6. Promoting responsible business conduct in Georgia
Promoting and enabling responsible business conduct (RBC) is of central interest to policy makers wishing to ensure that business activity contributes to broader value creation and sustainable development. This chapter offers an overview of the RBC landscape in Georgia since a first assessment of Georgia’s RBC landscape undertaken by the OECD in 2016 (OECD, 2016). It considers the range of measures the government has taken to bolster RBC in the country, highlighting key challenges in this respect as well as opportunities for progress.
In recent years, Georgia has made significant strides to establish and implement a regulatory and institutional framework that underpins and promotes sustainable development and RBC. In the context of its broader reform programme, the government has adopted a range of legislative and administrative measures to strengthen labour rights and environmental protection, amongst other issues, and has included a chapter on business and human rights in its 2018-2020 National Human Rights Action Plan. Awareness of RBC principles and standards in Georgia, while still modest, is also on the rise when compared with the situation 2016, thanks to new initiatives by government, civil society and business associations. A continuing focus on awareness-raising, particularly for small and medium enterprises and sectors identified as high-risk, would be beneficial.
Taking into account these policy developments, this chapter identifies policy opportunities which Georgia could seize to bolster RBC and send a stronger signal to businesses of the importance of RBC for the country. The implementation of the EU Association and Partnership Agreements and the development of the National Human Rights Strategy and its Action Plan have been and will continue to be important opportunities to consolidate existing efforts and promote RBC principles and standards in a more explicit and comprehensive manner. The challenge will be in implementation.
The government could also demonstrate its commitment through its activities as an economic actor. Indeed, following best practices and pursuant to international standards such as the OECD Policy Framework for Investment (PFI), the UN Guiding Principles for Business and Human Rights, and the OECD Guidelines on Corporate Governance of State-owned Enterprises, governments are expected to lead by example and should demonstrate RBC in their activities. Public procurement, investment promotion and state-owned enterprises (SOEs) can serve as levers to foster RBC, and so far Georgia has yet to clearly determine and communicate the RBC standards it expects and applies in these areas.
Further opportunities to promote and strengthen RBC exist. While Georgia’s system of human rights protection is well-established, further measures would be welcomed to strengthen the independence of the judiciary and enhance access to both state-based and non-state-based remedy, and fully ensure civil society can operate freely – issues that underpin many aspects of RBC. Georgia has made important achievements in reforming and strengthening labour protection, including occupational health and safety and the re-establishment of labour inspection. Additional steps could be taken to ensure the effective implementation of these reforms. This is particularly important in those sectors marred by occupational hazards, such as mining.
While significant improvements have been made over the years to strengthen environmental governance, comprehensive and swift enforcement of the new legislation, with enhanced public access to information and participation in decision-making, is warranted. This would help enhance responsible business practices in sectors with reported high risks, such as mining and hydropower. RBC could be given a prominent role in the ongoing reforms of the mining sector.
Although Georgia’s progress in preventing and combating corruption is internationally recognised (according to the World Bank “Enterprise Survey 2019” Georgia was amongst the top 10 countries out of 144 with regard to the least cases of bribery incidence in 2019), there remains scope for additional progress in relation to enforcing regulations and in launching initiatives targeting the private sector to prevent and address bribery and corruption. The promotion of business integrity through training and the development of codes of conduct is one area where additional efforts by both government and businesses would be welcome.
Clearly communicate expectations that all businesses operating in and from Georgia respect RBC standards. Engage further in awareness-raising and capacity-building activities for both employers and workers, particularly in small and medium enterprises and sectors identified as high-risk, including mining, construction and hydropower. This includes promoting the implementation of available guidance, such as the OECD Due Diligence Guidance for Responsible Business Conduct.
Promote policy coherence and alignment on RBC among government institutions. Consider developing a self-standing National Action Plan on RBC/BHR (business and human rights), with the active participation of stakeholders and in line with international good practices, which would greatly help ensure effective design, co-ordination and implementation of RBC policies. At a minimum, strengthening RBC/BHR commitments in the National Human Rights Strategy for 2021-30 and its subsequent Action Plan would be a welcome step, building upon the 2018-2020 NAP. RBC commitments could also be more deeply and broadly mainstreamed into national sectoral strategies and plans.
As an economic actor in its own right, the government should seize the opportunity to lead by example and establish clear expectations and objectives to respect and promote RBC standards in public procurement and through SOEs. In relation to SOEs, Georgia should look at ways to improve further its policy framework for state ownership in line with international best practices, including the OECD Guidelines for Multinational Enterprises, the OECD Guidelines on Corporate Governance of State-owned Enterprises, and the UN Guiding Principles on Business and Human Rights, and set clear expectations that SOEs comply with RBC standards, particularly on information disclosure, transparency and labour rights.
Continue on-going reform efforts aimed at improving the legislative framework and its enforcement related to ensuring adequate working conditions, particularly occupational health and safety. Further strengthen data reporting on violations of legislation, including on occupational safety and health. Increase efforts to guarantee non-discrimination in the workplace in practice.
Together with business associations, raise awareness about the importance of establishing effective company-based grievance mechanisms to prevent and address adverse impacts. Such grievance mechanisms would strengthen the ability of communities and workers to voice concerns.
Promote stronger compliance with internationally recognised environmental standards as a competitive advantage that can open up opportunities for international investment and trade. Strengthen the quality of environmental impact assessment (EIAs), the public’s access to them and participation in decision-making, and overall compliance with EIAs. Set clear expectations that businesses report on environmental risks and impacts of specific operations.
Given the saliency of risks associated with the mining and hydropower sectors, promote and ensure enhanced implementation of RBC standards (particularly on human rights, environment, and labour) through existing reforms and other measures. Ensure that meaningful consultations with workers and potentially affected stakeholders, as well as RBC due diligence, are effectively carried out, in line with the Guidelines and the UN Guiding Principles.
Continue ongoing promising reforms to combat corruption in the public and private sectors. Assist companies in combating corruption, including through developing and implementing preventive measures such as codes of conduct, internal controls, and compliance programmes. Differential approaches may be used with SMEs, based on capacity and needs.
Overall, keep encouraging businesses and industry associations to play a more proactive role in promoting RBC.
Responsible business conduct is a key element of a healthy business environment – one that attracts quality investment, minimises risks for businesses, ensures stakeholder rights are respected, and ultimately contributes to sustainable development. RBC principles and standards set out the expectation that businesses – regardless of their legal status, size, ownership structure or sector – should avoid and address potential adverse impacts of their activities in the countries where they operate. The three main instruments that have become the key reference points for responsible business, and which outline how companies can act responsibly, are the OECD Guidelines for Multinational Enterprises (Box 6.1), which are the most comprehensive set of government-backed recommendations on RBC, covering all areas of business responsibility, the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (ILO MNE Declaration), and the UN Guiding Principles on Business and Human Rights (the UN Guiding Principles). They are aligned with, and complement, each other (OECD et al, 2019a). RBC expectations are also integrated in regional systems such as the European Union and, increasingly, in national legislation (Box 6.2).
The OECD Guidelines for Multinational Enterprises (the Guidelines) offer comprehensive recommendations on what constitutes responsible business, addressed by 49 adhering governments to businesses operating in or from their jurisdictions, on the following major RBC areas: information disclosure, human rights, employment and industrial relations, environment, bribery and corruption, consumer interests, science and technology, competition, and taxation.
Their purpose is to ensure that business operations are in harmony with government policies, to strengthen the basis of mutual confidence between businesses and the societies in which they operate, to improve the foreign investment climate, and to enhance the contribution of the private sector to sustainable development. The Guidelines do not aim to introduce differences of treatment between multinational and domestic enterprises, but to reflect good practice for all. Adherents to the Declaration on International Investment and Multinational Enterprises, of which the Guidelines are an integral part, wish to encourage the widest possible observance of the Guidelines to the fullest extent possible, including among SMEs, while acknowledging that these businesses may not have the same capacities as larger enterprises.
Each adhering country sets up a National Contact Point (NCP), an agency tasked with promoting RBC and the Guidelines. NCPs also help enterprises and stakeholders to resolve issues on a case-by-case basis arising from the implementation of the Guidelines.
Source: OECD (2011), OECD et al. (2019a)
RBC means integrating environmental and social concerns within core business activities and throughout supply chains and business relationships. A key element of RBC is risk-based due diligence – a process through which businesses identify, prevent and mitigate their actual and potential negative societal impacts and account for how those impacts are addressed.
Many businesses, governments and stakeholders are familiar with the term corporate social responsibility (CSR), which has historically been used to describe activities by businesses that aim to contribute to society and the common good. Over the last years, CSR has increasingly been used alongside RBC and business and human rights (BHR), with some using the terms interchangeably (for instance, the European Union – the EU).
How do these concepts relate to one another? They all reflect the expectation that businesses should consider the impact of their operations and supply chains on people, the planet and society as part of their core business considerations and not as an add-on. This includes the need to avoid and address negative environmental and social impacts. A key characteristic of CSR, RBC and BHR is that they refer to corporate conduct beyond simply complying with domestic law and call on business to contribute positively to sustainable development while managing risks and impacts that may result from their activities. These concepts should not be understood to be equivalent to philanthropy.
