This first chapter sets out how responsible business conduct (RBC) contributes to sustainability objectives in the infrastructure life cycle. In particular, RBC sets out an expectation that private sector actors address risks of adverse impacts that their infrastructure-related operations can create for people and planet. The chapter also outlines the important role of government in promoting RBC for sustainable infrastructure.
Responsible Business Conduct for Sustainable Infrastructure in Kazakhstan, Mongolia and Uzbekistan
Abstract
Infrastructure1 is critical for global economic growth and fundamental to socio-economic and environmental well-being. It is both a dedicated Sustainable Development Goal (SDG) and a factor in achieving other SDGs.2 Infrastructure is also key to meeting the climate mitigation and adaptation objectives of the Paris Agreement. Nonetheless, infrastructure projects can cause or contribute to environmental and social risks and adverse impacts due to their size and scale. Existing infrastructure in many countries insufficiently provides the essential goods and services required to fulfil internationally recognised human rights. For instance, 1.8 billion individuals have no access to basic sanitation, while almost 800 million lack access to water, with further challenges in accessing electricity, transport and digital infrastructure (OECD, 2020[1]; World Bank, 2021[2]).
Traditionally, infrastructure development has been dominated by the public sector. However, growing demand for infrastructure, gap in global infrastructure investment (USD 2.5-3 trillion annually), and need to respond to the effects of climate change and concerns about public debt sustainability have prompted increased private sector participation (World Bank, 2022[3]). Governments now seek greater levels of private sector involvement in financing, delivering, operating, maintaining, and decommissioning infrastructure. It is critical they promote and enable positive business contributions to sustainable development while minimising the adverse impacts that may be associated with business operations, products, and services. Responsible business conduct (RBC) principles and standards provide a framework for governments and businesses to enable responsible private sector participation in infrastructure development.
Infrastructure can encompass a wide range of components of economic and social infrastructure (OECD, 2021[4]). This report focuses on economic infrastructure related to energy, transport and mining.
Meeting development and climate objectives under the Paris Agreement and the 2030 Agenda for Sustainable Development will require far-reaching investment in infrastructure. OECD estimates indicate that around USD 6.9 trillion of infrastructure investment is needed each year until 2030 to meet the SDGs in a way that is compatible with the temperature goal of the Paris Agreement (OECD/The World Bank/UN Environment, 2018[5]). In developing economies, notably, significant levels of investment are needed to upgrade current infrastructure and develop new infrastructure projects to deliver a just transition towards net-zero emissions. In parallel, the decrease in available public revenues and other budgetary constraints are pressing governments to find alternative sources of funding for infrastructure development.
Policymakers and standard setters have developed various frameworks that aim to increase private sector participation in infrastructure and promote a shared understanding of the elements needed to support quality infrastructure investments that align with key policy objectives laid out in the OECD Principles for Private Sector Participation in Infrastructure (2007), the G7 Ise-Shima Principles (2016) and the G20 Principles for Quality Infrastructure Investment (2019) (OECD, 2024[6]). The High-Level Approach to Enhance and Better Integrate OECD Work on Infrastructure recognises that it is not only the amount of infrastructure investment that counts, but also the quality of that investment. The approach emphasises the value of a multi-disciplinary, multi-sectoral, multi-stakeholder, evidence- and consensus-based approach to infrastructure life cycle. The OECD RBC instruments are reflected in this approach (see Figure 1.1). Efforts have also been made to develop certification schemes for quality infrastructure projects that are environmentally and socially sustainable in order to help international investors identify investable projects and assets, while also supporting local contractors and project developers meet sustainability requirements of major financing institutions. Examples of such standards include the Blue Dot Network and the Fast-Infra Group (BDN, 2024[7]; Fast-Infra, 2024[8]).
Source: OECD (2024[9]), A high-level approach to enhance and better integrate OECD work on infrastructure, https://one.oecd.org/document/C(2023)71/REV3/en/.
