Evaluation of the United Nations Global Compact

I. Introduction

The United Nations Global Compact (UNGC) is a voluntary initiative that aims to promote corporate governance and sustainability by encouraging participants, including both business and non-businesses, to operate in a matter that is aligned with the 10 Principles of the UNGC (“Principles”, n.d.). The 10 Principles are derived from 4 international declarations/conventions that span 4 areas of interest: human rights, labour, environment, and anti-corruption (“Principles”, n.d.) (see Appendix A for a full list of the 10 Principles).  The UNGC was created to address the various problems arising out of globalization as well as the growing role of multinational corporations, which has made it necessary to create a framework to conduct sustainable business during this period (Rasche, 2009). This paper will explore in further detail how the UNGC works at a glance, its relation to other international initiatives, and conclude with a reflection on its impact, effectiveness and limitations.

 

II. The UNGC at a Glance

Currently, there are approximately over 13,500 UNGC participants from 160 countries, representing over 58 million employees in total (“Our Participants”, n.d.; “Who should join?”, n.d.). Organizations interested in becoming a signatory or participant must have their Chief Executive sign a letter of commitment to the UN Secretary-General (see “Application Process”, n.d.). Although the application process to become a UNGC participant or signatory is far from being selective, certain organizations, such as those that produce or manufacture tobacco are prohibited from participating (“UN Global Compact Integrity Policy Update”, 2017).

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At its core, the UNGC is a framework designed to help organizations develop, implement and disclose their sustainability policies and practices. The UNGC provides participants with a variety of resources and tools to aid them in their journey towards operating a more sustainable business. For example, participants can take advantage of case studies, best practice guidance, trainings and Global Compact Local Network support, where participants can learn from other participants with a similar regional context (“How will I benefit?”, n.d.). The UNGC focuses on cultivating a culture of learning and does not penalize participants. The only form of monitoring conducted by the UNGC is that participants must submit an annual Communication of Progress (CoP) report to demonstrate compliance, which is made publicly available on the UNGC website. Participants that fail to communicate their progress according to the CoP minimum requirements and Policy in a timely manner can be ultimately de-listed from the Compact.

 

III. The UNGC in the Context of Other Initiatives

It is important to examine the UNGC in the context of other related international initiatives. The UNGC is perhaps most closely linked with the Sustainable Development Goals (SDGs). The SDGs are a set of 17 universal goals and targets that was adopted by all United Nations Member States in 2015 as part of the 2030 Agenda for Sustainable Development (“Sustainable Development Goals”, n.d.). The Agenda and the SDGs aim to achieve sustainable development in the economic, social and environmental dimensions by addressing the key issues of people, planet, prosperity, peace and partnership (“Transforming Our World”, n.d.). The UNGC is linked to the SDGs as it adopts the SDGs as the vision, while using the 10 Principles as its foundation (“Our Global Strategy”, n.d.). The UNGC has also adopted a campaign dedicated to guide business action in achieving the SDGs, the “Making Global Goals Local Business” campaign. As part of this effort, the UNGC has developed a multi-year Local Network Action Plan to leverage the important role the UNGC Local Networks play in achieving global goals outlined in the SDGs. It involves providing toolkits to help Local Networks create workshops to raise awareness about the SDGs and enables Local Networks to strategize and implement local SDG plans (“Local Network SDG Action Plan”, n.d.). Furthermore, the UNGC paves the way to achieving the SDGs by establishing 9 Action Platforms that are grounded on the 10 Principles and targets the SDGs (“Action Platforms”, n.d.). These platforms foster partnerships across industries and sectors to help organizations solve critical sustainability issues.

One of the 9 Action Platforms established by the UNGC to help achieve the SDGs is one that concerns reporting on the SDGs. This Action Platform was established in 2017 and is run in partnership with the Global Reporting Initiative (GRI) (“GRI and the UN Global Compact”, 2019). The GRI’s Sustainability Reporting Standards is the first and most widely used sustainability reporting (“About GRI”, n.d.). The partnership between these two initiatives was first agreed to in the May 2010 Memorandum of Understanding (“UNGC and GRI Partnership”, n.d.). With this partnership, it was understood that the GRI would integrate UNGC issues and CoP requirements into their Sustainability Reporting Guidelines. In return, the UNGC would adopt GRI’s Guidelines as the recommended reporting framework which participants can use to produce their CoP. It was recently announced that this alliance will be continued for the next two years (“GRI and the UN Global Compact”, 2019).

