Word from the experts
Georg Kell, Executive Director, UN Global Compact Office
What is the Global Compact?
The Global Compact is a value-based corporate responsibility initiative. It is voluntary, yet it has a strict disclosure framework, meaning participants who commit to implementing the Global Compact on an annual basis also commit to disclosing progress made. And, they pledge to undertake actions in support of the ten principles that we propagate in the area of human rights, workplace conditions, the environment, and anti-corruption. The initiative has grown over the past ten years from initially only 40 corporate participants to now over 5,200, plus more than 2,000 other non-business participants. It’s the world’s largest corporate responsibility initiative. Roughly half of our participants come from emerging markets; half come from the OECD world, so it’s fairly equally split according to business activities worldwide. We are quite proud to have a large number of large companies. At the same time, half of our participants are SMEs [small and medium enterprises]. I think the common thread between all of them is their integration into the world economy, and their involvement in value chains that contribute to activities that go beyond national boundaries.
While 5,200 is a very significant number with enormous global reach, the Global Compact needs to grow further. We want to grow to 20,000 by 2020. But, at the same time, we need to develop the qualitative aspects much more. And we are now in the process of defining leadership at the global level in order to motivate the frontrunners even further. At our next Global Compact Leaders Summit on June 24-25 here in New York, which will also mark our tenth anniversary, we will unveil a new and comprehensive blueprint for leadership.
What does the Global Compact cover?
The Global Compact principles address human rights, labor standards, the environment, and anti-corruption. Traditionally, these issues were not really high on the radar screen of the corporate community, but now the whole landscape has changed in a fundamental way. As business has gone global, and as many of the issues in these areas have not been solved and continue to pose serious challenges, there are opportunities as well as threats and risks for business.
What is the link between human rights, labor rights, the environment, and anti-corruption?
These are what investors now call the non-financial issues that can be material to corporate performance. As recently as only eight years ago, the Wall Street Journal would denounce companies for taking a position on this issue, arguing that this is the exclusive prerogative of governments. But today, the picture is a different one. As many of the issues in these areas have not been solved, the question has been: Should we stay aloof and just treat these issues as not being relevant? Or, should we try to make a difference because we know that, down the road, through our supply chains and our global value chains, these issues do have an impact on our performance? Or, should we take a proactive stance? The Global Compact has been arguing, from day one, that you cannot wait for governments to do everything and to do everything perfectly.
What do you expect from companies within the Global Compact?
With their power, they also have responsibility. Whether a company completes transactions in a clean manner or not, for example, affects communities and the lives of thousands of people. Companies make important contributions to social challenges through their actual business, as well. When an IT company innovates and spreads solutions around the world, it can have a huge positive impact on productivity and thereby help people to escape poverty. It enables us to manage natural resources more efficiently and change lifestyles. So, business, as an actor in the community, through its conduct, as well as through its core business activities, can deliver tangible benefits for humanity.
How have companies’ commitments evolved recently?
An important point in the history of these issues has actually been the financial crisis. We have companies that have been convinced by our arguments for a long time, but those joining us now are doing so in a very serious way. Why? Because the core messages we have long been propagating are now much better understood. First, companies need to focus on long-term value creation, as opposed to only chasing quarterly profits. Second, they need to integrate non-financial issues in their risk and opportunity assessments in a systematic manner. And third, ethics is back. In fact, the financial crisis has validated the value proposition of the Global Compact.
Now, if the Global Compact doesn’t have the weight of law, how do you ensure that the signatories actually do what you want them to do? Can you?
Yes, to some extent. First, we have introduced a very strict logo policy to ensure that our logo and brand are not being abused. That’s a no-brainer. Second, all our participants are obliged to disclose, on an annual basis, progress made on implementation – we call it a Communication on Progress. And, this disclosure is quite important because if a participant fails to disclose, then ultimately, they are de-listed. As of today, we have already delisted nearly 2,000 participants for failure to disclose progress. That’s our most powerful means of ensuring that the pledge is actually honored. Third, of course there’s peer review. The Global Compact now has over 80 country networks. And, most of our country networks are already doing peer-to-peer review. They compare performances, and they learn and share based on implementation practices. And fourth, of course, because we are not a compliance-based initiative but an incentive-based one, we are continuously looking for good practices, both bottom-up and top-down, exploring which participants are more advanced and how they do it.
Can you talk specifically about Schneider Electric’s role with the Global Compact?
I think the importance of Schneider’s engagement is its continued commitment to the Compact and its principles, and its pioneering role in building the principles into its supply chain. It has done so largely on its own. That’s right in the spirit of the Global Compact. It has communicated back to us its activities, so we knew about it. And, for us, this is a model engagement.
What else could Schneider Electric do to further enhance its role?
I hope that Schneider Electric will share the company’s experiences and lessons learned with peers in its countries of operation and, by doing so, will engage actively in our country networks. Because it’s very important that others are also inspired to embrace similar approaches and concepts. This process of sharing and learning does require an effort. It doesn’t happen by itself. It is great to put out a sustainability report, but we know that sustainability reports have limited uptake and do not necessarily lend themselves to learning and change. This requires face-to-face involvement on the ground where it counts most. The Global Compact has country networks in many of the countries where Schneider is very active in sourcing and building up capacities and markets. And I would hope that Schneider actively engages in these country networks and shares its lessons.
But, even for those that are engaged, there are enormous implementation gaps. The most important gap is that many companies are pretty good in managing these issues at the headquarters level. But, in their subsidiaries and supply chains, they are not as advanced as one would hope they would be. In other words, their commitment to the Global Compact is unevenly implemented. That’s why we stress the local networks so much, and the importance of supply chains and value chains. And this is why the Schneider Electric example is so important, because it shows how this gap can be filled. We are constantly working on providing incentives for closing these gaps.