In recent years, private sector participation in infrastructure has been concentrated in a few sectors and regions. Private sector involvement in emerging economies stands at about 20% of infrastructure investment, compared with 70% in developed economies. The transport and energy sectors are more likely to attract private sector investment than other sectors. Transport projects attracted over 68% of the total private sector participation in emerging economies in 2022 and energy 73% in 2023 (World Bank, 2022[3]; 2023[10]). This difference can be attributed to several factors, including concerns about political stability, and state and quality of the regulatory environment, as well as risks related to corruption and a scarcity of bankable projects (GIH, 2020[11]).
To incentivise greater private sector participation in infrastructure projects, governments have developed financial instruments and used a wide range of policy tools. At the financing stage, Official Development Assistance (ODA), blended finance and other financial mechanisms have been used to mobilise additional commercial and private finance to improve the risk-return profile of investments and help projects become economically viable. Similarly, Public-Private Partnerships (PPPs) and public procurement are important policy instruments that can assist in this regard.
Over the last decade, there has been a growing expectation for businesses to conduct their operations responsibly. RBC expectations set out that all businesses – regardless of their legal status, size, ownership structure or sector – address adverse impacts of their operations, products, and services on people, planet and society, and contribute to sustainable development where they operate, including throughout their investments and supply chains (see Box 1.1).
RBC and ESG are closely linked concepts with significant overlap, complementarity, and differences. Under the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (MNE Guidelines), RBC means that businesses should: i) make a positive contribution to economic, environmental, and social progress with a view to achieving sustainable development; and ii) avoid and address adverse impacts through their own activities and seek to prevent or mitigate adverse impacts directly linked to their operations, products, or services by a business relationship. ESG criteria is the term normally used by financial institutions to describe the set of criteria they use when assessing the sustainability performance of a company.
The scope of RBC and ESG criteria are related. Both relate to social, environmental and governance considerations, however RBC is specific to the standards and recommendations set out in the MNE Guidelines. Furthermore, in some instances, ESG criteria may be used primarily to identify financial risks to a business, while RBC is concerned with adverse impacts on people and planet. In practice, many of these considerations will also have financial implications and be therefore material (negatively or positively) for the company concerned. RBC means a business tries to positively influence the situation by engaging with stakeholders, adjusting business processes and actively using leverage, thereby reducing risks for people and the environment.
Source: OECD (2019[12]), RBC due diligence for corporate lending and securities underwriting, https://mneguidelines.oecd.org/due-diligence-for-responsible-corporate-lending-and-securities-underwriting.pdf.
The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (the MNE Guidelines) is a leading instrument for promoting the adoption of RBC practices by businesses. It is the most comprehensive international instrument on RBC (OECD, 2023[13]) (see Box 1.2). The MNE Guidelines are operationalised through risk-based due diligence – a process through which businesses identify, prevent and mitigate their actual and potential adverse impacts, and account for how those impacts are addressed (see Figure 1.2 and the OECD Due Diligence Guidance for Responsible Business Conduct (OECD, 2018[14])). Due diligence should be “commensurate to the severity and likelihood of the adverse impact and appropriate and proportionate to its context” (OECD, 2023[13]). It extends to adverse impacts that businesses cause, contribute to, or to which they are directly linked.
The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (the MNE Guidelines) are recommendations by governments for businesses to align their activities with sustainable development and conduct due diligence to avoid adverse impacts on people, planet and society. They cover the full range of sustainability impacts that enterprises may have, including disclosure of information, respect for human rights, employment and industrial relations, protection of the environment and climate, respect for the interests of consumers, and the fight against corruption. The MNE Guidelines also cover business’ sustainability impacts in the areas of taxation, competition, science, technology and innovation. They are aligned with and complement the UN Guiding Principles on Business and Human Rights and the International Labour Organization (ILO) Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.
The MNE Guidelines are operationalised through risk-based due diligence. A six-step framework provides companies with a process for embedding RBC practices in the core of company operations. These include identifying, preventing and mitigating adverse impacts; engaging in monitoring and tracking progress; communicating results; and providing for or co-operating in remediation when appropriate. The six-step framework is laid out in the OECD Due Diligence Guidance for Responsible Business Conduct (OECD Due Diligence Guidance) (see Figure 1.2). In addition to this cross-sectoral instrument, the OECD has developed specific guidance to provide tailored recommendations across sectors, including agriculture, minerals, extractives, garment and footwear, and finance.