The consensus built around the 2011 update of the OECD Guidelines for Multinational Enterprises and the unanimous endorsement of the UN Guiding Principles on Business and Human Rights by the UN Human Rights Council, together with the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (ILO MNE Declaration, last updated in 2017), has brought about international convergence and coherence on what RBC entails.
Human rights are an important aspect of RBC. The Guidelines include a dedicated chapter on Human Rights which is aligned with the UN Guiding Principles. The Principles clarify businesses’ responsibility to respect human rights and ways in which companies should operate to prevent, mitigate and redress adverse human rights impacts, as well as the state duty to protect against such impacts by companies. The EU endorsed the UN Guiding Principles in its 2015 Action Plan on Human Rights and Democracy and has committed to their implementation. The Council of Europe’s Committee of Ministers 2016 Recommendation also called upon its member states to “effectively implement the UN Guiding Principles as the current globally agreed baseline in the field of business and human rights.”
At national level, an increasing number of countries are integrating RBC principles and standards in domestic law, in particular in relation to due diligence (increasingly as a mandatory requirement) and non-financial information reporting. Importantly, in April 2020 the European Commission announced that it will commit to introducing rules for mandatory corporate environmental and human rights due diligence, which will ultimately be applicable to all EU member states. In 2015, the UK adopted the Modern Slavery Act requiring businesses offering goods and services on the UK market and with a certain turnover to report each year on the steps they have taken to ensure that slavery and human trafficking are not taking place in their operations. In 2018, Australia adopted its own Modern Slavery Act, with similar requirements. In 2017, France adopted due diligence legislation applicable to very large French companies and other companies with a substantial presence in France. Other governments, such as Canada and Germany, have foreseen consequences for companies in terms of trade advocacy support in case of non-compliance with the Guidelines.
Source: OECD (2011); UN (2011); EC (2011); OECD et al. (2019a); BHRRC (2020)
Many businesses also find that, beyond the obligation to comply with relevant laws and regulations and international standards, responsible business is good business. Responsible businesses are more likely to obtain and retain the social licence to operate, a critical component of long-term business strategy. Understanding, addressing, and avoiding risks material to business operations – beyond financial risks – often leads to a competitive advantage. For example, environmentally friendly production processes can significantly decrease overall costs, while effective management of labour practices in supply chains can boost productivity and protect brand capital. Conversely, an economy in which internationally accepted environmental and social principles and standards are not respected faces an increased risk of being excluded from value chain activity.
The ways that companies have been responding to the range of RBC issues triggered by the COVID-19 crisis will have lasting repercussions for their balance sheets and productivity during the recovery period. Companies taking proactive steps to address these risks in a way that mitigates adverse impacts on workers and supply chains are likely to build more long-term value and resilience to better deal with current and future crises and supply chain disruptions. Taking an “RBC approach”, based on the OECD Guidelines, and using risk-based due diligence to identify and address adverse impacts, as described in the OECD Due Diligence Guidance for Responsible Business Conduct, would help improve their viability in the short term and their prospects for recovery in the medium to long term.1
Promoting and enabling RBC is of central interest to policy makers that wish to attract quality investment and ensure that business activity in their countries contributes to broader value creation and sustainable development. The RBC chapter in the OECD Policy Framework for Investment, outlines several ways in which governments can promote and enable RBC (Box 6.3). In relation to COVID-19, an RBC approach means ensuring that health and economic measures do not exacerbate the adverse socio-economic impacts of the crisis, and rather incentivise companies to identify and mitigate any potential harms and maximise the positive impacts of their response. Governments could for instance use RBC standards as a framework for identifying the environmental, social and governance risks and vulnerabilities in strategic industries, and ensure no undue restriction is put on public participation and information. A strong and visible commitment to RBC by governments is particularly important, as many companies in need of government support may not adopt an RBC approach in their response to the crisis.
Governments can promote and enable RBC by:
Regulating: establishing and enforcing an adequate legal framework that protects the public interest and underpins RBC, and monitoring business performance and compliance;
Facilitating: clearly communicating expectations on what constitutes RBC, providing guidance with respect to specific practices and enabling enterprises to meet those expectations;
Co-operating: working with stakeholders in the business community, workers’ organisations, civil society, general public, across internal government structures, as well as other governments to create synergies and establish coherence with regard to RBC;
Leading by example: setting an example as an economic actor.
Source: OECD (2019)
Georgia has been making noticeable progress towards establishing a regulatory and institutional framework that fosters sustainable development and RBC. The government has taken steps to consolidate and co-ordinate policies on RBC and to raise awareness amongst state ministries and other bodies and business enterprises, with Georgia’s relations with the EU offering additional incentives and opportunities. Work is understandably in progress and, for this reason, strengthening policies on RBC through economic and commercial activities, as highlighted below, is needed.
Awareness of RBC is on the rise
Awareness of RBC principles and standards in Georgia is overall on the rise, thanks to initiatives by government, civil society and business associations. In 2016, the OECD assessed the level of RBC awareness among businesses and the general public to be overall low (OECD, 2016). Since then, the Georgian government, civil society organisations, along with international organisations, and business associations and chambers of commerce have made strides in raising awareness on RBC issues amongst businesses and the public at large. The government has foreseen and implemented a number of awareness raising activities on RBC through its National Human Rights Action Plan (see below). Sectoral ministries have begun to be more engaged as the recent organisation of training to government staff and employers on labour regulations demonstrates (Government of Georgia, 2019c).
Activities by business associations and other stakeholders are also growing. In 2016, the local UN Global Compact Network, which had been inactive for some time in the country, was relaunched to bring together businesses to share experiences and understand what the Global Compact principles mean.2 Civil society organisations have conducted awareness-raising activities and surveys to assess companies’ awareness of corporate social responsibility, and promoted good practices, for instance through the launch of a prize for ‘CSR excellence’.3 Some work has also been done by foreign chambers, the ombudsman and trade unions to promote RBC in the extractive sector (United States, 2019). Additional government-driven initiatives in high-risk sectors and in relation to specific RBC issues would contribute to greater awareness amongst businesses and civil society.
The government, in co-operation with international organisations, has also made efforts to promote gender equality amongst businesses, for instance by raising awareness about equal pay policies and gender-sensitive recruitment. As of late 2019, 43 local companies were signatories to the Women’s Empowerment Principles, which offer guidance to business on how to promote gender equality and women’s empowerment in the workplace, marketplace and community (UN Women, 2020).
Notwithstanding the above initiatives, awareness and understanding of RBC is more developed among MNEs while the overwhelming number of business enterprises in Georgia are SMEs.4 Promoting RBC among SMEs might require developing additional, specific, activities and tools that take into account SMEs’ business model, incentives and capacities. Beyond government actions, business associations and multinational enterprises operating in Georgia also have a role to play in promoting RBC amongst Georgian SMEs (OHCHR, 2017).
Consolidating efforts: government commitments and policies
The government has embarked on a series of reforms in areas relevant to RBC, adopting for instance wide-ranging legislative and administrative measures to strengthen labour rights and environmental protection, amongst other issues (see further below). Georgia’s relations with international organisations, and in particular the signing of the Association Agreement with the EU, provide additional incentives and opportunities for such reforms (Box 6.4). Besides sectoral reforms, governments can develop overarching action plans on RBC in broad consultation with stakeholders to promote policy coherence and channel national efforts on RBC.
Georgia’s co-operation with international organisations has bolstered commitments on RBC. For example, Georgia actively participates in the OECD Anti-Corruption Network for Eastern Europe and Central Asia, which provides a regional forum for promotion of anti-corruption activities, exchange of information, elaboration of best practices and donor co-ordination. Georgia also actively participates in the GREEN Action Task Force for the countries in Eastern Europe, the Caucasus and Central Asia, whose mandate is to guide improvement of environmental policies in transition economies of Eastern Europe, Caucasus, and Central Asia by promoting the integration of environmental considerations into the processes of economic, social and political reform. Furthermore, in chapter 25 on business and human rights of its National Action Plan on Human Rights (2018-2020), Georgia committed to “ensure connection with” the OECD Guidelines for Multinational Enterprises, despite not being a formal Adherent to the OECD Declaration for International Investment and Multinational Enterprises, following various engagements on RBC throughout the years.
Another example is the Association Agreement between Georgia and the EU, including a preferential trade regime, the Deep and Comprehensive Free Trade Area, which has also strengthened Georgia’s reform path with respect to RBC. The Association Agreement includes an explicit reference to the OECD Guidelines, including in Article 352 a commitment to “promote corporate social responsibility and accountability and encourage responsible business practices, such as those promoted by a number of international corporate social responsibility guidelines and especially the OECD Guidelines for Multinational Enterprises.” The Agreement also includes commitments on a range of policy areas relevant to RBC, such as human rights, labour rights, environmental governance, and the fight against corruption (see e.g. Article 229 on labour standards). Since the signing of the Association Agreement, its gradual implementation has led to the strengthening of the legal and institutional framework that underpins RBC in many of the policy areas covered by the OECD Guidelines (see further below).
Finally, Georgia is member of the Council of Europe (CoE) and has ratified a number of CoE conventions covering issues relevant to RBC, such as human rights, labour rights, bioethics, combating corruption and human trafficking.