Another international initiative that seeks to provide guidance for businesses in their corporate social responsibility endeavours is the OECD Guidelines for Multinational Enterprises. The UNGC and the OECD Guidelines are based on the similar premise that international principles can foster harmony between business, labour, governments and the society (UN Global Compact Office & OECD Secretariat, 2005). Despite this similarity, there are some distinctions in terms of their scope and coverage. While the UNGC’s 10 Principles are general and broad, the OECD Guidelines are more detailed and address specific topics not covered by the UNGC (UN Global Compact Office & OECD Secretariat, 2005). Another distinct difference is that while the UNGC has global reach, the OECD Guidelines only covers OECD member countries. As such, the UNGC has a stronger presence in developing countries. Another key difference between the UNGC and the OECD Guidelines is their implementation methods. The UNGC encourages active participant engagement in the form of networks, dialogues, learning, initiatives and partnership projects (UN Global Compact Office & OECD Secretariat, 2005). On the other hand, the implementation OECD Guidelines heavily depend on governments through the use of National Contact Points (NCP). NCPs are accountable for ensuring, promoting, assisting and reporting on the OECD Guidelines implementation in their respective countries (UN Global Compact Office & OECD Secretariat, 2005). Despite these differences, the UNGC and the OECD Guidelines ultimately share the same goal of promoting corporate citizenship and can benefit from increased cooperation in the future.

 

IV. Reflecting on the UNGC

Every year, the UNGC conducts a survey and publishes the results in a report on the progress made towards implementing the 10 Principles across the globe. Most recently, the 2018 UNGC Progress Report states that over 90% of companies that have joined the UNGC report having policies and practices across the 4 areas of interest and the 10 Principles (“UN Global Compact Progress Report 2018”, 2018). The most notable growth lies in the number of companies that report adopting policies and practices relating to anti-corruption, which saw an increase of 10%, rising from 81% in 2008 to 91% in 2018. A similar rising trend exists in spreading sustainability throughout the supply chain, albeit at lower numbers as companies still find doing so one of their main challenges. The growth is once again most prominent in the domain of anti-corruption, with 45% of companies stating they have anti-corruption policies and practices in their supply chains – a 23% increase since 2009. Overall, sustainability reporting in 2018 has become more common, with 65% of companies report publicly disclosing their sustainability policies and practices – an increase from 50% in 2008. Overall, figures from the report demonstrate a rise in the implementation of the 10 Principles.

Although the UNGC releases annual progress reports, these reports do not truly illustrate the effectiveness of the UNGC in promoting sustainability. In fact, the UNGC does not conduct studies to evaluate its actual impact. UNGC’s effectiveness have instead been studied by other organizations and scholars. Literature on the effectiveness of adopting UNGC principles reveals mixed results. An EcoVadis report found that on average, UNGC signatories perform better by 12 points on sustainability measures than non-signatories (EcoVadis, 2019). A strong correlation was found between UNGC participation and advanced CSR performance. The most significant performance differences between UNGC signatories and non-signatories can be found in performance relating to environment and sustainable procurement in supply chains. UNGC signatories far outperform non-signatories on these two issues, by 14 points in environment and 13 points in sustainable procurement. Another study found that UNGC participation translated into organizational practices, where UNGC implementation in practices is higher for older UNGC participants compared to newer participants, though this effect was relatively small (Schembera, 2018). Nevertheless, the strength of local networks had a greater positive effect on UNGC implementation compared to duration of participation (Schembera, 2018). Furthermore, it should be noted that some UNGC resources are perceived as more beneficial than others. Local network learning is considered as one of the most important benefits of the UNGC (Runhaar & Lafferty, 2009). On the other hand, Runhaar & Lafferty (2009) concluded that UNGC contribution on CSR strategies in the telecommunications industry was limited. In analyzing the impact of UNGC participation in human rights due diligence, no significant differences were found when comparing UNGC participants and non-participants in South Africa (Hamann, Sinha, Kapfudzaruwa & Schild, 2009 as cited in Rasche, Waddock & McIntosh, 2013).

The mixed results on the impact and effectiveness of the UNGC highlights a major criticism and flaw of the UNGC. The UNGC committee fails to evaluate, measure and communicate the true impact of UNGC on corporate social responsibility (CSR). The UNGC annual progress reports do not address the extent to which changes in participants’ CSR practices are due to UNGC influence. The reports rely on simplistic survey responses that do not allow for meaningful analyses of participants’ reasonings (Arevalo & Fallon, 2008). Another limitation of the UNGC lies in its arguably weak accountability mechanisms and transparency. UNGC participants only need to communicate their progress on selected principles that they deem to be most relevant; they are not required to do so for all 10 principles (Arevalo & Fallon, 2008; Nason, 2008). This largely self-policing nature of the initiative has been argued to prevent optimal engagement from all participants (Arevalo & Fallon, 2008). Transparency of the initiative can also be improved as public information about UNGC participants is limited to only basic information about the organization and their CoP report; no information is available about each participant’s internal CSR procedures. The UNGC’s low bar of admission is another often cited limitation, as it said to favor quantity and as a result compromises the quality of participants (Nason, 2008). Nevertheless, it has been argued that a high quantity of participants is necessary and adopting high entry barriers would prevent organizations with less-sophisticated CSR practices from participating, which is contrary to the UNGC’s objective of creating an open learning platform (Rasche & Waddock, 2014).

Despite its various limitations, the growth prospects for the UNGC paints a positive picture. As more organizations are recognizing the importance of moving towards a sustainable future, the UNGC can expect a surge in the number of participants. The challenge lies in attracting participants from various sizes, industries, sectors and certain parts of the world such as the Middle East (Rasche, 2009). With this rise in the quantity and diversity of participants, the UNGC is faced with the challenge of managing such changes to ensure optimal implementation.

