Time for the UN Global Compact to Evolve into the UN Due Diligence Mechanism? A Real Chance with the 2018 Partnership Resolution

By Felix Dodds and Gaston Ocampo

Introduction

This blog is to focus on the issue of the private sector, the UN Global Compact (UNGC), and the particular companies that are members of the UNGC. It will look at their Voluntary Reports and then compare them to their profiles by the independent Corporate Human Rights Benchmarking.. This does raise some serious questions which are very relevant to the present discussion of the UN Global Partnership resolution that is being negotiated in the coming weeks at the UN General Assembly Committee 2.

It has been estimated that the cost of delivering the Sustainable Development Goals (SDGs) is somewhere between $US 3-5 trillion each year.

In 2017, Overseas Development Assistance (ODA) was roughly $US 171 billion. As many have said, much of the shortfall of funding will have to be addressed by the private sector. Some of this shortfall of funding will also be addressed by Private Public Partnerships (PPPs), Multi-Stakeholder Partnerships (MSPs) or government at all levels.

A number of times, this blog has covered the need to develop principles for both PPPs and MSPs. The Addis Ababa Action Agenda (AAAA) outlined the following:

“48. We will therefore build capacity to enter into public-private partnerships, including with regard to planning, contract negotiation, management, accounting and budgeting for contingent liabilities. We also commit to holding inclusive, open and transparent discussion when developing and adopting guidelines and documentation for the use of public-private partnerships, and to build a knowledge base and share lessons learned through regional and global forums.” (UN, 2015)

Global principles have not been developed at the Finance for Development Forum. The AAAA does suggest the development could be in regional forums. If a global approach to developing a set of principles isn’t going to happen, perhaps developing them at the regional level is a good solution. 

After all, the negotiations would be between countries at similar levels of development and would ensure more national and local stakeholder involvement in the development of those principles. This approach would mimic the approach taken on Principle 10 of the Rio Declaration by the European Commission and the Latin America and Caribbean Commission, ultimately being brought together to form a global agreement.

The United Nations Economic Commission for Europe (UNECE) has developed a set of Principles for PPPs for SDGs, and perhaps others should follow suit.

On MSPs, this blog has highlighted a number of times that the 2003 UN General Assembly agreement on principles and Guidelines for MSPs needs to be updated.

The research in 2012 on those MSPs has suggested that up to 70% of the partnerships registered on the UN website were either dormant or had ceased attempts to achieve their stated aims. 

As we write this blog, 4070 partnerships or commitments have been registered on the UN Platform for partnerships for the SDGs. However, only 496 of those partnerships or commitments have submitted required progress reports to the UN. By the Small Island Developing States (SIDS) partnership norms and criteria now out by member states. 

As has been suggested by some, including this blog, perhaps a large number are Zombie Partnerships.” We will find out over the coming years as the UN begins to delist those that have not reported under a traffic lights system.  A system where an MSP would be given a yellow light if it had not reported within one year, a red if not within two years and delisted after that.

UN Global Compact

I

n 1999, the UN Global Compact was launched at the World Economic Forum as a voluntary challenge based on CEO commitments to implement universal sustainability principles. These commitments aimed to support UN goals: promotes ten Principles – now over 8000 companies and 4000 non-business participants. In launching the UN Global Compact, UN Secretary General Kofi Annan said he sought: 

“a creative partnership between the United Nations and the private sector. I made the point that the everyday work of the United Nations -- whether in peacekeeping, setting technical standards, protecting intellectual property or providing much-needed assistance to developing countries -- helps to expand opportunities for business around the world. And I stated quite frankly that, without your know-how and your resources, many of the objectives of the United Nations would remain elusive.

The United Nations agencies -- the United Nations High Commissioner for Human Rights, the International Labour Organization (ILO), the United Nations Environment Programme (UNEP) -- all stand ready to assist you, if you need help, in incorporating these agreed values and Principles into your mission statements and corporate practices. And we are ready to facilitate a dialogue between you and other social groups, to help find viable solutions to the genuine concerns that they have raised. You may find it useful to interact with us through our newly created website, www.un.org/partners, which offers a "one-stop shop" for corporations interested in the United Nations. More important, perhaps, is what we can do in the political arena, to help make the case for and maintain an environment which favours trade and open markets.” (Annan, 1999)

A Quick Introduction to the UN Global Compact and the Principles

Some of the readers of this blog may not be aware of what the UN Global Compact (UNGC) is, so here is a brief summary in their own words: “As a voluntary initiative, the UN Global Compact seeks wide participation from a diverse group of businesses.”

