The risks associated with working in areas with weak Governance can be severe and far reaching. These risks can prevent companies and financial institutions investing in worthwhile projects in certain regions, even where they would provide widespead benefits.
For those banks that have traditionally only been involved in Project Finance deals in Europe and North America and now wish to expand their interest into lucrative new areas of operation, establising country specific guidance can reasssure risk adverse senior mangers that due attention will been given to managing the additional risks this may pose.
The new guidance offers an excellent opportunity to help companies understand the extent of these risks and ensure they are able to manage them effectively. In this way they can prevent potential damage to their reputations and still invest in challenging and rewarding projects in thses areas.
The Risk Awareness Tool can help them avoid actions that may hinder efforts to build better governance while at the same time encouraging them to consider whether there is a positive role they can play.
The OECD has come out with a Risk Awareness Tool to help multinationals operating in zones with “weak governance”. The guidance was requested by participants at the 2005 Gleneagles G8 summit.
The Risk Awareness Tool is non-prescriptive but sets out a range of questions for companies to consider in such areas as:
- obeying the law and observing international instruments;
- heightened care in managing investments,
- knowing business partners and clients;
- dealing with public sector officials; and
- speaking out about wrongdoing.
A number of resources exist for multinationals hoping to answer these questions, such as International Alert’s Conflict-Sensitive Business Practice: Guidance for Extractive Industries (also in Spanish) and guidelines from the Global Reporting Initiative.
The Danish Institute for Human Rights has a more comprehensive tool, the Human Rights Compliance Assessment, that allows companies to self-assess risks specific to human rights violations. A quick assessment is free, but the full one is expensive at 4,000 euro. Or check out the (free) executive summaries of various country risk assessments, including China, Brazil and India. Posted by Christine Bowers