BRIEFING #2: Due Diligence For Responsible Business In Iran: Challenges And Recommendations

WHAT ARE THE CHALLENGES?

1. A lack of familiarity in Iran with the requirements of responsible business practices

   The notion of responsible business, understood as the need for business activity to avoid and mitigate adverse impacts on people and the environment, is novel in the Iranian context. While some companies are familiar with Corporate Social Responsibility (CSR), their understanding is that CSR is equivalent to philanthropy, sponsorship and charity. The prevailing view is that social, economic or environmental impacts are state responsibilities to be addressed by the government, and not a business concern. Only three firms and three NGOs in Iran are currently members of the UN Global Compact on corporate sustainability.

   Unfamiliarity can result in resistance and distrust, and this will impact the way foreign companies can communicate with workers and communities and interact with their Iranian counterparts.

2. Obstacles to obtaining information needed to know your partners

   Obtaining information on a local partner and its practices, and on the impact of any business activity on workers and communities, is made more challenging in Iran by a scarcity of independent information. Publicly available company information is limited, and there are no legal or regulatory requirements regarding reporting on responsible business practices or established practice of companies providing public information on practices relevant to non-financial issues. Independent civil society organizations investigating such issues and an independent domestic press that could provide valuable information are largely absent.

   This has important implications for knowing your partner, an imperative in the Iranian context. While international sanctions related to Iran’s nuclear program have been lifted, certain UN, EU and US sanctions remain, and hundreds of individuals and entities are still under sanctions. Sanctions compliance is complicated by the fact that full information regarding company ownership, effective control of a firm, or individuals in a company acting on behalf of others (who might be sanctioned) can be hard to obtain. Publicly listed companies provide some information, but, as in many geographies, information can easily be obscured and individuals can act as representatives for others. Less information is available for privately held companies.

   In addition, an entity may not be on any sanctions list, but might be partly owned by or a subsidiary of a sanctioned entity. This is not unlikely because sanctioned entities such as Iran’s Revolutionary Guards have significant holdings throughout major sectors of the Iranian economy. A sanctioned entity’s ownership or stake may not be clear because it may sit behind other company structures.

   Companies also face the risk of being involved with entities that are not on any sanctions list but which engage in practices that depart significantly from responsible business practices. This risk is heightened by the fact that such practices are prevalent in Iran (see IBR Briefing #1). Difficulties obtaining information on a partner’s or supplier’s practices raises a company’s risk of being linked to violations of responsible business standards.

3. Obstacles to effective engagement with people and communities

   Engagement with workers and communities, an essential part of responsible business due diligence, is not standard practice in Iran and is made difficult by the lack of established channels and interlocutors. The lack of local civil society organisations focused on responsible business reduces the available channels that can facilitate engagement and build trust with local communities. It also deprives companies of an important feedback loop that could help identify risks to people and the environment posed by business activities.

   In a context where this kind of engagement is unusual and unfamiliar, companies may face an environment of distrust that can make communication with local partners, workers and communities more challenging, and it may even pose risks to company personnel or local interlocutors carrying out due diligence.