 

V. Conclusion

Although the UNGC is a voluntary and legally non-binding commitment, studies have shown it to be somewhat effective in promoting sustainability and global governance. It is important for UNGC to encourage signatories and participants to move beyond commitment and into action by leveraging the networks, resources and tools available to progress toward a sustainable future. Finally, the UNGC should strive for continuous improvement by addressing its various limitations.

VI. Works Cited

About GRI. (n.d.). Retrieved from https://www.globalreporting.org/Information/about-gri/Pages/default.aspx

Action Platforms. (n.d.). Retrieved from https://www.unglobalcompact.org/sdgs/action-platforms

Application Process. (n.d.). Retrieved from https://www.unglobalcompact.org/participation/join/application

Arevalo, J. A., & Fallon, F. T. (2008). Assessing corporate responsibility as a contribution to global governance: The case of the UN Global Compact. Corporate Governance: The International Journal of Business in Society, 8(4), 456-470.

EcoVadis. (2019). Commitment vs. Practice: A Comparison of CSR Performance of the UN Global Compact Signatories and Non-Signatories. Retrieved from https://www.ecovadis.com/library/commitment-vs-practice-comparison-csr-performance-un-global-compact-signatories-non-signatories/

GRI and the UN Global Compact announce continued collaboration to advance business reporting on the Sustainable Development Goals. (2019). Retrieved from https://www.globalreporting.org/information/news-and-press-center/Pages/GRI-UN-GC-Renew-Collaboration-SDGs-2019.aspx

How will I benefit?. (n.d.). Retrieved from https://www.unglobalcompact.org/participation/join/benefits

Local Network SDG Action Plan. (n.d.). Retrieved from https://www.unglobalcompact.org/sdgs/ln-action-plan

Nason, R.W. (2008). Structuring the Global Marketplace: The Impact of the United Nations Global Compact. Journal of Macromarketing, 28(4), 418-425.

Our Global Strategy. (n.d.). Retrieved from https://www.unglobalcompact.org/what-is-gc/strategy

Our Participants. (n.d.). Retrieved from https://www.unglobalcompact.org/what-is-gc/participants

Principles. (n.d.). Retrieved from https://www.unglobalcompact.org/what-is-gc/mission/principles

Rasche, A. (2009). “A Necessary Supplement” What the United Nations Global Compact Is and Is Not. Business & Society, 48(4), 511-537.

Rasche, A., Waddock, S., & McIntosh, M. (2013). The United Nations global compact: Retrospect and prospect. Business & Society, 52(1), 6-30.

Rasche, A., & Waddock, S. (2014). Global sustainability governance and the UN Global Compact: A rejoinder to critics. Journal of Business Ethics, 122(2), 209-216.

Runhaar, H., & Lafferty, H. (2009). Governing corporate social responsibility: An assessment of the contribution of the UN Global Compact to CSR strategies in the telecommunications industry. Journal of Business Ethics, 84(4), 479-495.

Schembera, S. (2018). Implementing Corporate Social Responsibility: Empirical Insights on the Impact of the UN Global Compact on Its Business Participants. Business & Society, 57(5) 783–825.

Sustainable Development Goals. (n.d.). Retrieved from https://sustainabledevelopment.un.org/?menu=1300

Transforming Our World: The 2030 Agenda for Sustainable Development. (n.d.). Retrieved from https://sustainabledevelopment.un.org/post2015/transformingourworld

UNGC and GRI Partnership. (n.d.). Retrieved from https://www.globalreporting.org/information/about-gri/alliances-and-synergies/Pages/UNGC-and-GRI.aspx

UN Global Compact Integrity Policy Update. (2017, October 13). Retrieved from https://www.unglobalcompact.org/docs/about_the_gc/Integrity_measures/integrity-recommendation-2017.pdf

UN Global Compact Office & OECD Secretariat. (2005). The UN Global Compact and the OECD Guidelines for Multinational Enterprises: Complementarities and Distinctive Contributions. Retrieved from http://www.oecd.org/investment/mne/34873731.pdf

United Nations Global Compact. (2018). United Nations Global Compact Progress Report 2018. Retrieved from https://www.unglobalcompact.org/library/5637

Who Should Join?. (n.d.). Retrieved from https://www.unglobalcompact.org/participation/join/who-should-join

VII. Appendix

A. The 10 Principles of the UNGC (“Principles, n.d.)

(1) Universal Declaration of Human Rights (Human Rights)

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and

Principle 2: make sure that they are not complicit in human rights abuses.

(2) International Labour Organization’s Declaration on Fundamental Principles and Rights at Work (Labour)

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 5: the effective abolition of child labour; and

Principle 6: the elimination of discrimination in respect of employment and occupation.

(3) Rio Declaration on Environment and Development (Environment)

Principle 7: Businesses should support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility; and

Principle 9: encourage the development and diffusion of environmentally friendly technologies.

(4) United Nations Convention Against Corruption (Anti-Corruption)

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.