Companies need to include effective ethics and compliance programmes as part of their governance to ensure continued trust with their stakeholders. Jean-Christophe Sautory – Chief Ethics, Risks and Compliance Officer at L’Oréal
What does Target 16.6 mean for businesses?
Effective, accountable and transparent institutions are core to the enabling environment in which businesses and societies can thrive. They provide the laws, policies and systems necessary for creating sustained peace and security, for providing essential infrastructure and services and, ultimately, for attracting responsible investment and market opportunities. To be sure, Target 16.6 is essential to delivering on all of the SDGs and all aspects of SDG 16, including preventing corruption, illicit financial flows (beneficial ownership) and organized crime and violence (16.1, 16.4 and 16.5 and 16.a), protecting human rights (16.2, 16.7, 16.9, 16.10 and 16.B) and respecting rule of law and multilateralism (16.3 and 16.8).
All institutions — public and private — must be effective, accountable and transparent in ways that instill confidence and trust among them and by the public in them. This imperative ranges from how communities and workers are supported and how human rights and the environment are protected. It is important to note that this target extends to institutions at all levels whether this is relevant to state sovereignty and international comity or to corporate headquarters and country offices. And underpinning this all is the need for quality leadership within these institutions in the form of impartiality, inclusivity and integrity grounded in universal values and principles.
Such institutions also provide consistency in terms of what is required of them and of their constituents. This includes developing and enacting laws and policies that are clearly and fairly observed and enforced — and absent of corruption and distortion including in public contracting and political campaigning as noted by Transparency International. It ultimately provides for greater certainty and stability within these institutions and within the societies they operate and serve.
Leading indices and reports demonstrate the foundational nature of effective, accountable and transparent institutions to peaceful and prosperous societies.
The World Bank Doing Business Report 2020 provides an annual snapshot of Government effectiveness from the perspective of business. It assesses the difficulty for businesses to conduct a range of activities in more than 190 countries, including:
- The cost and time to open a new business and obtain all necessary legal approvals and permits
- The length of time it takes to complete a transfer of property
- The ease of enforcing contracts and obtaining a fair and timely resolution to a legal dispute
- The effectiveness of an insolvency process
- The protection of minority investors
The Legatum Prosperity Index finds a strong relationship between the quality of governance (particularly accountability and integrity) and economic governance in the short term and the quality of institutions and people’s health, education and living conditions in the long term.
An analysis of progress on SDG 16 targets by the Institute for Economics and Peace found that 95 of the 169 targets in the SDGs are related to well-functioning Governments that deliver high-quality public and civil services, engender trust and participation, demonstrate political stability and uphold the rule of law.
According to the Harvard Law School Forum on Corporate Governance, environmental, social and governance (ESG) factors are becoming a key determinant of financial strength. Recent research shows that the top 20 per cent of ESG-ranked stocks outperformed the American market by over 5 percentage points during a recent period of volatility.
LRN research shows that a commitment to ethical corporate governance, leadership and values allows companies to meet a minimum standard of workplace behavior and decision making expected by stakeholders. It also creates shared values that elevate corporate behavior and corporate value. It is the basis upon which companies can outperform their peers and raise the standard for responsible business conduct.
How should businesses implement Target 16.6?
To be sure, businesses can implement Target 16.6 in a variety of ways. As outlined in the introduction of this Framework, we are experiencing an evolution of governance that requires businesses to not only consider conventional corporate governance but also assume more responsibility — and engage more deliberately — in sustainability governance and global governance. This has been acknowledged in part by the WBCSD report Board Directors’ Duties and ESG Considerations in Decision-Making, noting that such considerations are “a critical business issue that should be rolled into the broader corporate governance, risk management, disclosure and accountability frameworks of a business”. Moreover, the Shift Leadership Governance Indicators provide specific guidance to businesses for managing and measuring social risks.
As noted in the introduction and reporting sections of this Framework, there is an increase in directives, legislation and regulation that are requiring businesses to adopt an expanded view of the "G" in ESG. The European Union, through the European Parliament and the European Council, and more recently the United States, through its Securities and Exchange Commission (SEC), are exploring ways to impose greater responsibilities with respect to ESG issues. And, to be sure, major institutional investors including BlackRock are requiring greater accountability and transparency with respect to human rights and the environment, including biodiversity, deforestation and water.
This calls for businesses to embrace transformational governance that requires them to not only consider how corporate governance can extend beyond board and management oversight to capture all aspects, functions and levels of an organization but also how businesses engage with Governments and civil society in addressing environmental and social considerations and strengthening environmental and institutions, laws and systems. Businesses must also embrace ethical and moral leadership in order to rise to this challenge and to be more effective, accountable and transparent organizations. To be sure, as The How Report highlights, more values-based businesses outperform their peers. They are three times as likely to achieve high levels of performance as measured by growth in business sustainability, customer satisfaction, employee engagement, innovation and market share. And businesses with high levels of trust experience 11 times greater innovation and six times the performance than those with low levels of trust.
Additionally, businesses can champion transformational governance throughout their supply chains through contractual terms and auditing requirements. Suppliers depend on businesses for their own sustainability and as such, these businesses should demand greater accountability and transparency in their commercial relationships.