As a participant in the Global Compact, a company sets in motion changes to business operations so that the UNGC and its principles become an integral part of its strategy, culture and day-to-day operations. Participants are:

• Is expected to publicly advocate the UNGC and its principles via communications vehicles such as press releases, speeches, etc; and
• Is required to communicate with their stakeholders on an annual basis about progress in implementing the UNGC’s ten principles and
• Efforts to support societal priorities. (UNGC, 2018)

Unlike the UN Partnership website, the UNGC has a due diligence mechanism – “companies that fail to report or to meet the criteria over time may be removed from the initiative.” Over 6000 companies have been delisted for either failing to report or meeting the criteria. At present, the UN Global Compact has 9000 companies as members and 4000 other stakeholders. This is the second issue that we will address, but first a quick overview of the UNGC’s ten principles.

Human Rights

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and

Principle 2: make sure that they are not complicit in human rights abuses.

Labour

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 5: the effective abolition of child labour; and

Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility; and

Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

As the UN expands its relationship with the private sector, could the UNGC become the due diligence mechanism to support this expansion?

A number of UN bodies are saying they will only work with private sector companies if they are a UNGC member or planning to join, and many say they definitely will not work with companies that have been delisted.

The UNGC has evolved over time and needs to be able to be ‘fit of purpose’ for the UN system and to evolve again in the coming year.  What might this include?

The Corporate Human Rights Benchmark

The Corporate Human Rights Benchmark (CHRB) was set up as a collaboration of investors (AVIVA, VNDO, Nordea, apg) and stakeholder organizations. The Objective is to create the “first open and public benchmark of corporate human rights performance.” (CHRB, 2018)

The CHRB 2017 results have been very interesting to compare to what members of the UNGC have said in their voluntary reports.

In August, the UN Joint Inspection Unit completed its report titled “United Nations system: private sector partnerships arrangements in the context of the 2030 Agenda for Sustainable Development.” It suggests a role for the UN in rating companies, saying:

"Organizations also note there are obvious benefits stemming from external due diligence assessments, and that the United Nations system should continue to engage private sector companies that specialize in rating the sustainability of prospective United Nations partner companies based on their environmental, corporate and social performance (including on human rights)." (UN,2018)

The 2017 CHRB Report doesn’t benchmark all companies, but it does benchmark the leaders in three key areas:

1. Agricultural Products
2. Apparel (30 companies)
3. Extractives (41 companies)

The 2018 Report will be out shortly, and it will be interesting to see if there have been any changes.

Before delving into the data, it is worth noting that parallel to this is another benchmarking initiative called the World Benchmarking Alliance to benchmark progress around the SDGs. This also is a collaboration between investors and stakeholders; while CHRB does not yet consider UNGC in its benchmarking, the World Benchmarking Alliance does.

Data and the companies

“Preventing adverse impacts on workers, communities and consumers is one of the most pressing challenges almost every company faces in today’s globalized marketplace. The CHRB seeks to tap into the competitive nature of the market as a powerful driver for change in confronting this challenge.” (CHRB, 2018)

The CHRB underlines the importance of commitment to human rights by companies, saying: “through due diligence, jobs can be precarious with poverty wages, indigenous peoples can be dispossessed of their ancestral lands and individuals can be subjected to modern day slavery, amongst a range of other potential impacts.” (CHRB, 2018)

CHRB believes, and we support that, having a transparent set of data on a company can catalyze a powerful driver for change in the company by its investors, employees, and other stakeholders. For companies that are public, refusing to face the truths outlined by these reporting mechanisms can have a huge impact on the brand they have built up over many years but can tank overnight in today’s deeply interconnected world. The best companies seek to secure the next generation’s top talent. Who wants to work for a company today that has a bad human rights record, is guilty of gender discrimination, or is indifferent in the face of global climate change?

