Responsible Business Conduct for Sustainable Infrastructure in Kazakhstan, Mongolia and Uzbekistan

5. Opportunities for promoting RBC

Abstract

This chapter briefly compares progress Kazakhstan, Mongolia and Uzbekistan have made in encouraging responsible business conduct for sustainable infrastructure. On this basis, it identifies opportunities for peer learning, greater integration of RBC in legal and policy frameworks and in regional engagement.

Kazakhstan, Mongolia, and Uzbekistan have taken important steps to promote responsible business conduct (RBC) in infrastructure development. All three countries have adjusted their policy frameworks to promote better business practices and business awareness of the relevance of RBC is growing. Nonetheless, a broad range of adverse impacts related to infrastructure can still be observed. These include impacts on workers on construction sites; impacts on communities at or near infrastructure developments (including risks to community members’ health or livelihoods); and impacts on society (including from corruption) and the environment.

To make further progress, these countries can learn from one another. Areas of progress and challenges differ depending on the country. They can exchange experiences and inspire further progress to anchor RBC more firmly in policymaking and economic activities of the state. The existing collaboration between Kazakhstan and Mongolia on sustainable finance provides a useful example (AIFC Green Finance Centre, 2023[1]). Peer exchange and learning can help ensure that the infrastructure investments planned in each of the countries maximise their contribution to sustainable development. Highlighted in earlier papers in this series, examples from Indonesia, the Philippines and Thailand can inform peer exchange (OECD, 2024[2]; 2024[3]; 2024[4]).

The governments of Kazakhstan, Mongolia, and Uzbekistan could consider the following actions to encourage RBC:

• Promote RBC and raise awareness: Promoting business practices that align with OECD standards on RBC would be useful to attract quality investments and enhance international market access for products. This is particularly relevant for natural resource extraction, which occupies a central role in each of the three economies. OECD instruments and tools can provide a coherent approach that seeks to enhance transparency in mineral supply chains and value addition, and enhance international co‑ordination around a unified set of expectations for producing, processing, and importing jurisdictions. Kazakhstan has already adhered to the OECD Guidelines for Multinational Enterprises (MNE) and established a dedicated institution, a National Contact Point, to promote RBC and support government co-ordination. Mongolia has already adopted a National Action Plan on Business and Human Rights (NAP BHR), with similar efforts underway in Kazakhstan and Uzbekistan. Giving relevant institutions a clear mandate to promote and enable RBC, including in the context of implementing National Action Plans (NAPs), is an important foundation for meaningful stakeholder engagement and progress monitoring. This could also accompany and support sector-specific efforts, as in Mongolia’s mining sector.

• Enforce existing standards relevant to RBC by ensuring public oversight services have appropriate mandates, and adequate capacity and resources: Kazakhstan, Mongolia, and Uzbekistan have all enhanced their legal frameworks for labour rights, environmental protection, and anti-corruption. Kazakhstan and Uzbekistan have recently increased fines for environmental violations that aim to act as a deterrent. Application of standards in practice remains a challenge. For example, limitations to unannounced labour inspections are a concern.

• Ensure attention to human rights impacts: Understanding and addressing potential impacts of infrastructure projects on land rights, livelihoods, and health and well-being of local populations early in the infrastructure development cycle is critical. Expanding the scope of environmental impact assessments can be a useful avenue to achieve this and Mongolia has already taken steps in this direction by amending its regulatory framework.

• Strengthen labour and union rights: While the three countries have improved their labour legislation, workers’ rights and occupational safety and health, wage payment, and gender equality remain concerns in infrastructure development, combined with the limited effectiveness of labour inspections. Action is also required to ensure workers can establish or join trade unions of their own choosing and engage in collective bargaining.

• Use available levers for environmental protection: Kazakhstan has ambitiously articulated an expectation in legislation that large businesses use Best Available Techniques. If fully applied, this can be a powerful tool to regularly engage with businesses on their environmental performance and provide an example for Mongolia and Uzbekistan. The three countries also need to consider reviewing policies that disincentivise businesses from investing in energy efficiency and renewable energies, for example as a consequence of low costs of energy from fossil fuels.

