Navigating an OECD NCP Specific Instance
This entry provides a summary of an article first published in Anti-Corruption Report, “Five Steps for Companies Facing an OECD National Contact Point Process,” by Jonathan Drimmer of Paul Hastings and Yousuf Aftab.
Over the last decade, the growing materiality of environmental, social and governance (ESG) risks has been accompanied—and spurred—by the increasing prominence of alternative dispute resolution mechanisms for ESG disputes. These institutions are one node in the tightening web of ESG-related business risk. This entry focuses on the most prominent non-judicial mechanism to resolve global ESG disputes, the OECD National Contact Point (NCP) process. NCP cases—called “specific instances”—bring increasingly serious risks and challenges for leading multinationals. The strategy to navigate such proceedings must be carefully calibrated to the legal and non-legal risks at play.
NCP Background & Risk
NCPs have different approaches in their handling of specific instances, but they all aim to facilitate consensual resolution of ESG disputes through a multi-stage process. Significantly, some of the more active NCPs engage in fact finding. As a matter of practice, the statements NCPs publish at the end of specific instance can include written findings that companies have acted in a manner at odds with the Guidelines. NCPs’ mandates and processes bear on the spectrum of material business risks. In particular, both the launch of a specific instance and the resulting final statement can inform:
Investor ratings by institutions such as Sustainalytics, MSCI, and EcoVadis.
Shareholder resolutions by responsible and activist investors.
Litigation risk in securities class actions, investor-state disputes, and transnational torts involving on ESG-related claims.
Regulatory risk as a result of pressure placed on home or host states.
Brand risk in the form of global media and civil society campaigns.
If the past few years are any guide, specific instances will continue to increase. Below are five specific suggestions for in-house counsel on how to proceed and what to consider when facing an OECD NCP process.
1. DON’T JUST LAWYER UP
Many companies who receive notifications of specific instances immediately hire outside counsel, close ranks and treat the matter as threatened litigation. Specific instances, however, are not akin to legal disputes. NCPs are not judges and often are not lawyers at all. Frequently, NCPs are housed in foreign ministries and departments of foreign affairs, with backgrounds in diplomacy and international relations. They will not assess submissions with reference to legal precedent or statute. Their mandate is to facilitate a consensual resolution. Any limited assessment will be with reference to the scope and expectations of the OECD Guidelines, with their own internal logic and interpretive universe. Given the risks at play, the necessary expertise is not litigation, rather, it is a hybrid of sustainability, disputes, investor relations and ESG-related crisis management.
2. FORM AN INTERNAL WORKING GROUP
Designing and implementing an effective specific-instance strategy often requires the support, experience and expertise of different internal functional units. Legal groups will likely need to play a prominent role. So too will government relations personnel, as NCPs often are housed in government agencies and a company’s participation may impact its relationship with the relevant government. Depending on the allegations, it may also be prudent to consult investor relations, procurement and sales teams to weigh risks and options at each stage of the process. Amassing the right internal team to address these considerations is important to ensure that the strategy considers all material issues and that any engagement is on the right parameters.
3. DEFINE WINNING BEFORE DECIDING WHETHER TO PARTICIPATE
One question each company must confront is whether to participate at all. The process is voluntary, and companies may decline to participate for any reason. But just terminating an NCP process is not equivalent to dismissing a lawsuit or halting a regulatory proceeding. A decision against participating can lead to negative consequences and can enable the claimant to frame the proceeding. The NCP may issue a harsher opinion as a result of non-cooperation. Responsible investors and ratings agencies may reflect the decision in their analyses. The claimant may go to the press or courts. A home or host government may initiate an investigation or hearing. Operational impacts may be felt where companies refuse to engage with unions or local communities. There are thus strong reasons to participate even when the claim seems frivolous or misguided. Any decision regarding whether and how to participate should be considered and deliberate.
4. ADDRESS CONFIDENTIALITY AND THE FINAL REPORT AT THE BEGINNING
Two major questions in any NCP process are i) the extent to which information shared among participants will be kept confidential and ii) the nature of the report that will be issued. Companies are wise to think about both questions before committing to participate in the process. Understanding the form, scope and nature of the final report is a critical preliminary consideration. These elements can also be shaped to some extent by the company if it engages early and effectively.
5. BE PREPARED TO ENGAGE . . . AND STAY ENGAGED
Each NCP approaches the process differently. Some retain third-party mediators. Others conduct the mediation themselves or with colleagues. The mediations can be accomplished through shuttle diplomacy, plenary sessions or both. They generally are in-person and can be held in different locations; they can also be conducted or supplemented by phone or video sessions. Multiple rounds of engagement are typical and can include updates and subsequent reports, even when the formal mediation process concludes. Indeed, they can take months, or even years, to resolve from initiation to the final report. Companies should be prepared for a process that may take longer than anticipated from beginning to end—and may linger beyond the issuance of a final report.