 Agriculture Products

UK firm Marks and Spencer has the highest rating from CHRB with 64% and is a UNGC member. On the CHRB website, you will find the spreadsheets for each company and you can delve into the scores.  The average score on Human Rights was 28.8%, a terrible indictment of the state of major corporations and perhaps UNGC members in 2018?

But for now, I want to focus on some of the household names that have been active in the UNGC for many years, and have taken leadership roles. These are PepsiCo Inc (23%) and Starbucks, both of which have not engaged in a dialogue with the CHRB on the data and how they will address the situation making their delivery against the CHRB to be so low.

In its last report filed with the UNGC, PepsiCo Inc claimed that its complex value chain allows them to ensure positive human rights impacts through their direct operations while using their leverage to encourage their indirect chain of operations. Due to its multinational operations, PepsiCo claims that whenever issues arise, they seek to follow the higher standard – no matter whether that standard is based on local or international laws. Finally, when talking about Due Diligence, this company asserted that programs in place to assess adverse human rights impacts, implement remedies when deemed necessary, and carry out external consultation to ensure effectiveness towards a “well-grounded respect for the human rights of [their] 300,000+ employees.”

The second US company to look at is Starbucks, again a community-facing company which, at 25%, is only a little better than Pepsi and far behind Marks and Spencer (64%).

This stark contrast with the leading scorer, added to the widely known racial discrimination issue in the past year, led to major concerns about Starbucks´ commitment to human rights.

In its last report to the UNGC, Starbucks claimed that it considers the UNGC Principles to be a “natural extension” of its Mission Statement – showcasing their commitment to social and environmental responsibility. The report continues by saying that the UNGC is “helping the company to strengthen existing or develop new internal practices and policies.” Nonetheless, Starbucks’ report to the UNGC left much to be desired in matter of detail and specificity, which could be considered as a deliberate effort to avoid controversial matters. Furthermore, this Seattle-based company claims to be “focused on galvanizing [its] partners;” which consists of empowering its employees to take initiative in local community programs, pursue and education or provide jobs for those in need (immigrants, veterans, and youth). Lastly, one ought to acknowledge that this report solely focuses on Starbucks´ successes and blatantly circumvents its weaknesses. Negative qualities have, however, been reported by the UNGC and other consultations, therefore bringing up to light issues such as those that have been widely known throughout the past months.

In both the case of Pepsi and Starbucks, they did not engage with CHRB to discuss how to improve.

Apparel

The focus of the assessment was on the 30 largest apparel companies in the world assessed against the CHRB’s Apparel criteria. In this area again, Marks and Spencer is the leader at 64% - while the average in the industry was 27.3%. Among the UNGC associated companies, Kering did worst at 28%. Surprisingly, GAP, a strong consumer-facing brand, only attained a score of 44%. All things considered, none of these companies engaged in a discussion with the CHRB about their score and what could be done to improve it.

The Gap UNGC report on its human rights work introduced the Sustainability Assessment Manual, which was established in 1994 to “outline the protocols that [GAP´s] team uses to assess and remediate issues related to labor or working conditions.” Nonetheless, despite having implemented this manual and having allegedly refined their approach to improve the working conditions of their employees, this company still scores poorly in their human rights work. Taking this into considerations, and in the light of increasing allegations of poor working conditions in countries with lax worker legislation, GAP made a deliberate effort to monitor their global facilities respect principles of:

-         Promoting the freedom of association,

-         Fighting human trafficking,

-         Abolishing forced labor/child labor,

-         Protecting fair contracts,

-         Paying fair wages, and

-         Ensuring humane treatment

These principles amount to the overarching effort under the framework of an initiative known as “Supply Chain Sustainability.” This initiative seeks to “improve efficiency and partner with local and international NGOs on innovative programs that benefit facility managers and workers.” Ultimately, GAP´s report highlights that “some regions suffer from a lack of infrastructure or rule of law” as an apparent justification to their low-scoring UNGC reports. It is therefore evident that GAP is using the lax labor legislation in the countries where they produce their products in order to get away with poor working conditions that amount to higher profit margins; the company does this while claiming to be making an effort to change the situation, while at the same time not actually doing anything substantial to reverse the situation.

