Corporate sustainability starts with a company’s value system and a principled approach to doing business. This means operating in ways that, at a minimum, meet fundamental responsibilities in the areas of human rights, labour, environment and anti‐corruption. Responsible businesses enact the same values and principles wherever they have a presence, and know that good practices in one area do not offset harm in another. By incorporating the Global Compact principles into strategies, policies and procedures, and establishing a culture of integrity, companies are not only upholding their basic responsibilities to people and planet, but also setting the stage for long‐term success.
The UN Global Compact’s Ten Principles are derived from: the Universal Declaration of Human Rights, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption.
The Global Compact works to mainstream the ten principles in business strategy and operations around the world. That entails having both a global presence, and penetrating all sectors. Since the launch of the Global Compact in 2000, business participation has grown from 44 to more than 8,300, and from a representation of 13 countries to as many as 156.
Business presence in the Global Compact remains strongest in Europe, which has both the highest number of participants (52 per cent of total) and countries represented. The largest increase in the number of countries with Global Compact participants has been in Africa (from 1 to 32) and the largest increase in the number of participants has been in Latin America […] While there has been growth across the board, the industrial sector has grown the most, including Construction & Materials and Industrial Goods & Services. Telecommunication is the industry in which the Global Compact has seen the lowest increase in participants.
Penetration into different geographies and sectors is important for global adoption of the principles. However, equally important is engagement with influential companies of a significant size which can inspire other businesses. An overview of participants in the Global Compact shows an increasing number of influential companies are taking part […]
By the end of 2014, 25 per cent of the 2014 Fortune Global 500 companies had joined the Global Compact. These companies represent 32 per cent of the total revenue of Fortune Global 500 companies. Forty per cent of the Financial Times 500 companies are also Global Compact participants. Comparing the profit (including wages paid out) of Global Compact participants on the Fortune Global 500 list for 2014 with the current global gross domestic product of around 77 trillion USD shows that the economic footprint of Global Compact signatories in the Fortune Global 500 has grown to become 1.8 per cent of the global economy.
The number of people employed by Global Compact business participants had grown from 3.3 million in 2000 to 58 million as of March 2015 – a significant growth. To put this in global perspective, the percentage of the global private sector workforce employed by Global Compact participants increased from almost zero in 2000 to around 3.7 per cent in 2013.
There has been a more limited rise when it comes to membership of the Global Compact among the world’s publicly listed companies. Out of a total of 46,737 publicly listed companies in 2012, only two per cent were Global Compact signatories. Since 2012 the number of publicly listed companies in the Global Compact had grown from 935 to 1,101 as of May 2015. In 2014, 18,000 companies with a total of USD 35 billion in market capitalisation were traded on 16 Partner Exchanges to the Sustainable Stock Exchanges initiative – a sister initiative of the Global Compact.
As sustainability is increasingly penetrating markets globally, what has been the role of the Global Compact in catalysing change?
In the past 15 years, the Global Compact has undoubtedly played a significant role in spreading the practices of corporate sustainability around the world. Since its inception, the focus on outreach, knowledge‐sharing and dialogue, as well as the launch of Local Networks, has encouraged companies and other stakeholders to join the initiative.
Today, the Global Compact is the world’s largest corporate sustainability initiative, and the only one which is truly global in nature. It has become a successful vehicle for mobilising businesses of all sizes, sectors and geographies, and for encouraging companies to undertake a sustainability journey. As a result, the number of participants and the number of influential players across different markets and sectors has grown steadily.
In 2008, the Global Compact strengthened its accountability mechanism and began removing participants that had not fulfilled reporting commitments. Since then, 5,579 companies have been ‘delisted’. In addition, 798 companies have requested withdrawal.
Considering that the objective is to mainstream the principles in business practices everywhere, there is still a long way to go. Although the number of participants is gradually increasing, it still represents a marginal fraction of global economic activity. The vast majority of companies worldwide has yet to commit to the principles of the Global Compact.
Importantly, through the launch of more than 85 Local Networks around the world the Global Compact has played a key role in spreading responsible business practices around the world. A unique feature of the Global Compact, the Local Networks play an important role in rooting the initiative within different national, cultural and linguistic contexts, and supporting companies in tackling local sustainability challenges. In some cases, the Global Compact has been a first mover bringing the corporate sustainability movement to life, most notably in countries like China and India.
