The UN Global Compact was designed to encourage the commitment of corporations to upholding ten principles relating to corporate social responsibility; included are the abolition of child labour, abiding by international human rights and active efforts towards fighting corruption in all forms.

The voluntary nature of the program has led to questions of its effectiveness. The consequences of firms failing to provide Communication on Progress reports (COPs) or violating the sustainable development principles is their removal from the Global Compact, but not much else. The relaxed nature of the initiative has resulted in cries of “bluewashing,” the belief that firms partner with the Global Compact to bolster their public image with little actual effort towards upholding the Compact’s principles. The cost to firms of bluewashing, and being caught, appear to be small; there are no legal repercussions to a violation of the principles or failing to provide regular reports.

While removal from the Global Compact appears to be a fairly harmless punishment, a study by Amer (2018) finds that companies that are listed on the Global Compact’s website for their failure to comply and subsequent removal from the organization experience a fall in their trading returns in the days immediately following. Taking a sample of approximately 120 companies that were listed as non-compliant in 2008 or 2011, the researcher finds the presence of an average 1.6% abnormal fall in returns in the five days following the event of non-compliance being made public by the Global Compact.

These results have some significance. First, investors appear to penalize companies that join and fail to comply with the Global Compact principles. Second, given that there is a lack of monitoring and forced compliance, this outside influence of private actors can have a considerable impact on motivating compliance and increasing the costs of bluewashing to firms. The Guardian reports that hundreds of companies are removed from the Global Compact each year for their failure to comply; awareness of this financial penalty could help in bringing down the number of noncompliant firms and force companies to be accountable for their promise of corporate social responsibility.

Sources

Amer, E. (2018). The Penalization of Non-Communicating UN Global Compact’s Companies by Investors and Its Implications for This Initiative’s Effectiveness. Business & Society, 57(2), 255–291. https://doi.org/10.1177/0007650315609303

“Cleaning up the Global Compact: Dealing with Corporate Free Riders.” (2012). The Guardian. https://www.theguardian.com/sustainable-business/cleaning-up-un-global-compact-green-wash