The MNE Guidelines are supported by a unique implementation mechanism: National Contact Points for Responsible Business Conduct (NCPs). The NCPs are agencies established by governments to promote awareness and uptake of the MNE Guidelines, resolve grievances in cases of alleged non-observance of the MNE Guidelines, and where applicable, provide support to the development, implementation and coherence of government policies to promote RBC.
The MNE Guidelines serve as a reference point for a variety of regulatory developments and market initiatives. The due diligence-related expectations in the MNE Guidelines have been reflected in regulations pertaining to supply chain due diligence (e.g. French Duty of Vigilance Law, German Supply Chain Act, Norway Transparency Act), trade-based obligations (e.g. UK Environment Act, EU Deforestation Regulation, US Uyghur Forced Labour Prevention Act) as well as sustainable finance and corporate disclosure laws (e.g. EU Taxonomy Regulation, EU Corporate Sustainability Reporting Directive). They are also endorsed and reflected in leading industry initiatives e.g. UN Principles for Responsible Investment, the Global Reporting Initiative, the Taskforce on Nature-related Financial Disclosures and the Ethical Trade Initiative.
Source: OECD (2023[13]), OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, https://www.oecd.org/en/publications/oecd-guidelines-for-multinational-enterprises-on-responsible-business-conduct_81f92357-en.html ; OECD (2018[14]), OECD Due Diligence Guidance for Responsible Business Conduct, https://doi.org/10.1787/15f5f4b3-en.
Due to their size and complexity, infrastructure projects can generate a wide range of adverse impacts and inadvertently undermine efforts to promote sustainable development. For example, infrastructure development can have impacts on:
Human rights: Infrastructure projects can lead to adverse impacts on the rights of local communities, including the rights of Indigenous Peoples, e.g. through resettlement and forced displacement and/or impacts on the ecosystems they depend on. In addition, infrastructure in the information and communication technology (ICT) sector has the potential to infringe on human rights related to privacy or freedom of expression, increase discrimination, and have adverse impacts on consumers.
Labour rights: Poor planning and weak infrastructure governance can lead to adverse impacts on the health, safety, livelihoods, and well-being of workers. For instance, globally, construction as a sector ranks third for prevalence of forced labour (ILO, 2022[15]). Additionally, large-scale infrastructure projects often require workers to operate in challenging environmental and working conditions, which can lead to specific occupational health and safety risks and impacts (such as extreme heat and the risks associated with physical tasks or being accommodated on-site). (IHRB, 2019[16]).
Climate and environment: Infrastructure is a factor contributing to climate change (e.g. infrastructure projects are estimated to be responsible for approximately 79% of greenhouse gas (GHG) emissions on a global scale), while also being affected by physical impacts of climate change (UNOPS, 2021[17]). At the same time, infrastructure can play an essential role in building resilience and adaptation to the impacts of climate change on communities and the environment (OECD, 2018[18]). As such, strategic investment toward sustainable infrastructure is key to avoid carbon lock-in3, stranded assets and emission-intensive behaviours (OECD, 2023[19]). Moreover, infrastructure development impacts the environment through the use of resources (e.g. energy, water) and generation of waste and pollutants. Such impacts can be reduced and mitigated through sound environmental management systems and planning (OECD, 2019[20]).
Corruption and business integrity: Infrastructure projects are often linked to corruption. OECD research shows that almost 60% of foreign bribery cases have occurred in sectors related to infrastructure – namely extractives (19%), construction (15%), transport and storage (15%), and ICT (10%) (OECD, 2014[21]). Moreover, it has been reported that 30-50% of investment made in infrastructure is lost because of inefficiencies to which corruption is a contributing factor (IMF, 2020[22]).