An effective tool to demonstrate a government’s commitment to RBC, highlight relevant policies, and signal the need for future action, is through a national action plan (NAP). NAPs are also a useful tool to ensure policy coherence on a number of topics related to RBC. As governments often have many different laws, policies and practices that are relevant to RBC, NAPs can help ensure that all government actors are working in a coherent manner to include RBC in their policies. The UN has recommended that all states develop NAPs on BHR as part of their responsibility to disseminate and implement the UN Guiding Principles. The EU and CoE have made similar recommendations to their member states.
As of October 2020, 24 countries (21 of which are adherents to the OECD Guidelines) have adopted a self-standing NAP on either RBC or BHR. They include several countries in Central and Eastern Europe (Table 6.1). Additional countries are in the process of developing their first NAP or committed to do so in 2020. An increasing number of governments, like the Czech Republic, France and the United States, have taken a broad view of RBC/BHR, and have included issues ranging from the environment, public procurement, to information disclosure, whistle-blower protection and trade in their NAPs.
Georgia has moved towards developing a NAP on RBC/BHR. In March 2018, the government adopted its National Human Rights Action Plan for 2018-2020, which includes a chapter on business and human rights informed by a National Baseline Study on business and human rights.5 Chapter 25 on business and human rights foresees various activities to raise awareness of RBC among businesses and government institutions. Encouragingly it includes objectives on whistle-blower protection, human rights in public procurement, and women’s entrepreneurship and empowerment. Chapter 25 nevertheless lacks specific information on other RBC issues potentially relevant to Georgia, such as due diligence, information disclosure and reporting, or high-risks sectors. While awareness-raising activities and workshops on RBC appear to have taken place, it is unclear whether other objectives are on target to be implemented. The lack of adequate funding and delays in implementation have been noted by the UN Working Group on BHR (OHCHR, 2019b).
The Human Rights Secretariat under the prime minister’s office is currently working on the National Human Rights Strategy for 2021-2030, on the basis of which a National Human Rights Action Plan for 2020-2022 will be developed. RBC should be front and centre in these efforts, which provide an opportunity not only to strengthen and broaden commitments on RBC but also to adopt more robust and effective measures for implementation and monitoring, with concomitant resources. In this context, ensuring the meaningful participation of relevant stakeholders in the process is critical (OHCHR, 2020). Georgia should consider whether adopting a comprehensive NAP on RBC is needed or whether the above efforts would meet its policy goals and ensure policy coherence through a broader range of issues and sectors.
Beyond NAPs, governments may incorporate RBC principles in development strategies or as provisions in legislation to clarify what they expect from businesses. For instance, a priority action of Georgia’s 2016-2020 SME Development Strategy is the promotion of RBC (Gov. of Georgia, 2015). Governments can also incorporate RBC principles and requirements in their own economic activities, as discussed below.
RBC and the state as an economic actor: leading by example in the state’s own economic activities
Governments are increasingly seeking to promote the implementation of RBC standards by using their leverage as economic actors and leading by example on RBC. This includes ensuring that state-owned enterprises (SOEs) act in accordance with RBC standards, integrating RBC criteria in public spending (e.g., in public procurement, export credits), including RBC in corporate governance regulations as well as in investment promotion policies. In Georgia today, public procurement, SOEs and investment promotion present particularly promising opportunities in this regard.
Public procurement
Public procurement policies and processes offer an important avenue for governments to incentivise RBC. Governments are the largest buyers of goods, services and public works, with public procurement accounting for approximately 12% of GDP in OECD countries.6 Public procurement is critical to the delivery of public services such as infrastructure, health and education. If not properly managed, however, some products, services and works risk being produced and delivered in violation of environmental criteria, human rights, labour rights and other RBC standards such as corruption prevention.
According to the World Bank, from 2013 through 2016 public procurement in Georgia averaged around 9.9% of the country’s GDP and 31.7% of overall public spending, with little year-to-year variation (World Bank, 2018). These figures demonstrate the core role of Georgia’s public authorities as a purchaser of goods, works and services. Over the last decade the government has made strides in establishing an effective system of public procurement. Notably, its public procurement electronic platform, adopted in 2010, is considered to be one of the most transparent in Europe and Central Asia, and Georgia’s overall system of public procurement has been assessed to be generally compliant with international standards (World Bank, 2018).
An emerging area for Georgia is the integration of environmental criteria into procurement. As part of the EU4Environment project, Eastern Partner countries including Georgia are given support to devise and implement ‘Green public procurement’ plans (EU, 2019a/2019b). Georgia’s State Procurement Agency might also consider integrating environmental and energy performance criteria into the Law on Public Procurement (OECD, 2019).
The inclusion of social (including human rights) considerations into public procurement is growing globally.7 The government has shown interest in learning from international practice; in its NAP on human rights, it committed to identify issues of human rights protection, including women’s rights, in state procurement processes, and to explore making such assessments mandatory (Government of Georgia, 2018). The government is encouraged to build upon its commitments to develop green procurement plans and use this opportunity to integrate additional aspects of RBC such as human rights in procurement requirements.
State-owned enterprises
After the fall of the Soviet Union, the new Georgian government privatised most SOEs and since then has continued to increase its privatisation target, continually identifying the privatisation of SOEs as a government priority.8 The remaining SOEs (around 400 in 2020) operate in the energy and transport sectors, health, tourism, under various institutional arrangements and ownership structures at both national and municipal level.9 The five largest SOEs in Georgia comprise 80-90% of the total assets of SOEs and include LLC Georgian Railway, JSC Georgian Oil and Gas Corporation, JSC Georgian State Electrosystems, JSC Electricity System Commercial Operator, and JSC Telasi.
Reforms of the SOE sector in Georgia have been assessed by international observers to be proceeding at a slow pace, despite the fact that some work has been done, for instance to assess and manage fiscal risks related to SOEs (Government of Georgia, 2018c). In 2014, the high level of decentralisation, with, reportedly, no single government entity having a comprehensive picture of SOE performance, was considered to be an obstacle to data analysis and management of state ownership according to best practices (World Bank, 2014). Others have noted issues with transparency and information disclosure, and the process of recruitment for board members and directors (Transparency International, 2016; OHCHR, 2019b). In the past, interference with trade union activities was also reported in some major SOEs, some of which are large employers such as Georgian Railway which is the largest employer in the country with an estimated 12 000 employees (ITUC, 2013-2019). By and large, SOEs do not seem to have RBC/CSR policies (only philanthropic activities).10
Georgia’s management of state ownership could be addressed more decisively, with a view to aligning it with international best practices (Box 6.5) In the BHR chapter of its NAP on Human Rights, Georgia committed to assess relevant issues of human rights protection for companies providing public services and ensure training of respective members of staff. This objective could be expanded upon to assess more comprehensively whether the current legislative and administrative framework in relation to SOEs is in line with international standards. Georgia’s public authorities could consider taking additional legislative and administrative measures to ensure better corporate governance of SOEs, improve transparency and disclosure, and clearly state their expectations that SOEs comply with RBC standards, in line with the OECD Guidelines on SOEs. As some of the Georgian SOEs are large employers, a stronger attention to labour rights would also be warranted.
International standards for SOEs and RBC are spelled out in the 2015 OECD Guidelines on Corporate Governance of State-Owned Enterprises (OECD SOE Guidelines), the Guidelines and the UN Guiding Principles. The OECD SOE Guidelines give concrete advice to countries on how to manage more effectively their responsibilities as company owners, thus helping to make SOEs more competitive, efficient and transparent. They recommend that the state ownership policy recognise SOE responsibilities towards stakeholders, and make clear any expectations the state has in respect of RBC by SOEs (OECD, 2015b, Chapter V). The SOE Guidelines further recommend measures to report on risks, including in the areas of human rights, labour, the environment, and risks related to corruption and taxation (OECD, 2015b, Ch.VI).
The OECD Guidelines and the UN Guiding Principles apply to all business enterprises in all sectors, whether of private, state or mixed ownership. UN Guiding Principle 4 stipulates that states “should take additional steps to protect against human rights abuses by business enterprises that are owned or controlled by the State, (…) including, where appropriate, by requiring human rights due diligence”. The UN Working Group on Business and Human Rights (2016) has called upon states to lead by example and has a suggested a number of steps states should take as owners of enterprises, starting with setting clear expectations in law and policy that SOEs not only respect human rights throughout their operations, but that they should be role models in this regard.
Investment promotion
As highlighted in Box 6.3, based on the OECD Policy Framework for Investment, governments are encouraged to promote and enable RBC as part of their duty to lead by example. Georgia’s Investment Promotion Agency, Enterprise Georgia, can play a role in this respect. An IPA has an explicit mandate to promote RBC, can target or exclude investors based on their RBC record, or take an action when an investor is found to be in breach of internationally-recognised RBC principles. For example, two thirds of OECD IPAs take action when investors are found in breach with legislation and over half when investors do not comply with RBC principles (OECD, 2018). Yet, there is a high divergence on this aspect across IPAs in different regions and countries are still learning how to promote RBC, and sustainable development more generally, through IPA activities.11
In the case of Enterprise Georgia, the main message to potential investors on the agency’s website is that Georgia has one of the most flexible labour codes and ranks high on the Heritage Foundation’s Economic Freedom Index, which includes a component of labour ‘freedom’ (deregulation).12 This can pose a challenge for branding Georgia as a responsible business destination and warrants more nuance as Georgia is shifting its strategies to attract responsible investors. This is particularly relevant in the context of its trade relationship with the EU, as companies from the EU are important investors in Georgia and are expected to demonstrate RBC and at times are required to do so legally (Box 6.2). Making an explicit link between RBC and investment promotion efforts could help fill the information gap for foreign investors, who may otherwise perceive the risk of operating in Georgia to be higher than it otherwise is in reality.
