This paper helps institutional investors to implement the recommendations of the OECD Guidelines for Multinational Enterprises on due diligence in order to prevent or combat adverse human and labour rights, environmental and corruption impacts in their investment portfolios. The paper outlines the key actions for asset managers and owners at each step of the due diligence process and discusses the main considerations, such as challenges, existing practices or investment sector-specific regulations that may affect due diligence approaches.
By conducting due diligence in accordance with the OECD guidelines, investors can not only avoid negative social and environmental impacts of their investments, but also avoid financial and reputational risks, meet the expectations of their clients and beneficiaries, and contribute to global climate and sustainable development goals. If investment practice does not take into account the long-term value drivers of investments, which include environmental, social and governance issues, this is considered a failure of fiduciary duty. Since the introduction of the Paris Climate Change Convention in 2015, investors have faced growing expectations of managing climate risks in their portfolios. International financial institutions have also signalled plans to mobilise USD 400 billion to achieve sustainable development goals (SDGs). Strict due diligence processes can help ensure that investments are channelled into projects and companies that behave responsibly and ultimately help to achieve the goals of the SDGs.
This paper was developed in close cooperation with a multi-stakeholder advisory group of over 50 representatives of the financial sector, including leading investment institutions, government, civil society, international organizations and other experts. It also benefited from input from investment practitioners during the experts' working sessions in London on 23 October 2015 and New York on 23 February 2016. The OECD Working Party on Responsible Business Conduct approved the paper on 23 January 2017, followed by the OECD Investment Committee on 8 February 2017.
This paper is part of the OECD's work to clarify the expectations of responsible business conduct in relation to companies operating in the financial sector.