A broader range of social, environmental and governance issues fall under the umbrella of corporate sustainability today than 15 years ago. Leading companies recognise this diversity and are responding by becoming more sophisticated, targeting their efforts and resources where they matter most.
In 2000, corporate sustainability had yet to emerge as a priority for business. Most manufacturing and heavy industry companies were actively managing health, safety and environmental issues in their own operations, and this trend was already widening to other sectors. Some leaders were exploring their social impact and in exposed sectors, such as sports apparel, efforts were being made to understand and manage supplier labour standards.
Reflecting a growing understanding of expectations and responsibilities, companies today address a much broader range of environmental, social and governance issues, both within and beyond their operations along their whole value chain.
Human rights issues have emerged as an area of risk that business should consider and seek to manage. Driven in part by the UN Guiding Principles on Business and Human Rights, the understanding of operational and reputation risks has grown considerably. This has strengthened the business case for managing human rights, especially for companies with extensive supply chains and those working in close proximity to local communities. There has also been a significant change in the understanding of anti‐corruption. While bribery was until not long ago legally accepted and even tax‐deductible in certain countries, corruption is now recognised as an important business risk.
As what falls within the scope of their responsibilities has broadened, more companies have begun to appreciate that not all issues present an equal risk to their operations. Emerging issues, and a better understanding of the impact that companies have on society beyond their direct operations, have created a risk landscape that is more complex than ever.
As they consider what their key risks and impacts are, companies are starting to focus on what they perceive to be the most important or ‘material issues’. By concentrating on the issues that matter most to their business and its stakeholders, companies are able to focus their resources on maximising benefit while delivering efficiency.
Accepted practices have emerged for using stakeholder engagement to support materiality assessments, such as the approach recognised in the latest G4 version of the GRI [Global Reporting Initiative] Guidelines for Sustainability Reporting. The integrated reporting debate has directed the question towards what information is the most important for investors to understand future business performance, addressing a wider range of ‘capitals’ than financial capital.
As companies focus on a more diverse range of issues relating to sustainability, what has been the role of the Global Compact in catalysing this change? Since its launch in 2000, the Global Compact has directly contributed to the broadening of both companies’ awareness and responsibility, as well as their understanding of materiality.
The ten principles have helped to expand the scope of issues that companies should be managing as part of their responsibilities. By developing a rounded framework which covers environmental, social and governance issues, the Global Compact calls on business to “embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment and anti‐corruption.”
[…] More than one third of the companies surveyed in the 2015 Implementation Survey state that the Global Compact has had a significant to essential influence on the work done in implementing the principles. The human rights issue stands out as the area where the Global Compact has had the greatest impact, with 40% stating it has been ‘significant’ or ‘essential’.
Through organising hundreds of events around the world, and by publishing tools and guidance covering all of the principles, the Global Compact has raised awareness around the understanding that being sustainable today means working holistically on all of the ten principles and the issues to which they relate. They have helped companies as they identify responsibilities and work out what issues they need to consider in being sustainable companies.
By establishing a variety of ‘issue engagement platforms’, such as the Women’s Empowerment Principles, Caring for Climate and the CEO Water Mandate, the Global Compact provides signatories with the opportunity to engage more substantially on individual sustainability issues. Through these platforms the Global Compact has often set the agenda for some of the most pressing issues facing business.
In 2004, the Global Compact introduced mandatory reporting requirements for its participants as part of an effort to strengthen the accountability of the initiative. Today, all participants are required to report on all issues, and failure to do so can result in removal or “delisting” from the Global Compact database. As a voluntary initiative, the introduction of mandatory reporting requirements has contributed greatly to pressing companies to consider the impact of their operations and activities. The reporting requirement drives companies to report more comprehensively and assess management and performance on a broad range of issues.
Companies joining the Global Compact are expected to consider their impact on all of the issue areas. However, participants are encouraged to focus their efforts on where they have the greatest impact. Important partnerships with the Global Reporting Initiative and International Integrated Reporting Council that have materiality at their core have further underscored this.
Recently, some have begun to question the ‘materiality versus morality’ question and wonder whether the focus on what is ‘most important’ is placing sufficient corporate attention on the big sustainability questions surrounding global systems and planetary boundaries.