Promoting the uptake of RBC by companies involved in infrastructure projects can help maximise the sustainability outcomes of such projects. When applied to infrastructure development, RBC means that throughout the infrastructure life cycle and supply chain, business-related adverse impacts on people, planet and society are addressed and accounted for, maximising the project’s contribution to sustainable development. Integrating RBC in the infrastructure project life cycle – from upstream sustainable infrastructure planning to project prioritisation, financing, delivery, operation, maintenance, and decommissioning – is a practical way for private sector participants to “know and show” that they are addressing adverse impacts.
International Finance Corporation (IFC) Performance Standards on Environmental and Social Sustainability
The IFC Performance Standards on Environmental and Social Sustainability define the environmental and social performance expectations of clients receiving financing from the IFC, including how they should assess and manage environmental and social risks, and impacts in projects and infrastructure being developed. The IFC Performance Standards set out expectations on issues related to risk management, labour rights, resource efficiency, community impacts, land resettlement, biodiversity, Indigenous Peoples’ rights and cultural heritage. Although they only formally apply to financing provided by the IFC, the IFC Performance Standards have been incorporated and used by other financial institutions to identify and respond to environmental and social risks related to project and asset finance transactions.
The World Bank’s Environmental and Social Framework
The World Bank’s Environmental and Social Framework (ESF) consists of: a vision for sustainable development; 10 Environmental and Social Standards (ESSs), which set out the requirements that apply to the bank’s borrowers; an Environmental and Social Policy for Investment Project Financing (IPF), which sets out the requirements that apply to the Bank; an Environmental and Social Directive/Procedure for Investment Project Financing (IPF); and a Directive on Addressing Risks and Impacts on Disadvantaged or Vulnerable Individuals or Groups. The World Bank’s ESF provides a risk-based approach that applies increased oversight and resources to complex infrastructure projects. It also allows for greater responsiveness to changes in project circumstances through adaptive risk management and stakeholder engagement. It promotes integrated environmental and social risk management. The ESF replaced the World Bank’s “Safeguard Policies” in 2016.
The Equator Principles
The Equator Principles are a financial industry benchmark and voluntary risk management framework for determining, assessing, and managing environmental and social risks in project-related finance. They apply to project finance advisory services, project finance, project-related corporate loans, bridge loans and project-related refinance. The Equator Principles build on existing frameworks including the IFC Performance Standards and the UN Guiding Principles on Business and Human Rights and the Task Force on Climate-related Financial Disclosures. At the time of writing, they have been adopted by 136 financial institutions.
Source: IFC (2012[23]), IFC's Performance Standards on Environmental and Social Sustainability, https://www.ifc.org/content/dam/ifc/doc/mgrt/ifc-performance-standards.pdf.
World Bank (2016[24]), Environmental and Social Framework, https://thedocs.worldbank.org/en/doc/837721522762050108-0290022018/original/ESFFramework.pdf?_gl=1*16yqnnq*_gcl_au*MjU0NDkzNDQwLjE3MjI5NTIxNTg.
Equator Principles (2020[25]), Equator Principles IV, https://equator-principles.com/app/uploads/The-Equator-Principles_EP4_July2020.pdf.
A number of tools and frameworks have been developed to support businesses and investors in addressing ESG risks in infrastructure project development (see Box 1.3). In fact, there are over 80 international standards and assessment frameworks that are relevant for sustainable and quality infrastructure4 (OECD, 2022[26]).
Many of these frameworks, such as the IFC Performance Standards, the Equator Principles or the World Bank Environmental and Social Framework, share similar expectations to those laid out in the MNE Guidelines and related due diligence guidance. They all aim to address and minimise ESG risks in projects and assets. However, RBC principles and standards provide additional recommendations that can help maximise the contribution of the private sector to the sustainability outcomes of infrastructure, including:
Managing impacts on people, planet and society: the MNE Guidelines’ focus on impact helps enhance businesses’ contributions to key policy objectives and align risk management systems with sustainability goals. Many risk management frameworks are concerned with managing environmental and social risks only when these are material to the financial viability of the infrastructure project itself,5 whereas the MNE Guidelines are more holistic and prompt businesses to consider the severity and likelihood of impacts on people, planet and society, and possible lingering effects on the pursuit of sustainability goals.
