OECD: Guidance for institutional investors launched

30 March 2017

Editor

EU regulation

The Organisation for Economic Co-operation and Development (OECD) has published its paper, Responsible Business Conduct for Institutional Investors, which explains how they can apply the OECD Guidelines for Multinational Enterprises.

The paper was launched online by the UN's Principles for Responsible Investment (PRI) which is leading a project to support investors to adhere to the OECD guidelines. The paper outlines the key considerations for institutional investors in carrying out due diligence to identify and respond to environmental and social risks.

The aim is that by following the guidance investors will be able to avoid any negative impacts of their investments on society and the environment, but also avoid financial and reputational risks, respond to expectations of their clients and beneficiaries and contribute to global goals on climate and sustainable development. The OECD added that failing to consider long-term investment value drivers, which include environmental, social and governance issues, in investment practice is increasingly seen to be a failure of fiduciary duty.

Speaking at the launch Roel Nieuwenkamp, chair of the OECD working party on responsible business conduct said: "We are seeing a more and more specific instances, that's complaints, that are being handled by the national contact point system that relate to the responsibilities of investments in the context of their investment portfolio. Basically they are complaints against investors about their investee companies' behaviour. In 2016 almost 20% of complaints were against the financial sector."

According to the OECD, the Paris Climate Agreement in 2015 has meant that investors have been facing increasing expectations to manage climate risks in their portfolios. At the same time  international financial institutions have made commitments to help achieve the UN's Sustainable Development Goals (SDGs) and the OECD believes that strong due diligence processes will help ensure that investments are put towards projects and companies that behave responsibly and ultimately help achieve the objectives of the SDGs.

The paper was developed through consultation with an advisory group of over 50 representatives from the financial sector, including leading investment institutions, government, civil society, international organisations and other experts. There were also expert working sessions held in 2015 and 2016 which provided input from investment practitioners. The OECD Working Party on Responsible Business Conduct approved the paper in January and this  followed by the OECD Investment Committee in February.

The key expectations for investors include identifying actual and potential environmental risks and impacts throughout their portfolio and potential investments and using their leverage to influence investee companies that are causing adverse impact to address it. The guidance encourages engagement with these companies and for investors to work together to change company behaviour or ultimately to consider divestment.

The UN's Guiding Principles on business and human rights also fall within the Guidelines, the approach within the document also provides a model which investors can adopt when thinking about how they can meet the due diligence expectations of the UN Guiding Principles within their investment process.

The PRI meanwhile is working with investment giant Aviva on a collaborative engagement programme that will engage with companies that have been linked to some of the most severe instances of social and environmental impacts brought to OECD National Contact Points.

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