but also contribute to a more sustainable and equitable economy.