Georgia’s special economic zones (or free investment zones) are another relevant avenue for RBC. Following its visit to Georgia in 2019, the UN Working Group on BHR expressed views that human rights and labour rights considerations could be better articulated in the existing four FIZs, even though formally national regulations on human rights and labour apply to them. Risks to human rights and the environment in SEZs have been observed worldwide (UNCTAD, 2019). In light of this, the government could consider assessing how companies located in FIZs exercise due diligence in their operations and to what extent RBC-related standards are respected, and explore making due diligence a standard operating procedure.
The scope of RBC is broad and cross-cutting as business-related impacts to society, both positive and negative, cover a range of substantive areas. In addition to general recommendations on RBC, the Guidelines include specific recommendations to enterprises in the areas of information disclosure, human rights, employment and industrial relations, environment, bribery and corruption, consumer interests, science and technology, competition, and taxation. The present section highlights key policy developments in the areas of human rights, employment, environment, corruption, with a cross cutting focus on information disclosure.
Need for maintaining gains in human rights protection
Governments have a primary duty to ensure human rights and protect against abuses by business. Expectations on businesses to engage in RBC are high on the international agenda. Businesses have the responsibility to respect human rights independently of the state’s ability or willingness to fulfil its obligations. These expectations are set out in internationally recognised, government-backed frameworks such as the OECD Guidelines, the UN Guiding Principles on Business and Human Rights (UNGPs) and the ILO MNE Declaration on labour rights. For example, according to the Guidelines (in Chapter IV), companies are required to avoid causing or contributing to adverse human rights impacts in their own activities and to seek to prevent or mitigate impacts to which they are directly linked through their business relationships.
In Georgia, while the authorities as a whole are working to abide by their international human rights commitments, including through a NAP on human rights (which includes BHR), stronger efforts are needed to address concerns over the independence of the judiciary and access to remedy overall, as well as the protection of civil society and human rights defenders. These issues greatly facilitate, or (when weak) restrict, the promotion and respect of RBC.
Georgia is party to all but two of the nine core international human rights treaties, and has ratified most Optional Protocols except for two related to individual communications procedures.13 It is also party to the CoE’s European Convention on Human Rights. Georgia’s Ombudsman (“Public Defender’s Office”), with a mandate to promote and protect human rights and receive individual complaints, is fully independent (‘A’ status) and has been very active on RBC issues.14
In 2018 the Georgian parliament completed a constitutional reform process by approving final amendments to the Constitution. The revised Constitution includes new provisions on gender equality, anti-discrimination and children’s rights. In June 2020, it also introduced constitutional amendments to increase parliamentary pluralism and all for a more representative legislature, although according to some non-governmental international observers there has reportedly been some uncertainty as to the intention of the government to fully implement that objective (Freedom House, 2020). In addition, Georgia has adopted a National Human Rights Strategy and related Action Plan (including a chapter on BHR) and is generally considered to be making serious efforts to implement it commitments (Nicholson, 2019). At the time of writing, the government was drafting the National Human Rights Strategy for 2021-2030, with a related NAP on human rights to follow. The drafting of the 2020-2022 NAP on human rights could provide an opportunity to strengthen RBC commitments and measures, and expand their scope to a broader range of sectors.
Access to remedy and independence of the judiciary
Access to remedy is an essential part of the state duty to protect against adverse impacts by private actors such as businesses. States are expected to take appropriate steps to ensure, through judicial, administrative, legislative, and other appropriate means, that when such abuses occur within their territory or jurisdiction those affected have access to effective remedy. At the same time, the independence of the judiciary is a crucial foundation of law enforcement that affects investment as highlighted in this IPR, as business enterprises and the public need a reliable and impartial mechanism for resolving disputes, whether labour, commercial, environmental or otherwise, as well as for combatting corruption.
In the WEF’s Global Competitiveness Index 2019, Georgia ranked 74 out of 141 economies overall (with 1 being the best), and 80 on independence of the judiciary, highlighting the need for further progress in this area of particular relevance to RBC. Despite noticeable progress in judicial reforms, challenges remain to ensure the full independence and accountability of the judiciary, free from executive and legislative interference, and the transparency and professionalism surrounding judicial selection and proceedings (EC, 2020). The contested appointment process of 20 new Supreme Court judges in 2019 highlighted weaknesses in the system and low public trust. Some NGOs, parliamentarians, and international observers noted shortcomings in relation to transparency and selection criteria, and the absence of effective rules to ward off partisan politics (OSCE, 2019 and 2020; Public Defender, 2018a). Additional concerns have been expressed over selected investigations involving major businesses (EC 2020, Open Society Fund Georgia et al, 2019).
Effective access to remedy for corporate harms is still a work in progress. The UN (OHCHR, 2020) has for instance noted the high costs of litigation, complex corporate structures, delays in deciding cases, and practical obstacles in enforcing court orders. Ineffective remedy to discriminatory dismissals of employees has also been noted (OHCHR, 2020). Non-judicial mechanisms, in particular the Public Defender of Georgia, who is active in promoting RBC in Georgia and monitoring business-related human rights impacts, play an important role in ensuring remedy and their mandate could be strengthened. A positive development in this regard was the establishment in 2015 of the Business Ombudsman of Georgia, an institution whose mandate includes resolving disputes related to corporate activities. The Ombudsman is actively promoting business integrity and is mandated to receive complaints in this respect, even though some NGOs such as Transparency International at the time of the Ombudsman’s establishment had questioned its independence. 15
The Guidelines and UN Guiding Principles state that when causing or contributing to adverse impacts, companies are expected to provide for or co-operate with legitimate remediation mechanisms through which affected stakeholders can raise complaints and seek to have them addressed. Today, little evidence is found of businesses providing or co-operating in such mechanisms (OHCHR, 2020). The government and business associations are encouraged to raise awareness about the importance of establishing effective company-based grievance mechanisms to address concerns by potentially affected stakeholders and adverse impacts at an early stage (OHCHR, 2020).
Civil society space and human rights defenders
Human rights defenders play a critical role in enabling companies to understand the concerns of affected stakeholders. The OECD Due Diligence Guidance for Responsible Business Conduct stresses the importance of consulting relevant stakeholders including civil society organisations, trade unions, community-based organisations and human rights defenders when conducting due diligence, (OECD, 2018c). While states have a duty to protect freedom of expression, association and assembly, businesses have a responsibility to respect human rights defenders as emphasised in Chapter 4 of the OECD Guidelines.
Georgia has an active civil society, which has become an important contributor to the democratic process. Although the last two years have seen signs of deterioration of civil society space due to attacks on civil society organisations by public authorities. For instance, some non-governmental organisations faced verbal attacks (the main narrative being of alleged political bias and anti-national motives) following concerns they had publicly expressed about the appointment of new Supreme Court Justices in 2018-2019 (OHCHR, 2019a; Public Defender, 2018a). While recent events relate to the judiciary and civil freedoms, they sometimes send a mixed message to all human rights defenders and NGOs, including those defending stakeholders potentially affected by business activities. The government should send a clear signal to the public and state authorities that Georgia respects the rights of civil society organisations and human rights defenders and protects them from abuse of any sort (including defamation) by third parties. The trust between civil society organisations (CSOs) and public authorities could also be strengthened through, for example, stronger involvement of CSOs in the different steps of the political process (European Commission, 2020).
Besides the above overall conditions underpinning RBC, there are specific business-related risks and impacts that, for instance, a human rights due diligence process as recommended in the Guidelines, can address. In Georgia, enhanced action could help address more effectively and comprehensively potential risks and adverse impacts across industry sectors, especially in high-risk sectors. The following section discusses this. .
Business-related RBC impacts: spotlight on high-risk sectors
According to the OECD Guidelines (section II), enterprises should carry out risk-based due diligence, for example by incorporating it into their enterprise risk management systems, to identify, prevent and mitigate actual and potential adverse impacts and account for how these impacts are addressed. The OECD Due Diligence Guidance provides a practical framework to implement these recommendations. Due diligence addresses actual or potential (risks) and adverse impacts related to the following topics covered in the Guidelines: human rights, workers and industrial relations, environment, bribery and corruption, disclosure, and consumer interests.
In Georgia, some industry sectors, namely mining, hydropower development, and to a lesser extent construction, appear marred by adverse impacts and risks across several areas: inter-related impacts on human rights, labour and the environment have been observed, with cross-cutting concerns of information disclosure, transparency and corporate governance. Such impacts and risks in the mining and hydropower sectors are discussed in this section, highlighting their compounding impacts and resulting need for enhanced due diligence (see also sections on environment and employment).
Georgia’s mining sector has several significant deposits and investments in manganese, copper and gold and small-to-medium size quarry operations, primarily marble and construction materials. The mining sector is economically significant to Georgia: as of January 2020, copper ores, precious metal ores and ferro-alloys made up 30.8% of Georgia’s exports. The need to address environmental harm has been recognised by the government (Government of Georgia, 2018b).