Considering supply chain impacts of infrastructure: adverse environmental and social impacts can arise tangentially to an infrastructure project e.g. risks of child or forced labour are likely to be greater outside the scope of direct project activities where labour management practices are less tightly controlled. Similarly, adverse impacts on biodiversity and ecosystems can also occur from unsustainable procurement of raw materials required for infrastructure projects (e.g. wood and timber for a construction project) (IDB, 2022[27]). Some risk management frameworks apply only as far as the perimeter of the infrastructure project itself, with limited expectations on supply chain risks (often limited to pre-selected high risks). OECD RBC principles and standards take a whole-of-supply chain approach, expecting businesses to address risks where they are more severe and more likely to occur.
A holistic approach to sustainability management: as infrastructure projects often have large footprints with a wide range of potential environmental and social impacts, it is important for businesses to assess risks and impacts, and their respective interdependencies to maximise infrastructures’ contribution towards sustainability goals. The holistic nature of the MNE Guidelines as well as the prioritisation process embedded in the risk-based due diligence approach help businesses break out of silos in risk management and consider their contribution to sustainability more comprehensively (OECD, 2023[13]). Many risk management frameworks are siloed to specific risks and impacts (e.g. climate change).
Meaningful stakeholder engagement as the cornerstone of the due diligence process: the MNE Guidelines include strong expectations on meaningful stakeholder engagement, including through the timely sharing of relevant information needed for stakeholders to make informed decisions in a format they can understand and access. Meaningful engagement in a due diligence context also means seeking continuous improvement throughout the risk mitigation process, rather than “cut-and-run” business decisions. For infrastructure projects, stakeholder engagement can take many forms including seeking free, prior and informed consent of impacted Indigenous People, participating in and sharing results of on-site assessments, and organising formal and informal focus group discussions.
Clarifying risk management responsibility and fostering interoperability: ensuring clarity over responsibility for managing risks throughout the infrastructure life cycle can be challenging. The most established frameworks typically provide expectations from financiers to borrowers receiving financing, without always clarifying ownership and responsibilities when it comes to managing risks and adverse impacts. The RBC principles and standards provide clarity in this regard: they do not shift responsibilities as they indicate clearly that each company involved in the infrastructure project should conduct its own risk-based due diligence (and provide indications on how to collaborate in the due diligence process). Similarly, and given the long lifespan of infrastructure development and the multiplicity of actors involved, the MNE Guidelines provide a solid baseline for aligning risk management approaches among different actors (including in the context of syndicated loans, co-financing transactions or where a transaction involves financial intermediaries).
An avenue for remediation: traditional risk management frameworks in infrastructure projects provide limited expectations as to how the private sector can provide for or contribute to remediation in the context of adverse impacts arising from a project (e.g. setting up and use of grievance mechanisms). Access to remedy is a core aspect of RBC, and providing for or co-operating in remediation when appropriate is an integral part of the RBC due diligence process (Step 6). Implementation of the MNE Guidelines is also supported by National Contact Points for RBC. As non-judicial grievance mechanisms, they can help resolve issues that arise in implementing the MNE Guidelines, including adverse impacts related to infrastructure projects. Failure to mitigate and remediate risks can erode social licence to operate, slow down government permitting, increase cost-overruns and delay delivery of infrastructure (OHCHR, 2017[28]).
The OECD has developed a specific guidance document on RBC due diligence for project and asset finance transactions that is also applicable to infrastructure project financing (OECD, 2022[29]). It provides a common framework for development finance institutions on how to carry out due diligence to identify, respond to, and publicly communicate on environmental and social risks associated with projects and assets they finance. It outlines practical recommendations to financial institutions on key aspects of the RBC due diligence process including stakeholder engagement and providing for or contributing towards remediation where an impact arises. It also explains how these recommendations relate to existing standards and frameworks for responsible project and asset financing.
