As discussed in this week’s lecture, the United Nations Global Compact (UNGC). launched in 2000, is a policy initiative for businesses “committed to aligning their operations and strategies with ten universally accepted principles,” an enterprise that continues to work toward the adoption of sustainable practices in the global business sector. But the program has its limits and critics. Like similar initiatives in the past the program is voluntary, and many worry that companies can figuratively wrap themselves with the UN flag to distract attention from human rights or labor abuses, poor environmental performance, or corrupt activities. Non-governmental organizations, for example, have long criticised the UNGC for its absence of effective monitoring and enforcement provisions.
What happens to noncompliant firms? was a question posed a couple of times in lecture. First, noncompliance needs to be understood in the context of the UNGC’s mission and design. Because member companies are promising to adopt sustainable business practices, noncompliance is defined not by past or current reputation, but by failure to file an annual “Communication of Progress”(COP) report. Any firm two years in arrears is likely to be expelled, and in 2014 alone, 657 companies were tossed out the the program. That said, in the latter half of 2014 the UNGC took on 729 new members, and membership continues to grow steadily. Bottom line: “bad” companies are bad in the sense that they don’t report, and the worst penalty they face is expulsion. There is some evidence to suggest, however, that wary investors may make delisted participants pay a short term price in terms of share value.
In the 17 year history of the UNGC several thousand firms have been delisted, but very few of these companies are household names and brands, though some are subsidiaries of well known firms (e.g. KPMG Dominicana, HQ Dominican Republic). The vast majority of these companies, like KPMG Dominicana, have 150 or fewer employees. This suggests that the UNGC initiative has not yet penetrated down through organizations’ subsidiaries, and it is widely recognized that pushing the sustainability agenda through the value chain remains a huge challenge.