The soil, air and water pollution from hazardous mining waste and outdated equipment remains an issue, affecting agricultural land, fauna and flora. In a number of mining operations, such as the larger operations in Chiatura (manganese) (Box 6.6), Tkibuli (coal), and Sakdrisi (gold and copper), adverse impacts have been reported on people’s health, livestock and agricultural land, as well as with regard to inadequate working conditions and risks for occupational safety and health (see section on employment), population displacement and damage to property. Perceptions of inadequate company communication and consultation with communities and workers also appear to be a common issue (OHCHR, 2020, Adam Smith International, 2018; Public Defender, 2018b). Weak regulations on environmental impact assessments and information disclosure in this sector, has been perceived as challenging (Box 6.8).
Manganese mining operations in Chiatura municipality have been emblematic of the industry’s devastating impact on human rights and the environment. The mine operator, Georgia Manganese, has struggled to remediate the 140-year-old mine’s legacy environmental impacts and update its infrastructure and environmental management system. Alleged shortcomings in wastewater management have led to water and soil pollution. Residents have also complained about air pollution affecting their health. Workers have reported issues related to working conditions leading to a high number of injuries in Chiatura mines. Communities have complained that local authorities and the company had not taken sufficient measures to remedy these impacts. The company’s ability to disclose relevant information and engage meaningfully with affected communities has also been questioned. The company has denied these accusations,
Tensions with the population have been reported. In early 2020 for instance, residents of one village in Chiatura municipality blocked the mine access for weeks to protest over the mine’s allegedly extensive damage over the environment, roads, and their property (with most houses in the 280-inhabitants village said to be damaged).
In 2016 the mine was brought under ‘special management’ appointed through court order upon request from the Ministry of Environmental Protection and Agriculture, in order to implement a range of remediation and mitigation measures.
Source: OHCHR (2020); Public Defender (2020); Adam Smith International (2018).
Hydropower development is another potentially high-risk sector, if not managed sustainably and responsibly. Over 80% of electricity currently generated in Georgia comes from hydropower. In 2019, Georgia had a total of 84 hydropower plants (with a rated capacity of 3 227 MW), while 24 hydropower projects (rated capacity of 1 235 MW) were at the construction and licensing stage, and another 67 projects (rated capacity of 1 314 MW) were at the licensing stage (OHCHR, 2019b). The government estimates that about 25% of Georgia’s energy generation potential is currently exploited and that the untapped potential comes mostly from hydro resources. Georgia’s IPA encourages investment in the sector, noting the lack of regulation, especially for small hydropower plants.16
Hydropower development can have a range of adverse effects on the environment and surrounding communities, including in relation to groundwater levels, loss of forests and biodiversity, loss of agricultural land, population displacement, safety, damage to property, and risks for cultural heritage sites (Box 6.7). Concerns have been raised at the lack of social and environmental safeguards attached to the construction of hydro-power plants, shortcomings in past environmental and social impact assessments and mitigation measures, inadequate attention to the cumulative impacts of multiple projects, and lack of genuine consultations with potentially affected communities. Tensions and conflicts with local communities have erupted on occasions (Public Defender, 2018b, OHCHR, 2020; WB, 2018b).
Cases before accountability mechanisms of international finance institutions
A complaint was submitted in February 2018 to the Compliance Advisory Ombudsman (CAO) of the IFC concerning the construction of a cascade of hydroelectric power plants in the Adjaristsqali region. The cascade was originally proposed to include three phases, namely the 185-megawatt (MW) Shuakhevi scheme, the 150MW Koromkheti scheme, and the 65MW Khertvisi scheme. The Khertvisi scheme was not pursued by AGL due to significant economic and environmental risks and Koromkheti is in early stages of development under a separate project. Thus, only Shuakhevi is considered by CAO. It is being developed by Adjaristsqali Georgia LLC (AGL) as a joint venture between India’s Tata Power, Norway’s Clean Energy Invest (40% each) and the IFC (20%).
The complaint, submitted by 17 residents of the Rabati District of the Makhalakidzeebi village, Shuakhevi Municipality, Adjara, alleged that construction activities related to the Shuakhevi power plant have had a negative impact on their lives, causing an increase in risk of rockfalls and landslides, a decrease in groundwater levels, as well as negative effects on the biodiversity of the Adjaristsqali river, including the disappearance of local fish species. Complainants allege that AGL failed to properly address the geological and social risks linked to the project, and failed to comply with an agreement entered into force in 2014 with the Government of Adjara and the village residents, to provide compensation in case of damages caused by the construction. The complainants submitted a similar complaint to the accountability mechanisms of the European Bank for Reconstruction and Development (EBRD) and Asian Development Bank, as both banks are co-financing the Shuakhevi hydropower project. The complaint is currently under a dispute resolution process. As requested by the parties, CAO and EBRD’s mechanism jointly facilitate the dialogue process, with ADB’s acting as observer.
The Nenskra hydropower project in the Upper Svaneti region (280 MW power plant, 125 m high dam and a storage reservoir) has been the subject of complaints to the European Investment Bank (EIB), the EBRD and the ADB, which are amongst the financiers of the project. The project is led by JSC Nenskra Hydro, a joint venture of Korea Water Resources Corporation and of the state-owned “JSC Partnership Fund”. The project has met with strong opposition from the nearby Svan communities.
In 2015, the Ministry of Environment and Natural Resources Protection approved the project based on an environmental and social impact assessment carried out by the company. To meet international finance institutions’ standards, the company had to carry out supplementary studies, including a more comprehensive social impact assessment, completed in 2017. These measures were not considered sufficient by the communities and in 2018, CSOs, on behalf of communities, lodged complaints with the grievance mechanisms of the EIB, EBRD and ADB. Environmental and social issues raised include the loss of large areas of forests and biodiversity, safety and property damage due to geological risks (e.g. increased mudflows and landslides), economic displacement and its disproportionate impact on women whose incomes from traditional livelihoods and local forests could be lost.
The complainants also argued that consultations with communities had been inadequate (which the company contests), and specifically requested that the finance institutions apply their safeguards on indigenous peoples to the Nenskra case. The Svans make up an ethnic subgroup with their own language, laws and traditions. They identify themselves as an indigenous people but are not recognised as such by the government. The EBRD and EIB are set to publish their decisions in the coming months.
Source: IFC and MIGA, Office of the Compliance Advisory Ombudsman, 2020; OHCHR, 2020; CEE Bankwatch Network, 2020; Lomsadze, 2020
An emerging issue, as Georgia develops not only hydropower but also other economic sectors such as tourism and agriculture, is the unintended effects of new power plants on these other areas. The planned Namakhvani power plant for instance has met with opposition from local communities, who complain of serious risks to their small businesses in new tourism-related activities and agriculture, particularly wine-making, should the project go ahead (Green Alternative, 2019). Given the number of hydropower projects active and planned in Georgia, a more robust and systematic assessment of their environmental and social impacts, and of the cumulative impacts of multiple projects and potential consequences on other economic sectors, would be warranted.
Continue to strengthen environmental governance, including enforcement
The Guidelines (Chapter VI) call on enterprises to take due account of the need to protect the environment and to conduct their activities in a manner that contributes to wider sustainable development. This entails, among other responsibilities, establishing and maintaining appropriate environmental management systems; assessing and addressing the environmental impacts associated with the processes, goods and services of the enterprise over their full life cycle with a view to avoiding or, when unavoidable, mitigating them; improving environmental performance; and being transparent about environmental impacts and risks. Governments should set clear expectations to business enterprises in this regard.
Existing environmental issues
Georgia has a wealth of natural resources, but much of the exploitation of those resources has in the past been conducted without due regard to its impacts on the environment, the country’s biodiversity, and the public interest. Georgia’s ranking on the Yale Environmental Performance Index (2018), which ranks performance across criteria covering environmental health and ecosystem vitality, is relatively low (94th rank out of 180 countries). This ranking is likely linked to the previous decade, during which environmental protection was less of a priority, environmental pollution increased and needed policy reforms slowed down (UNECE, 2016).
As highlighted above, addressing the legacy of unregulated mining on the environment is particularly challenging. Mining waste and water (such as acidic water seeping from aged tunnels) have yet to be addressed in a more comprehensive way. The strengthening of regulatory tools at the disposal of the government is required, as they currently fall short of expectations: for example, the 2015 Waste Management Code based on EU regulations does not cover mining waste. Ongoing reforms in the mining sector, which aimed at filling existing gaps in legislation based on good international practice and international environmental principles, are expected to address these gaps and comprehensively ensure a sustainable management of resources.
Hydropower development is also reported to have various adverse environmental impacts, including on biodiversity, forests, protected areas and biodiversity, ground water and water availability, and geological and geothermal risks (Box 6.7). Other sources of water and soil pollution include obsolete pesticides in agricultural areas.
In addition, Georgia has high levels of indoor and outdoor pollution, significantly affecting morbidity and mortality. In the 2018 Yale Environmental Performance Index cited above, Georgia ranked 93rd out of 180 for air pollution due to coal or other types of industrial combustion, and 139th for air quality. Various factors are said to contribute to ambient air pollution in Georgia, most importantly household solid fuels consumption, but also automobile emissions and construction work (WB, 2018; OHCHR, 2020).
