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

The number of multinational companies who are considering leaving or cutting down their operations in Britain as a result of Brexit is large, including firms such as JP Morgan Chase, Ford and Philips. Jobs, factories and headquarters are being shifted out to Europe in order to retain access to European markets and avoid taxation issues. Reports on income in Britain showed that as a result of slowed business investment, consumer spending above its means was what drove the small amount of GDP growth seen in 2018¹. Consumers, the government and businesses were all borrowers in the last quarter of 2018, which meant a heavy reliance on inflows of foreign investment. The growth of this reliance will be particularly troubling in the face of falling FDI into Britain out of Brexit concerns, especially in the situation of growing debt levels.

An article published by the Economist² sheds light on what will be the emergence of an interesting dilemma. Despite the aforementioned number of firms moving operations out of Britain, foreign investment into the country was shown to grow 7% last year; the benefits of investing in Britain are not lost on some investors, including low corporate tax rates and the widespread availability of high human capital. This is simultaneous to the implementation of policy in Britain that presents a far more selective attitude towards foreign investment than in the past, with higher controls on the types and sources of foreign investment³.

While current demand for investment into Britain does exist, it is unlikely the nation will have the opportunity to turn their nose up at select foreign investment for much longer, given a growing dependence on foreign capital, a soon to be much smaller network and a thinning pool of investors. What is in store for Britain appears to be a role reversal, from a highly desirable host country with control over its foreign investment policy to a host that is forced to bend to the will of prospective investors.  It remains to be seen how Britain will choose to operate between its growing desire to place itself, the state, at the forefront of its economy, and its need for foreign investment, side effects included, to avoid crippling its growth.

Sources

1. “British consumers keep economy growing amid business caution.” (2019). The Financial Times. https://www.ft.com/content/9de0ec52-5205-11e9-9c76-bf4a0ce37d49
2. “Why foreign investment into Britain remains so strong.” (2018). The Economist. https://www.economist.com/britain/2018/04/07/why-foreign-investment-into-britain-remains-so-strong
3. UK cracks down on foreign investment to protect national security(2018). CNN. https://money.cnn.com/2018/07/24/investing/foreign-investment-rules-uk/index.html