Extractive Industries

The final area, and perhaps one that has historically been the most contentious, is the extractive industry. Here the CHRB reviewed 41 of the largest extractive companies in the world. The top two both Global Compact members, who have been at the forefront of campaigns on human rights over many years, are BHP Billiton (69%) and Rio Tinto (63%). The extractive industry average was 29.4%.

There are some absolutely terrible UNGC members such as Grupo Azor Mexico (5%), Oil and Natural Gas Corporation India (7%) and China Petroleum and Chemical (9%). It is unclear how they got through the UNGC voluntary reporting process. Here are a couple of the comments from their reports on their human rights approach.

“Improvement of the work environment through the implementation of practices that encourage coexistence and interrelation of all employees.” Grupo Azor México (UNGC Report)

Grupo Azor México is one of UNGC´s lowest scoring members, nonetheless, its leadership maintains that they have achieved substantial advancements in matter of Human Rights work. This is a hypocritical stance given the challenges lying ahead for this company, which reflect the poor conditions that currently exist within the company. For example, their report highlights the need for “employees to have the confidence to express their opinions and contribute ideas for the benefit of the company” Clearly it is underlining a concern that the employees do not feel comfortable voicing their concerns due to a fear of receiving reprisals. 

On the other hand, in its latest report, Oil and Natural Gas Corporation India claimed that “the rights of the employees are protected through compliance with the labor laws of the land and adhering to global best practices like the 10 Principles of the UN Global Compact.” But, in the light of the poor results, it is evident that such principles are not being carried through, despite of the structural stipulations to reverse dire conditions. Once again, we see a case of a company claiming to be socially responsible by joining the UNGC, but not actually carrying through with their promises of improving human rights conditions and overall UNGC stipulations.

Finally, another poor performing UNGC member is China Petroleum and Chemical. Under the tagline “Putting People First,” this company´s report showcases alleged advances in matter of sustainable development and quality reforms in the workplace. Despite being honored with the Pioneer Enterprise of SDGs Realization at the Lighting a Better Future - 2016 China Summit, this company is being outperformed by most of the other extractive industry UNGC signatories. How is this possible? This is an example of results yielding from the usage of unclear measuring tools and systems of recognition that contradict each other, subsequently undermining the process that the UNGC seeks to make its signatories carry out.

But, these are not the only companies with bad performance. Even Royal Dutch Shell who have had such a long engagement on the issue of human rights with stakeholders is only scoring 37%. According to their Shell UNGC report said:

“We have embedded human rights into our policies, business systems and processes. We believe this integrated approach allows us to efficiently and effectively manage human rights within our existing ways of working.” In order to do this, Shell focuses on four areas:

-         Labor Rights,

-         Communities,

-         Supply Chains, and

-         Security

all of which amount to Shell´s commitment to provide better working conditions and access to remedy whenever it is needed. After having been engaged with the UNGC for such a long time, Shell should be performing better. As it has been mentioned in the introduction of this blog, companies should be delisted as UNGC members when this happens. What is the point of having 6,000+ signatories if most of them do not perform as they should nor work towards improving their Human Rights impact?
All in all, when contrasting the reports of the aforementioned companies with their poor UNGC outcomes, it is evident that no matter how ideal their initiatives might seem, the results rely on how these initiatives are implemented and whether they serve the purpose they were originally created for. Whenever companies receive bad performance scores, they ought to consider whether their initiatives were flawed in the first place or if they simply need to modify their implementation process. By having a transparent set of data and a sincere response to the UNGC reports, not only in writing but also through actions, the private sector could be a powerful driver for change.

The Challenge for the UN Global Compact

“Organizations [of the UN system] recognize the ability of the private sector to adjust quickly to evolving development demands and needs and note how the United Nations system is increasingly expected to look at new ways of partnering with the private sector to create shared value and achieve impact as measured against the Sustainable Development Goals.” (UNGA -Towards Global Partnerships – Joint Inspection Unit, 19^th July 2018)

Although this is accurate, we ought to acknowledge that while companies can “adjust to quickly evolve development demands and needs,” they can also fail to address these demands and needs over the long-term. Companies carry out activities that provide them with public recognition or yield higher margins of profit, and ideas come and go with changes in leadership and direction.