Governments have a key role to play in promoting the uptake of RBC by companies involved in infrastructure projects. By creating an enabling environment to drive, support and promote responsible business practices, they can help ensure that the wide array of businesses involved in the infrastructure life cycle contribute to sustainable development and address the adverse impacts of their activities. To increase policy coherence and avoid inconsistency in RBC-related expectations to business, the OECD adopted the Recommendation on the Role of Government in Promoting Responsible Business Conduct (OECD, 2022[30]). The Recommendation brings together a coherent set of policy recommendations and principles to support governments in enabling and promoting RBC (see Figure 1.3).
Putting in place, and maintaining legal and regulatory frameworks to enable RBC that are continuously implemented and effectively enforced, particularly in areas covered by the MNE Guidelines, such as the protection of human rights, labour rights, and the environment, and the fight against climate change and corruption.
Encouraging RBC across relevant policy areas that can facilitate and encourage the uptake of responsible business practices or shape business conduct through specific economic policies, such as sustainable finance and investment promotion.
Leading by example and taking measures to promote and exemplify RBC in governments’ role as economic actors and in their commercial activities, including through public procurement, public-private partnerships (PPPs) and the role of state-owned enterprises6 (SOEs).
Promoting stakeholder participation and providing transparent channels for meaningful stakeholder consultation, which entails transparency and access to information around the management of social and environmental impacts of infrastructure development and taking into consideration stakeholder views during the relevant phases of infrastructure projects’ life cycle.
Promoting access to remedy. National Contact Points (NCPs), which act as a non-judicial grievance mechanism in cases of alleged non-observance by businesses of the MNE Guidelines.
Policy coherence and government co-ordination. RBC, like infrastructure development, requires heightened co-ordination among ministries and agencies to ensure policy coherence and maximise intended outcomes of policies and measures on sustainable development.
Source: OECD (2022[31]), Recommendation of the Council on the Role of Government in Promoting Responsible Business Conduct, https://legalinstruments.oecd.org/en/instruments/OECD-LEGAL-0486.
References
[7] BDN (2024), About the Blue Dot Network.
[25] Equator Principles (2020), Equator Principles IV.
[8] Fast-Infra (2024), Welcome to Fast-Infra.
[11] GIH (2020), Private Sector Roles and Participation.
[27] IDB (2022), Managing social and environmental risks in supply chains for IDB-financed projects.
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← 1. Infrastructure can encompass a wide range of components of economic and social infrastructure (OECD, 2021[4]). This report focuses on economic infrastructure related to energy, transport and mining.
← 2. Though infrastructure is mentioned explicitly under SDG 9, it underpins other socio-economic SDGs. Notably, mainstreaming social and environmental benefits in infrastructure planning will bring benefits through clean transport systems (SDG 3), access to energy (SDG 7), and responsible production and consumption (SDG 12), among others.
← 3. Carbon lock-in occurs when high-emission infrastructure or assets continue to be used, despite the possibility of substituting them with low-emission alternatives, thereby delaying or preventing the transition to near-zero or zero-emission alternatives.
← 4. The OECD conducted mapping and an assessment of these frameworks as part of the OECD’s technical support for the Blue Dot Network. The Blue Dot Network represents an innovative solution to help mobilise private sector investment in infrastructure by identifying and encouraging market-driven, transparent, and sustainable infrastructure projects.
← 5. Traditional risk management frameworks for infrastructure projects include systems of risk prioritisation and categorisation based on the of the magnitude (e.g. scale) of potential environmental and social risks, and impacts, which are broadly based on the risk-based approach for RBC due diligence. However, several social and environmental issues are often under-prioritised if the size or physical footprint of a project is used to inform prioritisation decisions rather than contextual factors or the severity of the impact. As a result, smaller infrastructure projects’ significant footprint (e.g. the ICT sector) associated with significant human rights or environmental risks may be overlooked and not treated according to the severity of risks that they represent.
← 6. OECD Council Recommendations on Principles for Public Governance of Public-Private Partnerships; on Guidelines on Corporate Governance of State-Owned Enterprises; and on Public Procurement provide comprehensive frameworks on the role of government as an economic actor. They include provisions on sustainability practices of SOEs (including with regards to risk-based due diligence), green growth through public procurement, and stakeholder engagement in the context of PPPs.