Here are some ways businesses can take action
Culture and board/management oversight
Establish a culture of ethical leadership that ensures more effective, accountable and transparent governance. This should apply across all levels and locations of the business and be communicated publicly if/when appropriate.
Education and policies
Develop policies and training for all employees and suppliers that promote accountability and transparency and conduct auditing and measure performance on these qualities.
Governance structures and programmes
Demonstrate the process through which governance bodies are elected and members’ roles, responsibilities and relationships are assessed, including any actual or potential conflicts of interest and how these are handled. Develop robust ethics and compliance programmes. Establish audit committees and prepare audit reports to be made publicly available if/when appropriate.
Develop, implement and adequately resource internal grievance mechanisms through which employees and external parties can report any concerns and provide access to effective remedy.
Avoid making political/campaign financial contributions and/or lobbying for conditions that favour business interests over societal interests.
Reporting and public communication
Ensure adherence to and report on compliance with national legislation and regulatory frameworks. Report on and/or communicate business action and results across sustainability targets, and SDG16 in particular, when appropriate.
Board/management oversight, culture, strategies, policies, operations and relationships
Lead, promote and support advocacy efforts that call for greater effectiveness, accountability and transparency in public and private institutions.
Lend expertise in building the capacity and necessary infrastructure of local/national governments to be more effective, accountable and transparent including e-governance.
Collective action and partnerships
Work with Global Compact Local Networks, industry associations and civil society organizations to ensure businesses and Governments are being held to account.
Institutions, laws and systems at the international, national and municipal levels
Here are some ways businesses are taking action
Accelerating a cultural shift in ESG performance, legal accountability and public transparency
Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy. B Corps form a community of leaders and drive a global movement of people using business as a force for good. The values and aspirations of the B Corp community are embedded in the B Corp Declaration of Interdependence. (Source)
- Business Calls to Respect Free and Fair Elections
Business and labour leaders have, in recent months, been outspoken in calling on Governments to respect the results of elections that have taken place in their countries. In Myanmar, for example, the AFL-CIO issued a statement calling for the restoration of democracy following the military coup. In the United States, ahead of the 6 January electoral college vote to certify the results of the 2020 election, business leaders, individually and collectively, issued statements calling on Congress to respect the results of the election and vote in favour of an orderly and peaceful transfer of power. (Source)
- Ethical Culture and Shared Value Source
For Promigas — one of the oldest companies in the natural gas sector in Latin America — shared values and ethical culture are its sources of performance, reputation and differentiation. One of the main focuses of Promigas’ corporate governance is to ensure that its culture and values support and reinforce behavioural expectations. Promigas is outperforming energy industry peers and its values-based approach to business operations is generating real results. (Source)
- Investor Toolkit on Human Rights
The Investor Toolkit on Human Rights provides practical guidance for institutional investors in applying the UN Guiding Principles on Business and Human Rights (UNGPs) throughout their risk management systems to assess and address risks to people involved with their business, with a primary focus on investment activities. The toolkit was published by the Investor Alliance for Human Rights, a collective action platform for responsible investment that currently comprises over 170 institutional investors, including asset management firms, trade union funds, public pension funds, foundations, endowments, faith-based organizations and family funds. It is designed for and targeted to asset managers and asset owners. (Source)
- Open Contracting Partnership
The Open Contracting Partnership (OCP) is a silo-busting collaboration across Governments, businesses, civil society and technologists to open and transform Government contracting worldwide. It brings open data and open Government together to make sure public money is spent openly, fairly and effectively. It focuses on public contracts as they are the single biggest item of spending by most Governments and present the biggest corruption risk. Spun out of the World Bank in 2015, OCP is now an independent not-for-profit working in over 30 countries. It drives improved public integrity and service delivery by shifting public contracting from closed processes to digital services that are fair, efficient and ‘open by design’. It fosters a culture of openness needed to deliver impact. (Source)
- Policy on Transparent Interactions with Public Authorities
Nestlé has developed a policy that applies to its interactions with public authorities in relation to public policy development and implementation, including engagements with public authorities in the context of lobbying. The company engages with public authorities with the view of working towards positive outcomes for both business and society. It believes that transparent and constructive engagement is a vital part of the policy decision-making process and as such, communicates its advocacy priorities and objectives transparently. It also believes in open dialogue, supporting multi-stakeholder actions and adopting responsible business practices. (Source)
- Transparency Portal
The CS Brasil Transparency Portal provides information on a company's participation in public procurement processes, including bidding values and contract terms. It contains simple and clear language so that any interested party can easily consult the company's hiring history and, as citizens, exercise their right to evaluate and question the use of public money. In addition, it contains relevant and updated information about the company and the economic group to which it belongs, as well as other actions aimed at combating corruption. (Source)
Some industries that could/should contribute to achieving Target 16.6
Effective, accountable and transparent institutions are inherently relevant to all industries. All businesses should act in a manner that is ethical, inclusive and open and instills confidence and trust by Governments and civil society.
Some intersections with Target 16.6 and the Ten Principles, UNGPs and SDG16+
As noted above, effective, accountable and transparent institutions are inherently relevant to all aspects of the Ten Principles and to all of the Sustainable Development Goals.
- Business Calls to Respect Free and Fair Elections