• Step up the fight against corruption: Policy and institutional frameworks have improved in all three countries. However, each country has experienced high-profile corruption cases in infrastructure-related sectors and the perception of corruption remains high. The 5th monitoring round under the Istanbul Anti-Corruption Action Plan has identified gaps each country can address to improve business integrity and reduce risks of corruption, including in public procurement (OECD, 2024[5]; [6]; [7]). The efforts of Kazakhstan’s Anti-Corruption Agency to identify and address corruption risks in infrastructure projects may yield interesting lessons.

• Enable meaningful stakeholder engagement: Requirements for public consultation on infrastructure projects exist in all three countries, especially related to environmental impact assessments. Their application in practice is uneven, however. To ensure stakeholders can openly share their concerns throughout the infrastructure life cycle, it is essential that governments in all three countries effectively apply legal requirements and protect civic space for defenders of human and environmental rights.

• Support access to remedy: All three countries need a more effective system of judicial and non-judicial remedies. In Mongolia, the government could focus on ensuring that the requirement for operational-level grievance mechanisms under environmental impact assessments is implemented. In Uzbekistan, infrastructure SOEs could expand the existing complaints procedure in line with international standards for grievance mechanisms. Kazakhstan is the only country in the region to have a National Contact Point for RBC that provides a non-judicial grievance mechanism.

• Continue investing in promoting sustainable finance: Each country has made significant strides in promoting sustainable finance. Further efforts to translate this into the real economy would be beneficial. Working with international and national financial institutions active in infrastructure finance, including national development banks and businesses, would be one lever to ensure infrastructure projects can benefit from and meet the requirements of sustainable finance products.

As investors, owners, and operators of infrastructure, the governments of Kazakhstan, Mongolia, and Uzbekistan can integrate RBC-related considerations in the following ways:

• Set out RBC-related expectations in public procurement and public-private partnerships (PPPs): Uzbekistan’s experiences in stepping up green procurement could provide useful insights, as could Kazakhstan’s forthcoming experience in developing and applying criteria for sustainable public procurement under its new law on public procurement. Mongolia’s Law on PPP strengthens the links between PPPs and sustainable development. To translate expectations for PPPs into practice, Indonesia’s Government ESG Framework for Infrastructure Financing could provide an interesting example for the three countries (OECD, 2024[2]).

• Encourage leadership by state-owned enterprises: In all three countries, state-owned enterprises are lead actors in infrastructure sectors. Where they are closely connected to OECD markets, notably in the mining sector, they have already adopted a range of RBC-related policies and launched relevant initiatives. Uzbekistan is making dedicated efforts to promote ESG risk management and non-financial reporting in SOEs, as is Kazakhstan through Samruk-Kazyna, which could be interesting for Mongolia and the country’s new sovereign wealth fund.

At regional level, the governments of Kazakhstan, Mongolia, and Uzbekistan can promote dialogue and co-operation to integrate RBC in infrastructure investments. The need for investment in infrastructure is shared across the region (OECD, 2019[8]). Connectivity of transport and energy infrastructure between countries is a key element to strengthen the region’s integration in global value chains, foster intra-regional trade, and maximise benefits from investments in the energy sector (ITF, 2019[9]; OECD, 2023[10]; OECD, 2019[8]). While there is no regional economic community that brings together the three countries, there are frequent bi- and multilateral dialogues. Governments in the region have underlined the importance of this agenda and their intent to collaborate (CAREC, 2023[11]). Specifically with regard to infrastructure, the Central Asia Regional Economic Cooperation (CAREC) Program is a forum that brings together governments of 11 countries and development finance institutions1. CAREC mobilises major investments in transport and energy infrastructures in the region (USD 47 billion between 2001 and 2023) and has a focus on sustainable infrastructure and connectivity (Asian Development Bank, 2019[12]; Asian Development Bank, 2017[13]). CAREC also supports knowledge exchange and research, highlighting, for instance, opportunities to raise awareness of ESG in the region (Xin, Sheng and Zhang, 2024[14]). Inaugurated in 2002, the Asia Cooperation Dialogue includes all three countries and incorporates energy and transport among the 19 areas of co-operation. In bilateral and regional dialogues, Kazakhstan, Mongolia, and Uzbekistan could stress the importance of responsible business conduct for sustainable infrastructure investments, share their experiences, and encourage collaboration on RBC in the preparation and implementation of regional infrastructure projects around transboundary impact assessments.