Environmental governance
Georgia has been working to strengthen its environmental framework and align it more closely to international standards and in particular EU standards as required in the EU-Georgia Association Agreement (which defines goals in relation to environmental governance, air quality, water quality and resource management, waste management, industrial pollution and hazards, and climate change, among others). In 2019, the European Commission noted that Georgia was making good progress in transposing the EU acquis (EC, 2019).
Georgia is a party to a range of global and regional Multilateral Environmental Agreements including the 2009 OECD Declaration on Green Growth, the UN Convention on Biological Diversity, and the UN Framework Convention on Climate Change and the Paris Agreement. Georgia adopted its Third National Environment Action Programme (2017-21) in 2018, which represents the country’s main strategic document in the field of environment and natural resources protection and defines the long-term priorities and plans for the sector (Government of Georgia, 2018b).
Environmental impact assessments (EIAs) are an essential preventive tool at the disposal of both governments and businesses. A new Environmental Assessment Code, elaborated in line with EU directives, was adopted in 2017 and entered into force on 1 January 2018. The Code established procedures for EIA processes for certain public and private projects that entail significant environmental and human health risks, expanding the scope of procedures in relation to environmental impact assessments, strategic environmental impact assessments, transboundary environmental impact assessments, and public participation in decision-making. Following the adoption of the Code, regulations on the strategic environmental assessment (SEA) were adopted in 2018. Strategies on various sectors can today be submitted for screening by the Ministry of Environmental Protection and Agriculture, although it appears that not all strategies are screened adequately (OSF, 2018 and 2020). According to an assessment undertaken by the European Commission, further work is needed to improve resources and capacities for enforcement, including the need to adopt a new Law on Environmental Liability (EC, 2019).
Another critical aspect of environmental governance is access to environmental information. Georgia is party to the Aarhus Convention, which recognises people’s rights to access information and to participate in decision-making in environmental matters. In the last few years, the government has reintroduced public participation in the environmental impact assessment with the adoption of relevant by-laws (Nicholson, 2019). The Ministry of Environmental Protection and Agriculture has also adopted regulations on public access to environmental information, and provides environmental and agricultural information through the Environmental Information and Education Center (Government of Georgia, 2020a, OSF 2018). In its National Human Rights Action Plan (chapter on BHR) the government also included commitments to ensure public information and participation in environmental matters. However, in practice, NGOs have noted that requirements for public participation, such as timeframes for consultation or accessibility of documentation, have not always been honoured (OSF, 2018). During the COVID-19, crisis measures were reportedly taken that somewhat restricted the public’s ability to participate in environmental decision-making.17 Georgia, as other governments, should be encouraged to uphold those fundamental aspects of environmental governance and RBC in order to prevent adverse impacts of COVID-19 measures.
Businesses have a concomitant responsibility to communicate to stakeholders about the environmental risks of their operations and to ensure access to such information, as an integral part of due diligence and the management of environmental impacts. Increased efforts are needed to ensure that people have full access to environmental information in matters that concern them and they can participate meaningfully in decision-making processes (OHCHR, 2020; CEE Bankwatch Network).
The legislative framework in which mineral rights are awarded, regulated and monitored is fragmented. With the support of international organisations, the government has been working to comprehensively reform the sector, including on regulatory oversight, fiscal regime, geodata management, and social and environmental impacts. Reforms so far include the establishment of the National Agency of Mines in 2017 (which awards mineral rights) and the adoption in 2019 of the Mining Sector Policy. A key improvement on environmental issues is the reinstatement, in the 2017 Environmental Impact Assessment Code, of the requirement of an EIA for the extraction of mineral resources, addressing an important protection and information gap. From 2005 through 2017, mineral resources licences were issued by a simple administrative process with no requirement for environmental impact assessments or public disclosure and participation. More specific regulations or advice on ways to capture the specific and dangerous environmental impacts that certain mineral extraction and mining methodologies create would be helpful, beyond standard industry oversight.
Further work could be done to address remaining restrictions to transparency and access to information. In particular, article 29 (“ownership of information on subsoil”) of the Law on Subsoil restricts public access to information about the reserves and resources, mining and processing factors, providing that data cannot be obtained without the consent of the (private) entity that operates the mineral resources. In addition, the government has recognised in its mining sector policy that institutional overlaps, capacity limitations, technically suspect methodologies, insufficiently monitored private sector activities, and discretionary powers have all been identified as creating opportunities for corrupt practices.
Against this backdrop civil society organisations and other observers have been advocating for Georgia to join the Extractive Industries Transparency Initiative (EITI), stressing the need for more transparency and public disclosure in the extractive sector. Georgia is already member of the Open Government Partnership, which encourages its members to increase transparency and public access to information, including in the extractive sector, and in 2019 it also joined the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development. Joining the EITI would seem to be a logical next step for Georgia. The EITI has established a global standard to promote the open and accountable management of oil, gas and mineral resources. Membership of the EITI and increased transparency and disclosure of information in the sector would strengthen protections against corruption. Amongst Eastern Partner countries, Armenia and Ukraine are members of the EITI.
Source: Government of Georgia, 2019d; 2020b; Institute for Development of Freedom of Information, 2019; Green Alternative, 2017; Adam Smith International, 2018; www.eiti.org
Environmental performance of SMEs
In 2017, 99.7% of all firms in Georgia were SMEs. In 2018, they accounted for 64% of business sector employment and 61% of value added. SMEs have the potential to be key drivers in the shift towards a greener economy. Improving the environmental performance of SMEs is also essential given the underappreciated responsibility of SMEs for industrial emissions (OECD et al., 2020).
Environmental regulation remains one of the key means by which governments can directly improve the environmental performance of SMEs, but the focus is currently on larger polluters, often leaving SMEs de facto unregulated. A simplified EIA process for small enterprises could help (OECD, 2018; OECD et al., 2020). Georgia’s public authorities have taken a number of measures, including in the SME Development Strategy 2016-2020 and its associated Action Plan, to improve practices in relation to resource efficiency and clean production, and waste management. Other measures have been suggested to enhance SME’s environmental performance (OECD et al., 2020). Another important measure would be access to finance. At the moment, SMEs face significant barriers when seeking access to green finance, including in relation to the level of interest rates and collateral requirements (OECD, 2019). Georgia could explore new green finance instruments to fully support the greening of SMEs.
Employment and industrial relations: Georgia is strengthening its system of labour rights protection
Chapter V of the OECD Guidelines highlights the promotion of observance among enterprises of international labour standards, notably the fundamental principles and rights at work as recognised in the ILO Declaration on Fundamental Principles and Rights at Work. These include prohibition of discrimination on any grounds, prohibition of child and forced labour, protection of adequate working conditions and the recognition of freedom of association and collective bargaining. In Georgia, particularly salient issues have been found in relation to adequate working conditions, occupational health and safety, and the overall effectiveness of labour protection and inspection.
Policy developments: Georgia’s path towards stronger protection of labour rights
For several years after independence, low workers’ protection and ineffective systems of enforcement and inspection characterised Georgia’s labour sector – a legacy of the liberalisation reforms undertaken by the government in the mid-2000s. In 2006, the government abolished the labour inspectorate and substantially reduced worker protections in the Labour Code, for instance removing provisions on weekly rest, limits on overtime hours, rate of overtime pay, and breaks during shifts, and facilitating ways to dismiss workers. As a result of these policy developments, some observers assessed Georgia’s labour law until 2013 as one of the most deregulated in Europe (Muller, 2012).
Georgia’s rate of ratification of ILO Conventions has also remained somewhat low compared to its peers (Table 6.2). And while the country ratified the CoE’s European Social Charter, it did so with several reservations, including on just conditions of work, safe and healthy working conditions, vocational training, and maternity protection (CoE, 2015). In 2013, the International Trade Union Confederation (ITUC), in its Global Rights Index, flagged Georgia as a ‘country at risk’ and in 2015 rated it at number 4 out of 5 (5 being the worst) for ‘systematic violations of rights’ (ITUC, 2013-2019).
Over the past few years since the 2016 OECD assessment18, Georgia has been taking important steps to improve the protection of labour rights, through strengthening labour regulations and mechanisms. The 2013 amendments to the Labour Code instituted important provisions, including recognition of freedom of assembly, prohibition of discrimination and stronger protections regarding contractual provisions, although shortcomings remained, and the labour inspection was still weak (Public Defender of Georgia, 2018). Additional reforms since have significantly strengthened occupational health and safety regulations, as well as re-establishing an effective labour inspection system (Box 6.9). Because of these policy developments, Georgia’s ranking in the ITUC Global Relations Index has improved from 4 to 3 (ITUC 2013-2019). In September 2020, in an important move to further protect employees and the society as a whole, Georgia’s parliament adopted important amendments to the country’s labour code addressing crucial issues such as work hours, night shifts and daily breaks, The amendments to the Labour Code include the most important obligations of the EU acquis that Georgia has committed to implement, in particular on labour and employee rights, safeguards against excessive working time, collective redundancies, provisions on anti-discrimination and gender equality.
