This section highlights the importance of greater policy coherence around internationally recognised standards on RBC and explores areas for further research to understand potential impacts and implementation needs.
Review of G7 Government-led Voluntary and Mandatory Due Diligence Measures for Sustainable Agri-food Supply Chains
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4. Further research: Supporting policy coherence and effective implementation
Abstract
As highlighted in other sections, there is considerable variation in the scope and the due diligence approach used by the 24 policy measures identified in this review. As such, the potential impacts of each measure on businesses and relevant stakeholders in the agriculture sector will likely differ significantly. However, as set out in Section 3, many of the policy measures identified were adopted in the last three years and so it is too early to evaluate their implementation and impacts comprehensively. The wider RBC policy landscape itself also remains a nascent field, particularly when compared to other fields that are both complex and highly regulated (e.g., tax legislation, accounting rules, anti-money laundering legislation and laws on food and product safety and occupational health and safety). As such, a comprehensive assessment of the impacts of the measures is outside the scope of this report and requires further monitoring and research into the costs, benefits and consequences of the identified government measures.
In the absence of such a comprehensive assessment, policy makers nevertheless have an important opportunity to: (a) harmonise and coordinate policy measures relating to RBC due diligence; and (b) develop appropriate accompanying measures to ensure that implementation is effective and achieves the intended policy goals, and that unintended consequences are identified and avoided.
4.1. Policy coherence and harmonisation around international OECD standards on Due Diligence and RBC
It is important to recognise that the implementation and impact of mandatory or voluntary policy measures will depend significantly on the design of the measures themselves - including their scope, the extent to which they align with core principles and expectations of the OECD instruments and whether or not they are supported by effective complementary or accompanying measures to incentivise and support responsible and sustainable business conduct (see Subsection 4.1.1).
Policy coordination and harmonisation around international OECD standards on due diligence and RBC can help reduce complexity for companies and their suppliers by setting consistent expectations across different jurisdictions; this can be particularly important for SMEs and companies whose operations and supply chains span multiple jurisdictions. Greater consistency with international OECD standards on due diligence and RBC can also help to ensure that the expectations are flexible, proportionate and risk-based for companies and their suppliers, reflecting their own circumstances (e.g., their size and the context of their operations) and the risks they face in practice. OECD instruments on RBC have been carefully calibrated to give companies this type of flexibility and to guard against unintended consequences such as disengagement from smaller suppliers or higher-risk geographies and sectors. They are designed to ensure an approach that balances different needs and objectives, so that risk-based due diligence leads to positive outcomes for people, society and the environment – including through engagement along the supply chain and a focus on demonstrating improvement over time against targets.
In contrast, fragmented or inconsistent policy approaches can lead to confusion and uncertainty for companies and their suppliers as well as uneven implementation across different markets and potential loopholes or blind spots. For example, in the context of the EU’s Deforestation Regulation, the EU’s impact assessment highlighted the importance of policy coherence across G7 members to avoid market leakage (whereby demand-side approaches may otherwise incentivise a shift in goods to markets without comparable measures), and recommended alignment on, among other things, commodity coverage, approach, cut-off dates and timeframes. It also noted the importance of cooperation with producing and consumer countries, as well as with international organizations, to address leakage risks and to achieve the goal of halting global deforestation (European Commission, 2021[47]). In many cases, RBC risks occur in the supply chains of commodities that are destined for domestic markets, that may be less influenced by measures imposed by export markets. However, international standards and measures can play a role in influencing domestic supply chains by supporting the cost, access to and quality of due diligence by providing supporting tools, guidance and services to businesses in developing economies.