References

[1] AIFC Green Finance Centre (2023), AIFC Green Finance Centre has signed a memorandum of understanding with the Green Finance Corporation of Mongolia, https://gfc.aifc.kz/en/news/tsentr-zelenyh-finansov-mftsa-podpisal-memorandum-o-vzaimoponimanii-s-zelenoi-finansovoi-korporatsiei-mongolii (accessed on 29 October 2024).

[12] Asian Development Bank (2019), CAREC Energy Strategy 2030:, Asian Development Bank, Manila, Philippines, https://doi.org/10.22617/tcs190515-2.

[13] Asian Development Bank (2017), CAREC 2030:, Asian Development Bank, Manila, Philippines, https://doi.org/10.22617/tcs179132-2.

[11] CAREC (2023), 22nd Carec Ministerial Conference: Joint Ministerial Statement, https://www.carecprogram.org/uploads/Joint-Ministerial-Statement_22nd-MC-ENG.pdf (accessed on 4 November 2024).

[9] ITF (2019), “Enhancing Connectivity and Freight in Central Asia”, International Transport Forum Policy Papers, No. 71, OECD Publishing, Paris, https://doi.org/10.1787/0492621a-en.

[5] OECD (2024), Baseline Report of the Fifth Round of Monitoring of Anti-Corruption Reforms in Kazakhstan: The Istanbul Anti-Corruption Action Plan, OECD Publishing, Paris, https://doi.org/10.1787/c9652173-en.

[6] OECD (2024), Baseline Report of the Fifth Round of Monitoring of Anti-Corruption Reforms in Mongolia: The Istanbul Anti-Corruption Action Plan, OECD Publishing, Paris, https://doi.org/10.1787/a6e46fdb-en.

[7] OECD (2024), Baseline Report of the Fifth Round of Monitoring of Anti-Corruption Reforms in Uzbekistan: The Istanbul Anti-Corruption Action Plan, OECD Publishing, Paris, https://doi.org/10.1787/363ba9d8-en.

[2] OECD (2024), “Responsible business conduct for sustainable infrastructure in Indonesia”, OECD Business and Finance Policy Papers, No. 67, OECD Publishing, Paris, https://doi.org/10.1787/979472ba-en.

[4] OECD (2024), “Responsible business conduct for sustainable infrastructure in Thailand”, OECD Business and Finance Policy Papers, No. 65, OECD Publishing, Paris, https://doi.org/10.1787/f22e8b78-en.

[3] OECD (2024), “Responsible business conduct for sustainable infrastructure in the Philippines”, OECD Business and Finance Policy Papers, No. 66, OECD Publishing, Paris, https://doi.org/10.1787/2d648d86-en.

[10] OECD (2023), Realising the Potential of the Middle Corridor, OECD Publishing, Paris, https://doi.org/10.1787/635ad854-en.

[8] OECD (2019), Sustainable Infrastructure for Low-Carbon Development in Central Asia and the Caucasus: Hotspot Analysis and Needs Assessment, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/d1aa6ae9-en.

[14] Xin, F., R. Sheng and C. Zhang (2024), The Development of ESG in CAREC Countries: Evidence from Capital Markets in China and Kazakhstan, https://www.carecprogram.org/?publication=prospects-for-inclusive-green-growth-and-sustainability-in-the-carec-region (accessed on 30 October 2024).

Note

← 1.  CAREC is a partnership of 11 countries (Afghanistan, Azerbaijan, China, Georgia, Kazakhstan, Kyrgyzstan, Mongolia, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan) and development partners. See https://www.carecprogram.org/.