Amidst widespread reforms to deregulate the labour sector, in 2006 the labour inspectorate was abolished, leaving workers protection and occupational health and safety conditions unchecked. In 2015, the government re-established a Labour Conditions Inspection Department, although with some shortcomings. A new Law on Labour Safety was introduced in 2018 to reinforce the mandate of labour inspectors. While a positive development, the law only covered sectors identified as especially hard, risky and hazardous, and thus remained limited in scope.
A range of additional positive developments took place in 2019. First, amendments were adopted that elevated the status of the Law “On occupational health and safety” to an “Organic Law”, broadening the mandate of the Labour Conditions Inspection Department to cover all sectors of economic activity, public and private, and allowing it to perform unannounced checks and charge fines without a court order or prior notice. This law came into effect on 1 September 2019, when the Inspection Department became a special entity, albeit still within the Ministry. Further amendments to the Organic Law were made in 2019 to ensure that from 2022 onwards, inspectors will cover all sectors and the full range of labour rights. The team of 40 inspectors was also set to increase to 100 in 2020.
In September 2020, Georgia’s parliament adopted amendments to the country’s labour code. The amendments strengthen the labour inspectorate by granting it more independence and widening its mandate. The labour code, as amended, authorises the Labour Inspectorate to monitor all labour standards guaranteed under Georgian legislation.. As an additional step, ratifying the ILO Convention on labour inspection (No.81) would be a helpful way to reiterate Georgia’s commitment to an effective labour inspection system aligned with international standards.
Source: Government of Georgia, 2019c; OHCHR, 2020; Public Defender of Georgia, 2018; Human Rights Watch, 2020.
Working conditions and occupational safety and health
Adequate conditions of work include fair remuneration, reasonable working hours, paid leave, and occupational safety and health. Since the mid-2000s workers in Georgia have had to pay a high toll for the inadequacy of the labour protection legislation, including on working conditions and occupational health and safety. It is hoped that the 2020 amendments to the Labour Code and the approval of the Law on the Labour Inspectorate will bring much needed improvements.
Until the recent reforms, workers’ safety and health were in some instances at risk in the mining and construction sectors, with several deaths and serious injuries recorded. In 2018 for instance, two incidents within months cost the lives of 10 miners in the Tkibuli coal mine in Western Georgia, where most of the country’s estimated 400 million tons of coal reserves are concentrated. As a result, extraction was suspended pending an external audit (OHCHR, 2020; HRW, 2019). Given the inherently hazardous nature of mining work, enhanced measures should be taken to ensure occupational health and safety. In Georgia, mining practices seem to have made the matter worse: lengthy shifts, the lack of weekly rest, no reasonable limits on working hours, and the practice of prioritising production quotas over workers’ safety, are all said to be compounding factors (OHCHR, 2020; Human Rights Watch, 2019; Public Defender, 2018a). The low level of awareness amongst employers of their responsibility to ensure workers’ safety across all industries also seem to be an issue.
Gaining a comprehensive picture of the extent of occupational hazards in Georgia is not easy, especially prior to 2018 as employers were neither required to report accidents nor to insure their workers (OHCHR, 2020). Some observers have expressed concerns about the number of accidents, in particular fatal or near-fatal ones, that they have assessed as high. The data available are fragmented: unofficial estimates are that 1 081 workers were injured and 376 died from 2010 to 2018.19 Others noted that between 2007 and 2017, the average number of deaths at work per year in Georgia was 41, compared to an average of 24 deaths per year between 2002 and 2005. In 2014, it was estimated that the country averaged 5.5 deaths per 100 000 workers, three times the EU average for the same year (Tchanturidze, 2018).
According to official data, in 2018, almost 200 persons were injured and 59 died in the workplace, whereas in 2019, the numbers were 168 and 41 persons respectively, which represent a decrease from 2018 (Government of Georgia, 2019c). By contrast, the OECD average of reported occupational injuries, per 100 000 inhabitants, was 1 ,455 for non-fatal injuries and 2.5 for fatal injuries in 2019.20 The discrepancy between reported injuries compared to the OECD average suggests that there is still significant under-reporting of occupational accidents in Georgia, particularly non-fatal injuries. The lack of adequate insurance coverage, the inadequacy of record-keeping of incidents by companies, and lack of awareness among workers about their rights, is likely to contribute to under-reporting (OHCHR, 2020).
Non-discrimination
Non-discrimination in employment is a fundamental element of a labour system as underlined in Chapter V of the OECD Guidelines and other relevant international standards. The ILO Non-Discrimination in employment Convention No.111 calls upon states to promote equality of opportunity and treatment in respect of employment. In Georgia, particular attention could be paid to discrimination on the basis of sex, disability, and sexual orientation and gender identity. The UN Working Group on BHR has for instance discussed the issues faced by persons with disabilities in employment (OHCHR, 2020).
Gender equality is another important consideration for governments and businesses. For example, the OECD Guidelines recommend that companies’ operations be guided “by the principle of equal opportunity and treatment in employment and not discriminate against their workers with respect to employment or occupation on such grounds as race, colour, sex, religion, political opinion, national extraction or social origin, or other status”. Georgia has made important steps towards the legal recognition and protection of the principle of equal remuneration for men and women for work of equal value, in both the private and public sectors. The legislative framework is broadly in place, with relevant laws including the Law on Gender Equality and the Law on the Elimination of All Forms of Discrimination. It has been noted that legal provisions could nonetheless be strengthened to fully align with international and EU standards, in particular the ILO Equal Remuneration Convention No.100 and EC Directive 2006/54/EC (CoE, 2018; ILO, 2019).21 In 2019, amendments were made to the law on the elimination of all forms of discrimination, namely the inclusion of harassment and sexual harassment as forms of discrimination, with further amendments strengthening the anti-discrimination mechanism in the private sector (OHCHR, 2019a). In September 2020, as noted above, new legislation was adopted amending the Labour Code of Georgia, The amendments include provisions on non-discrimination and gender equality. The issue will now be their application in practice.
These achievements in law are expected to lead to improvement with respect togender equality . For example, in 2018, women’s average monthly wage was 65% of men’s. Women are also underrepresented in the workforce (Government of Georgia, 2019b). In the Global Gender Gap index (WEF, 2020), Georgia ranked 74 out of 153 countries in 2020 (with rank 1 best), and 61 for women’s economic participation and opportunity. This is nevertheless a noticeable improvement compared to 2018, whereby Georgia ranked 99 out of 149 countries overall.
Freedom of association and collective bargaining
Freedom of association and collective bargaining are another fundamental element of a responsible and integrative labour system as underlined in Chapter V of the OECD Guidelines and other relevant international standards. Today, Georgia broadly recognises and protects freedom of association and collective bargaining, a major improvement to the previous decade, during which anti-union actions were frequently observed (ITUC, 2013-2019). Some NGOs have suggested that progress could be made in enforcing existing legislation more fully, for instance in relation to the protection against discrimination based on trade union membership (Freedom House Index, 2020). Other observers have noted that social dialogue and its mechanisms, in particular the “Tripartite Social Partnership Commission,” could be strengthened. The Commission, composed of government, business and trade union representatives, is mandated to facilitate the development of social partnership and social dialogue at all levels between employees, employers and the government and to suggest recommendations on labour issues (Government of Georgia, 2019a). The Commission’s effectiveness has been questioned (OHCHR, 2020; CoE, 2018). The Commission should be encouraged to strengthen the effectiveness of its procedures and recommendations to fully play its part in strengthening the labour system.
Forced labour and human trafficking
In chapter V of the Guidelines companies are called upon to take immediate and effective measures to secure the prohibition and elimination of the worst forms of child labour, and take adequate steps to ensure that forced or compulsory labour does not exist in their operations. The prohibition of child and forced labour is part of the ILO Declaration on Fundamental Principles and Rights at Work. Of relevance are also international standards against trafficking, such as the UN Convention against Transnational Organized Crime and CoE’s Convention on Action against Trafficking in Human Beings, both of which Georgia has ratified.
Georgia is a country of origin, transit and destination for human trafficking. Human traffickers exploit domestic and foreign victims in Georgia, and traffickers exploit victims from Georgia abroad. While the majority of trafficking victims appear to be women and children, and for sexual exploitation, Georgian men and women are also subjected to forced labour within Georgia and abroad (US, 2019c; Nicholson, 2019).
Georgia has put in place a policy framework to combat trafficking, including the Law on Combating Trafficking in Persons and a co-ordination body (the Inter-Agency Council on Combating Trafficking in Persons – TIP Council, which adopts national action plans), that is considered to meet minimum international standards.22 While Georgia has been congratulated for its efforts to combat human trafficking and moved to ‘Tier 1’ in the US Department of State in 2016 and has kept its ranking since, the number of traffickers investigated, prosecuted and convicted remains relatively low and few victims are identified.23 Other areas of progress appear to be transparency of institutions and increasing efforts to identify forced labour (US, 2019c; GRETA, 2016).
The recent reforms of the labour inspection mechanism and in particular the new ability of inspectors to conduct unannounced inspections should hopefully contribute to prevention and identification of potential forced labour/trafficking issues.
The fight against corruption has advanced
The fight against corruption is an important agenda for both governments and companies, as bribery and corruption can discourage investment, erode democratic institutions, hinder RBC practices, and slow down progress toward development goals. Corruption can have negative effects on people and the overall business environment. Companies have an important role to play in contributing to government’s efforts to preventing and combating corruption, as highlighted in Chapter VII of the Guidelines.