The recent OECD Ministerial Declaration on Promoting and Enabling Responsible Business Conduct in the Global Economy, adhered to by 50 governments and the EU, highlighted the importance of cooperation and coordination on RBC policy measures to promote alignment with OECD Due Diligence guidance for RBC. It acknowledged the relevance of a smart mix of voluntary and mandatory approaches, including capacity building and other accompanying measures (OECD, 2023[37]). The OECD Recommendation on the Role of Government in Promoting Responsible Business Conduct also recommends that adherent governments coordinate their policies and activities relevant to RBC, by promoting coherence across domestic government agencies and bodies to facilitate alignment and synergies between policies and practices, including through the use of co-ordination mechanisms to facilitate coherent policies across ministries, public agencies, and levels of government, including cross-sectoral plans (OECD, 2022[29]).
4.1.1. Accompanying measures
Notwithstanding the need for future research on the impacts of the policy measures in scope of this review, policy makers can adopt accompanying measures to promote implementation and address potential barriers (such as resource and capacity constraints) and address potential unintended consequences (such as blanket disengagement) of relevant policies. Accompanying measures are critical for ensuring that demand-side policies on responsible supply chains are effective in achieving their intended outcomes and do not impose unfair burdens or costs on upstream suppliers, particularly SMEs or smallholders in the agriculture sector. It is notable that between 2000–2018, 68% of worldwide agriculture-driven deforestation took place as a result of small-scale farming; 71% of deforestation due to cropland expansion was linked to small-scale farming (FAO, 2023[48]). Many of these smallholders, as well as their informal networks of traders and agents, will likely be impacted directly or indirectly by existing and emerging policy measures on deforestation, for example.
Governments can consider a range of accompanying measures to build capacity, create an enabling environment for RBC, and promote engagement and partnership with key producer and consumer countries on relevant policy measures. Comprehensive research and recommendations on appropriate accompanying measures across the 24 policies are outside the scope of this report and require further research, including to address divergences from OECD instruments on RBC. Future research could include the development of a framework to identify and measure the costs and benefits of due diligence-related policy measures and provide recommendations on complementary measures to address barriers to implementation and any unintended impacts of the policy measures. International cooperation and partnership with relevant producing, trade and consumer markets in the agriculture sector will remain critical to build capacities, share information and promote harmonisation and potential recognition between jurisdictions.
Box 4.1. The role of development co-operation in sustainable supply chains measures
RBC is not a new topic for development co-operation actors and donor agencies, which have started integrating RBC in their activities as well as in their programming. OECD data shows that such support is often allocated to specific projects that support the implementation of OECD standards on Due Diligence and RBC, for example by providing training to companies on the implementation of Due Diligence or supporting governments in the establishment of an enabling framework for RBC. For example, the government of Japan has partnered with UNDP to launch a Global Business and Human Rights Project to promote responsible business and respect for human rights in 17 countries (UNDP, 2022[49]). The European Union (EU), in partnership with the ILO, OHCHR and OECD has implemented programmes in Asia and Latin America and the Caribbean to help create enabling policy environments for RBC and build capacities on RBC for both policy makers and local businesses (OECD, 2022[50]).
Current regulatory developments on RBC are raising new questions, including how to ensure implementation while avoiding negative impacts, such as conflicting due diligence requirements, disengagement from regions perceived as “high-risk”, and cascading the cost of due diligence onto smaller businesses. When conducting risk-based due diligence aligned with international standards, these potential side-effects can be mitigated. The risk-based approach is carefully designed to ensure that businesses tailor their due diligence to the nature, severity and likelihood of the risk and impacts, and where they are located in the supply chains. It incentivises businesses to meaningfully engage with suppliers and work collaboratively in mitigating identified risks and impacts – including through joint stakeholder initiatives that can to pool knowledge, increase leverage and scale-up effective measures while also sharing cost of due diligence among supply chain actors (OECD, 2021[51]).
These regulatory developments are increasingly addressing such risk by embedding capacity building and financial support for smallholder farmers, SMEs and other businesses in third countries. Such measures can take the form of technical assistance to governments, access to financial support, provision of trade and customs data, or facilitation of joint stakeholder initiatives to help companies fulfil their obligations. These can be leveraged and complimented through ODA that addresses sustainable agriculture and supply chains.