How can business meet its responsibility to address climate change?

Only one hundred companies produce over 70% of greenhouse gas emissions so they should also be responsible for taking action to address the impacts of climate change. On the occasion of the 2019 Responsible Business and Human Rights Forum, OECD’s Cristina Tébar Less, looks at the actions business is expected to take.

It is widely recognised that climate change is the most serious threat facing humanity, and that urgent action is needed to limit greenhouse gas emissions and address climate-related risks. With business responsible for the large majority of emissions – only 100 companies produce over 70% of greenhouse emissions – business holds the primary responsibility for taking action to limit and address their impacts on climate (and not just the impacts of climate on them). But what actions are companies actually expected to take?

The 2015 Paris Agreement references the role non-state actors, including the private sector, as a crucial part of the global solution. However, its main focus is on the role of governments in limiting global warming below 2 °C. The Paris Agreement does not provide concrete guidance to companies  on how to deal with climate change. The OECD Guidelines for Multinational Enterprises (the Guidelines) offer a supportive framework in this regard.

The Guidelines are the most comprehensive government-backed instrument on responsible business conduct (RBC) representing international consensus on the responsibility of companies regarding impacts on people and the planet – including climate change. One of the key expectations reflected in the Guidelines is that companies should contribute to sustainable development (do good), and avoid causing or contributing to adverse impacts and seek to prevent or mitigate adverse impacts linked to their operations, products or services to which they are directly linked by a business relationship (do no harm).

In May 2017, four NGOs brought a case to the Dutch National Contact Point for RBC (NCP) concerning a bank’s non observance of the OECD Guidelines in respect of the environment and climate. The final statement by the Dutch NCP issued in March 2019  reaffirmed that the “cause, contribute, directly linked” language, often used in the context of business impacts on human rights, also applies to business’ (including banks) and their responsibility to address climate impacts. The statement also draws attention to the specific recommendations of the Guidelines which frame this responsibility.

For example, under the Environment chapter of the Guidelines, enterprises should “assess, and address the foreseeable environmental, health and safety-related impacts associated with the processes, goods and services […] over their full life-cycle”, and should “continually seek to improve environmental performance, at the level of the enterprise and where appropriate, of its supply chain”. Furthermore, enterprises “should have an environmental management system in place”, which includes “establishing measurable objectives and, where appropriate, targets for improved environmental performance”. This expectation also includes periodically reviewing the continuing relevance of these objectives. The Dutch NCPs’ Statement further highlights that targets should be consistent with relevant national policies and international environmental commitments, recalls that the Paris Agreement is currently the most relevant international agreement between States and highlights the Paris Agreement’s target to hold the increase in the global average temperature to well below  2 ° Celsius.

The Guidelines’ chapter on Disclosure encourages disclosure “in areas where reporting standards are still evolving, such as, for example social, environmental and risk reporting. This is particularly the case with greenhouse gas emissions…”.  The Dutch NCP’s statement stresses that the expectation that companies, including financial institutions, seek measurement and disclosure of environmental impacts applies even in the absence of a methodology or international accepted measurement standards.

Under the Guidelines overarching chapter on general policies, companies are expected to carry out risk-based due diligence to identify, prevent and mitigate actual and potential impacts, including impacts on human rights and the environment. The Dutch NCP’s statement makes it clear that this expectation also applies to climate impacts.

Meeting this expectation may be challenging, but there are tools to help companies get started. The OECD Due Diligence Guidance for Responsible Business Conduct explains how to carry out due diligence across industry sectors, covering a vast range of risks, including climate-related risks. In addition, sector specific due diligence guidance address business impacts on climate, e.g., in the garment and footwear, agriculture and financial sectors.

Due diligence is now also mandatory in some countries. For example, the 2017 French duty of vigilance Law requires large companies to publish a plan identifying environmental and human rights impacts through their supply chains, and provide information on how those impacts will be addressed. According to a report on the implementation of the Law published in February 2019 many companies only cover selected risks. In March 2019, the first claim against a company for not sufficiently addressing climate change in its duty of vigilance plan was filed before a French court.

The pressure on companies to deal with climate change will continue growing and so will the expectation that they use available tools to address their impacts on climate. 

Cristina Tébar Less is Head of the Responsible Business Conduct Unit within the OECD Directorate for Financial and Enterprise Affairs

The Responsible Business and Human Rights Forum (Bangkok, 12-13 June 2019) includes a session on  Tools to address climate change and human rights impacts, with the participation of the Dutch NCP. The session will be webcast.

National Contact Points for Responsible Business Conduct are set up by governments adhering to the OECD Guidelines for Multinational Enterprises to further the effectiveness of the Guidelines. As part of their mandate they offer a platform to handle issues related to implementation of the Guidelines.

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