United Nations Global Compact
The United Nations Global Compact (UNGC) originated as an idea in a speech given to the World Economic Forum by then UN Secretary General Kofi Annan in 1999. In that speech, Annan challenged world business leaders, stating,
I propose that you [business leaders] and we, the United Nations, initiate a global compact of shared values and principles, which will give a human face to the global market. Globalization is a fact of life. But I believe we have underestimated its fragility. The problem is this. The spread of markets outpaces the ability of societies and their political systems to adjust to them, let alone to guide the course they take. History teaches us that such an imbalance between the economic, social and political realms can never be sustained for very long.
We have to choose between a global market driven only by calculations of short-term profit, and one which has a human face. (Annan, 1999)
This entry provides a brief historical overview of the Global Compact and identifies the 10 principles of the Global Compact. It then deals with questions of governance and how to enforce the compact, followed by the compact’s activities and initiatives and the reputation issues that emerge for participating companies.
Business leaders present at the 1999 meeting where Annan issued his challenge responded very favorably to the challenge, and two years later, UNGC, now widely considered to be the world’s largest corporate citizenship initiative, was formally launched with fewer than 50 company signatories. By 2014, the UNGC had grown to more than 12,000 participants, more than 8,000 of which were businesses, with signatories from 145 countries. When the UNGC was initially launched, the signatories committed to uphold nine principles drawn from globally agreed documents and treaties around the issues of human rights, labor rights, and the environment. A 10th anticorruption principle was added in 2004 once a global anticorruption treaty was in place. The following are the 10 UNGC principles (UNGCO, n.d., “The Ten Principles of the UN Global Compact”):
Businesses should support and respect the protection of internationally proclaimed human rights and
make sure that they are not complicit in human rights abuses.
- 3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining,
- 4. the elimination of all forms of forced and compulsory labor,
- 5. the effective abolition of child labor, and
- 6. the elimination of discrimination in respect of employment and occupation.
- 7. Businesses should support a precautionary approach to environmental challenges,
- 8. undertake initiatives to promote greater environmental responsibility, and
- 9. encourage the development and diffusion of environmentally friendly technologies.
- 10. Businesses should work against corruption in all its forms, including extortion and bribery.
Conceived of as an aspirational, principles-based way for the UN to engage constructively with businesses around important global issues, the UNGC emphasizes a vision of a “sustainable, inclusive global economy that delivers lasting benefits to people, communities and markets” (UNGCO, n.d., “Our Mission”). The initiative has developed two major objectives: (1) to bring the UNGC’s 10 principles into mainstream business practice and (2) to reinforce and expand businesses’ actions with respect to the principles.
To become a signatory to the UNGC, businesses need to have the support and commitment of their CEO, supported by the highest-level governance body of the organization, typically the board of directors. Although initially, all that was required was a letter from the CEO stating a commitment to uphold the UNGC’s principles, today, companies are expected to (a) ensure that the principles become an integral part of their business strategies, operations, and culture; (b) incorporate the principles in the governance body’s decision-making processes; (c) contribute to broad development objectives like the Millennium Development Goals and the Sustainability Development Goals, as adopted in 2015; (d) communicate publicly through an annual Communication on Progress (COP) report about their own progress; and (e) advance the UNGC and responsible business practices more generally. Today, signatory companies are also asked to contribute to support the UNGC on a sliding scale according to revenue, and they can expect some reputational, networking, and learning benefits associated with participating in the Global Compact.
Organizations other than businesses also participate in the UNGC, including academic institutions, business associations, cities, civil society, labor, and public sector organizations. The insights of such nonbusiness participants can be valuable for businesses to hear because their representatives tend to bring very different perspectives on the role, functions, and performance of businesses from those of business representatives. Nonbusiness participants are now expected to submit a biannual Communication on Engagement detailing how they are supporting the UNGC and its outcomes.
The UNGC is governed following the guidelines of a framework originally adopted in 2004–2005 and updated in 2006. Governance is shared among several different mechanisms. One mechanism is the Global Compact Leaders’ Summit, a triennial conference of the top leaders of UNGC participants and other stakeholders, where policy changes, strategic recommendations, and action imperatives are discussed and decided on. Local networks, of which there were more than 100 in 2014, are another governance strategy. Local networks are self-governing bodies consisting of groups that work collectively to advance the UNGC and its principles geographically in a country or region, helping to ground the UNGC culturally, nationally, and in different linguistic contexts. The local networks convene the third mechanism, the Annual Local Networks Forum, where different experiences related to implementing the UNGC principles regionally or locally can be shared and where mutual learning can take place.
