UN Global Compact: What is it?

The United Nations Global Compact (UNGC) is considered as the CEOs' roadmap for Corporate Social Responsibility (CSR). It is comprised of 10 universally accepted principles of human rights, labor, environment, and anti-corruption. These principles are in line with UN goals, including the Millennium and Sustainable Development Goals. In this article we highlight the 10 principles of UN Global Compact, reporting criteria and ways you can find investments aligned with the UN Global Compact initiatives.

Key Facts about UNGC

• Launched on July 26, 2000, by former UN Secretary-General Kofi Annan.
• It is the largest and most important initiative for corporate responsibility worldwide.
• It is a purely voluntary initiative. It does not police or enforce the behavior or actions of companies (non-legally binding).
• Signed by 14,969 companies across 162 countries.
• All businesses, civil society organizations, business associations, labor organizations, academic institutions and cities can join, except for companies subjected to UN sanctions, companies listed on the UN Ineligible Vendor List for ethical reasons, companies that produce, sell or transfer antipersonnel landmines or cluster bombs, and tobacco manufacturers.

10 Principles of UN Global Compact

The 10 principles for businesses, as stated on the UN Global Compact’s website, are the following:

Human Rights:

• Principle 1: Support and respect the protection of internationally proclaimed human rights.
• Principle 2: Ensure that business practices are not complicit in human rights abuses.

Labor:

• Principle 3: Uphold the freedom of association and the effective recognition of the right to collective bargaining.
• Principle 4: Eliminate all forms of forced and compulsory labor.
• Principle 5: Abolish child labor.
• Principle 6: Eliminate discrimination in employment and occupation.

Environment: 

• Principle 7: Adopt a precautionary approach to environmental challenges.
• Principle 8: Conduct environmentally responsible activities.
• Principle 9: Encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption:

• Principle 10: Fight corruption in all its forms including extortion and bribery.

Ensuring accountability with Communication on Progress (CoP)

The Communication on Progress (CoP) is an annual report presented by the U.N. Global Compact signatories and enables companies to communicate their efforts to support and uphold the 10 Principles of the UN Global Compact. Stakeholders can process the information provided by the CoP to make informed choices about the companies they interact with. The level of transparency and disclosure can increase accountability and drive performance.

The report should meet three minimum requirements:

1. A statement by the Chief Executive expressing continued support for the UN Global Compact and renewing the participant’s ongoing commitment to the initiative.
2. A description of practical actions the company has taken or plans to take to implement the 10 Principles.
3. A measurement of outcomes.

Based on the company’s self-assessment, each CoP falls into one of the following differentiation levels:

• GC Advanced: CoPs that qualify as GC Active and, in addition, cover the company’s implementation of advanced criteria and best practices.
• GC Active: CoPs that meet the minimum requirements.
• GC Learner: CoPs that do not meet one or more of the minimum requirements.

Here is an example of a GC Advanced CoP submitted by Holcim for year 2020.

Investments aligned with UN Global Compact Initiatives

Companies that are signatories of the UNGC and consistently submit their annual CoPs according to the minimum requirements could be good portfolio additions for ESG (Environmental, Social, Governance) investors. For Exchange-Traded-Funds (ETFs) investors, there are multiple ESG ETFs that track indices that use the UN Global Compact Initiatives as a screening criterion in their holding selection process, like the MSCI USA ESG Screened Index. The index, apart from excluding companies involved in controversial activities, disregards companies that fail to comply with the UNGC principles.

ETF shares tracking the index:

• iShares MSCI USA ESG Screened UCITS ETF - Accumulating – USD (SASU)
• iShares MSCI USA ESG Screened UCITS ETF - Distributing - USD (SDUS)

Keep reading:

• Invest in UN SDG 10: Reduced inequalities with ESG ETFs
• ETFs aligned with EU Climate Benchmarks
• 5 things you should consider when buying ESG ETFs

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