All in all, in the light of the analysis of the results showcased in this blog post, it is evident that many times, companies associated with the UNGC establish good intent/structures ‘in theory’ but fail to put them into practice.

The UNGC is starting to be seen as the due diligence mechanism for parts of the UN system. The latest draft of the UNECE Principles for PPPs for SDGs states that:

“Many UN agencies work with the private sector in support of the SDGs. UNEP and UNDP

have prominent programme with undivided companies. The signing up to the UN Global

Compact 10 Principles should be mandatory for companies engaging in PPPs. Delisting of

any company should be then flagged to ensure they are not a SDG supporting company.

There are also associations which also work with for SDGs, CEO etc. The challenge is to

mobiles private sector to assist in capacity building:” (UNECE, 2018)

UNEP are using the services of RepRisk and Sustainalytics to back up their due diligence system is made through the global compact and not in an independent manner. They provide assessments on companies related to the 10 principles of the UNGC. These two companies have their own methodology to score companies.

UNEP does promote increased adherence and membership to global compact by making membership of global compact a key criterion in the review of any given partnership, however, they claim not to base their decision entirely on this. This may be because as I have pointed out some members that are of high risk according to our criteria.

An important issue is my understanding the UNGC has moved from voluntary financial contributions to mandatory financial contribution – members are paying members.

Payment is identified according to the revenue of the company. Reporting is voluntary, which basically means you submit a report related to the 10 principles – there has been a lack of clarity on what happens to these reports – who checks them, who recommends on actions if any.

The UNGC is now about to start implementing a recognition scheme for member companies who demonstrate “leadership on sustainability” – it will be called LEAD. Again, you can only be recognized if you are a paying member.

In addition, one of the criteria for this will also be to actively participate in one of UNGC action platforms (these are also based on payment fee).

If the UN Global Compact is to become the due diligence mechanism then (1) should it be based on them having to pay to be a member? (2) companies need to be challenged on their voluntary reports – particularly when outside evidence is that they are not telling the whole truth.

It is very good news that the UNGC is a member of the World Benchmarking Alliance however it is not yet a member of the Corporate Human Rights Benchmark. They should join the CHRB and they need to start to challenge the relatively small but significant companies that are being reviewed about what they are planning to do to address the CHRB score. Furthermore, they should ask the companies that haven’t engaged with the CHRB why they have not done so.

Depending on this response the UNGC should consider delisting a company that is not addressing their CHRB score.

It will be very important to see what scores these companies have in the 2018 CHRB report and if those companies are improving.

This is just the first stage for the UNGC to become the due diligence mechanism for the relationship that ALL the UN has with the private sector.

Second, the UN system – through the CEB - should instruct their staff that they will not work with any company delisted from the UNGC.

Third, clearly the UNGC does not have the staff to check over 8000 companies but it could at least introduce a random sampling system to review a smaller number. This would put all companies on notice that they might be reviewed and might be delisted or at least challenged.

The UNGC, governments, foundations, and stakeholder need to support the expanding of the number of companies being benchmarked by CHRB.

Soon the World Benchmarking Alliance will be producing their reports on SDG benchmarking of companies. The companies that are members will need to be prepared to seriously review what they are doing to help deliver around the SDGs. The UNGC, the WBCSD and others have produced the SDG Compass to help companies to align their strategies with the SDGs and in measuring their contribution. The UN as a whole need’s clear guidelines on what level/threshold of participation would disqualify a company. Clearly, companies that are high risk should be avoided I would include in those fossil fuel companies as far as any partnership is concerned.

The UNGC and the UN need to ensure that they are not found on the wrong side of the issue of due diligence. It’s also time to look at the UNGC and create a proper government Executive Board. To be seen as supporting greenwash at exactly the time when leadership is needed. To enable this to happen system-wide this does bring into question if the time has come to relook at the role of the Office of Partnerships.