There is also a Global Compact Board, a multistakeholder advisory board that meets each year to discuss strategic and policy issues and offer advice for the initiative and for its staff in the Global Compact Office. Made up of representatives from four major stakeholder groups—(1) business, (2) civil society, (3) labor, and (4) the UN—the Global Compact Board helps implement UNGC integrity measures and maintains linkages with its particular constituency. The Global Compact Office represents a direct link for the UNGC to the UN itself and is responsible for advocacy, network development, raising issues and moving them forward, and overall brand management. The Global Compact Government Group is a government-funded entity and essentially an overall oversight group.
Initiatives and Activities
Over the years, the UNGC has continued to grow and develop, frequently collaborating with other UN agencies on particular issues where a business voice is relevant, as well as with many other stakeholders. For example, UNGC has spawned a number of other important initiatives, some related to specific issues and others to particular groups of companies or other institutions. One major initiative that derived from the UNGC is the Principles for Responsible Investment, started in 2006 when Annan asked some of the world’s largest institutional investors to develop a set of principles that would apply to the investment world. By 2014, the Principles for Responsible Investment had nearly 1,300 signatories with some US$45 trillion in assets under management, who have agreed in six principles to recognize the materiality of environmental, social, and corporate governance issues in their investment practices. Another important initiative that came out of the UNGC is the Principles for Responsible Management Education, started in 2007 following the efforts of an international task force, which has its own set of six principles applied directly to business schools. The Principles for Responsible Management Education’s mission is to foster and champion responsible management education, research, and thought leadership globally.
The UNGC created a group of about 50 leading UNGC companies that launched a platform for corporate sustainability leadership in 2011—called GC LEAD, that is, an exclusive group of leadership companies to deal with issues related to the Global Compact. The LEAD companies are invited by the UNGC to implement and share learnings about the “Blueprint for Corporate Sustainability Leadership,” developed by a multistakeholder coalition and endorsed by participants at the Leaders’ Summit in New York in 2010. The UNGC also collaborated with other UN agencies and stakeholders in the development of the Women’s Empowerment Principles: Equality Means Business, launched in 2010, and the Children’s Rights and Business Principles, and it created a reference guide for businesses to Indigenous Peoples’ Rights. It also has engaged with numerous other issues, produced multiple reports, and otherwise engaged stakeholders in raising issues that relate to business practice through the years.
The major vehicle that the UNGC uses to ensure the commitment of companies to the 10 principles is the annual COP. In 2006, the UNGC began a collaboration with the Global Reporting Initiative (GRI), the world’s leading reporting platform for environmental, social, and governance information. The UNGC-GRI Value Platform creates synergies between GRI and UNGC by providing guidance on the ways companies can produce their COPs using GRI’s standardized reporting guidelines for environmental, social, and governance performance. To help companies with reporting, the UNGC has produced a number of reports that provide guidance on how to develop a good COP. COPs need to be reported annually to the UNGC, posted on the UNGC website, and shared widely with the company’s stakeholders. From the standpoint of a company’s reputation, the better the COP is, the more credibility it will have with the company’s external stakeholders, and hence the better the company’s reputation will be.
The Global Compact has, however, not developed without controversy. Some critics, particularly activists and labor/trade unions, critique the UN for allowing businesses to whitewash (covering up misdeeds by misrepresentation of data), greenwash (using marketing or public relations to portray exaggerated environmentally friendly practices), or bluewash (attempting to align the company with the blue flag of the UN to gain reputational benefits and impacts by signing up to the UNGC). Since initially, there was no cost to signing on and there are still few accountability mechanisms that can ensure that businesses actually live up to the 10 principles of the UNGC, critics have felt that the UNGC could be used to baselessly enhance a poorly performing company’s reputation. The founding executive director of the UNGC, Georg Kell, however, has been clear from its inception about the aspirational nature of the UNGC and its lack of enforcement mechanisms.
Since the COP is a major way in which companies detail their activities with respect to the UNGC, particular weight is put on this reporting requirement. Because the UNGC office has no resources with which to monitor companies—and, more important, because the UNGC is meant to be aspirational and inspirational—one of the integrity measures that the UNGC has undertaken is to “delist” companies that fail to submit the annual COP. Companies that do not submit the COP are considered “noncommunicating” for one year; thereafter, they are taken off the list or expelled, and the UNGC reserves the right to publish the names of such delisted companies. In addition, although signatories in good standing can publicize their participation, they are not allowed to use the UNGC’s name and logos, or the UN’s, without specific authorization.
The other major reputational issue is that sometimes companies with significant reputational and strategy- or practice-based problems become signatories to the UNGC. As an aspirational entity, the UNGC is open to such members—a source of consternation for some critics—with the understanding that the participant will pledge to work toward improvements and implementation of the 10 principles over time.
Given its history of evolving to meet new needs and issues as they arise, it is likely that the UNGC will continue to grow not only in terms of membership and its aspirations to see that the 10 principles are implemented but also in the nature and types of issues that are addressed though its various learning, sharing, and networking platforms.
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