Georgia has ratified the UN Convention against Corruption and the Council of Europe’s Criminal Law Convention on Corruption, and has come a long way in creating a regulatory and institutional framework for fighting corruption in line with international standards and EU association agenda commitments (EC, 2020b). The introduction of an effective and transparent e-procurement system in 2010-11, with the support of international organisations, received international recognition and accolade (WB, 2018). More recently, some positive developments have taken place regarding the prevention of corruption of members of parliament, with various measures taken to further enhance the transparency of the legislative process, and the adoption of a code of ethics for members of parliament in 2019. Amendments to the Law on Conflicts of Interest and Corruption in Public Institutions entered into force in 2017, granting the Civil Service Bureau the authority to monitor declarations, verify the accuracy of the data contained therein, and impose sanctions in case of non-compliance. The monitoring has been assessed as working effectively.24
Georgia’s policy actions have been positively assessed by governmental and non-governmental international organisations. For example, Georgia’s score on Transparency International’s Corruption Perception Index (CPI) in 2019 (56/100), ranking 44 out of 180 countries, was the best amongst countries in Eastern Europe and Central Asia. According to other international reports, Georgia would have succeeded in significantly reducing petty corruption, and the overall perception amongst businesses seems to be that the country is a secure place to invest in. Georgia ranked 39 out of 141 in the WEF Global Competitiveness Report in relation to the incidence of corruption indicator. According to the World Bank’s Enterprise Survey for 2019, in which over 164 000 of companies from 144 countries were involved, Georgia was among the top 10 countries in terms of low bribery prevalence.
However, concerns over high-level corruption, judicial and prosecutorial independence and enforcement, as well as over the high number of exemptions and deficiencies in the procurement framework (which allow for non-competitive processes), remain (GRECO, 2019; OECD ACN, 2016; Transparency International, 2020). These concerns might jeopardise gains made until now. Georgia’s CPI score of 2019 (56) went down two points from 2018 due to these concerns.
In compliance with international standards such as the one enshrined in the OECD Guidelines or the UN Convention Against Corruption, Georgia has put in place a system to report instances of corruption, including a newly set up whistle-blower platform (www.mkhileba.gov.ge), through which businesses can report public corruption. However, it appears that in practice the legal and institutional set-up might not offer reliable protection for whistle-blowers. It has been noted in this regard that the lack of data on cases reported from the private sector and on any resulting enforcement action makes it difficult to evaluate the efficiency of the protection system (OECD et al, 2020).
Corruption prevention in the private sector is an area where Georgia, as many other countries in the world including OECD member countries, could be subject to stronger efforts. The Guidelines (in Chapter VII) call for enterprises to not, directly or indirectly, offer, promise, give, or demand a bribe or other undue advantage to obtain or retain business or other improper advantage, and to resist the solicitation of bribes and extortion. The OECD Due Diligence Guidance for Responsible Business Conduct provides practical guidance that can help enterprises avoid and address risks of corruption that may be associated with their operations, supply chains and other business relationships.
Adopted in 2015, the Anti-corruption Strategy of Georgia addresses the prevention of corruption in the private sector and is the main strategic document guiding business integrity policy development and implementation. Mechanisms for the prevention of corruption in the private sector include enforcement of criminal liability for legal persons, disclosure of beneficial owners of companies, and protection for bona fide whistle-blowers. While Georgia has been a leader in the region in establishing criminal legal liability, enforcement appears to be sometimes lacking. For example, if Georgia has introduced mandatory beneficial ownership disclosure, the mechanism is said to lack the tools required to effectively verify the validity of provided information (OECD ACN, 2016; OECD et al, 2020). And while there are legal guarantees for the protection of whistle-blowers in the public sector, this is not the case for whistle-blowers reporting corruption in the private sector.25 Increased transparency measures in the extractive industry could also contribute to corruption prevention (Box 6.8).
Finally, Georgia could increase its efforts to promote business integrity and encourage the development of good practices in the corporate sector including with respect to SOEs, such as the establishment of internal codes of conduct, as highlighted in the latest report on Georgia issued in the course of the 4th round of monitoring of the Istanbul Anti-Corruption Action Plan. Chapter VII of the Guidelines calls for enterprises to develop and adopt adequate internal controls, ethics and compliance programmes or measures for preventing and detecting bribery through a risk-based approach. Awareness-raising programmes to encourage small companies to develop and adopt internal compliance processes are currently lacking.
Some recent notable efforts include the expansion of the Business Ombudsman’s mandate to encompass promotion of business integrity policy, which has led to the organisation of business integrity seminars in the region and the launch of an e-platform for business complaints and requests (OECD et al, 2020). Georgia could engage in increased promotion of business integrity, by scaling up awareness-raising activities for companies – in particular SMEs as well as SOEs, and introducing incentives for companies to adopt compliance programmes.
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Notes
← 1. https://read.oecd-ilibrary.org/view/?ref=129_129619-6upr496iui&title=COVID-19-and-Responsible-Business-Conduct
← 2. www.unglobalcompact.org/engage-locally/europe/georgia
← 3. https://meliora.ge/en/home/
← 4. In 2016, SMEs accounted for 99.7% of all firms in the country, and many are very small (below 19 employees). OECD, 2019.
← 5. The NAP was co-ordinated by the Human Rights Secretariat (under the Prime Minister’s office) in co-operation with relevant State agencies. Throughout 2017, the Human Rights Secretariat, jointly with the Public Defender (Ombudsman), conducted National Baseline Study on business and human rights.
← 6. See www.oecd.org/governance/public-procurement/
← 7. The OECD has launched a programme to advance the integration of RBC considerations and supply chain due diligence into public procurement policies and processes. http://www.oecd.org/governance/public-procurement/procurement-and-rbc/
← 8. “Georgia set to end 2019 with new privatisation push”, Emerging Europe, 1 October 2019, https://emerging-europe.com/news/georgia-set-to-end-2019-with-new-privatisation-push/
← 9. The Ministry of Finance considers that the number of “noteworthy SOEs” -from a fiscal risk perspective- is 286. Government of Georgia, 2018c.
← 10. See for instance GOGC’s website, mentioning philanthropic activities under CSR, and noting on labour that ‘it takes care of its employees’. https://www.gogc.ge/en/sustainability/corporate-social-responsibility/11
← 11. For example, Business Sweden follows the government’s Action Plan for Business and Human Rights, and may decide not to assist certain investors in breach of the UN Guiding Principles on Business and Human Rights, the principles of the UN Global Compact or the OECD Guidelines for Multinational in its activities (www.government.se/contentassets/822dc47952124734b60daf1865e39343/action-plan-for-business-and-human-rights.pdf)
← 12. http://investingeorgia.org/en/georgia/labor. In 2019, Georgia ranked 16th in the Economic Freedom Index, https://www.heritage.org/index/ranking.
← 13. See list of all core international human rights instruments at: www.ohchr.org/EN/ProfessionalInterest/Pages/CoreInstruments.aspx
← 14. Global Alliance of National Human Rights Institutions, accreditation status as of 4 March 2019, https://nhri.ohchr.org/EN/Documents/Status%20Accreditation%20Chart%20%2804%20March%202019.pdf
← 15. See www.transparency.ge/en/blog/new-law-must-ensure-institutional-independence-business-ombudsman
← 16. http://investingeorgia.org/en/keysectors/energy
← 17. BHRRC, “In Eastern Europe, the COVID-19 pandemic is being used to attack human rights defenders”, 9 June 2020, https://www.business-humanrights.org/en/in-eastern-europe-the-covid-19-pandemic-is-being-used-to-attack-human-rights-defenders?mc_cid=7efa618770&mc_eid=209ce25a67
← 18. www.oecd.org/daf/inv/mne/RBC-in-Georgia-2016.pdf
← 19. “Violation of safety rules named as possible reason behind death of two workers in Tbilisi”, 1 April 2019, https://agenda.ge/en/news/2019/896
← 20. Data covers occupational injuries including cases of disease and of injury due to commuting accidents. ILO Statistics (2020); Public Defender, 2018a.
← 21. Under the EU-Georgia Association Agreement Georgia committed to approximate its legislation to the EU acquis, including transposition of EC Directive 2006/54/EC of 5 July 2006 on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation.
← 22. .https://police.ge/en/projects/you-are-not-for-sale. Georgia is rated as ‘Tier 1’ by the U.S. State Department; U.S., 2019c.
← 23. GRETA, 2016. In 2018 a total of 21 criminal investigations on grounds of human trafficking were initiated, 10 of them involving sex trafficking, seven forced labour and two concerning both. Prosecutions were brought against five defendants, three for sex trafficking and two for forced labour. Nicholson, 2019. In 2019, a total of 22 investigations were initiated. https://info.police.ge/uploads/5e3bfa34e4aea.pdf
← 24. EC, 2019; Greco, 2019. In 2017, the CSB monitored 287 declarations in total; for 2018, 448 declarations were monitored.
← 25. Provisions on protecting whistle-blowers are part of the Law on the Conflict of Interest and Corruption in Public Service. Additional provisions can be found in the Law on Public Service. Transparency International, 2015; OECD et al, 2020.