Corporate sustainability – does it matter?
Today, we present our assessment of the United Nations Global Compact – the world’s largest network for sustainable business – at the UN General Assembly in New York. Launched in 2000 as a response to fierce criticism against globalisation and the lack of governance of international business, the Global Compact aims to make the global economy more sustainable and inclusive.
To mark the 15th anniversary, the Global Compact asked DNV GL to examine what has happened since its inception 15 years ago.
Has the global economy changed for the better? And what has been the impact of the Global Compact?
Globalisation and backlash
The idea behind the Global Compact was really quite simple. At the turn of the millennium, massive anti-globalisation protests were erupting in most Western countries. Business was the main target, accused of making huge profits by exploiting people and nature.
Some high-profile scandals, like the chemical leak in Bhopal killing thousands, Shell’s involvement in the killing of human rights activist Ken Saro Wiva in Nigeria, and the Exxon Valdez oil-spill in Alaska, had put corporate abuse at the top of the public agenda.
When Former UN Secretary-General Kofi Annan took the initiative to form the Global Compact, globalisation itself was under attack. A strong believer in international openness and collaboration, he made his now famous speech at the World Economic Forum in January 1999:
“I propose that you, the business leaders of the world, and we, the United Nations, initiate a global compact of shared values and principles, which will give a human face to the global market.”
The idea was this: by spreading principled, sustainable business practices all over the world, the Global Compact would not only help improve the impacts of economic activity, it would also help to sustain international collaboration, openness and stability. The goal: changing the global economy to ensure that both business and society could thrive.
15 years later: The litmus test
15 years on, the big question is whether the Global Compact has really achieved positive change. This is what a team of researchers and consultants at DNV GL set out to examine 6 months ago. After surveying more than 1500 companies all over the world, and conducting close to 250 in-depth interviews with experts from business, civil society and academia, we believe the short answer is yes.
We have indeed found many promising signs of improvements, and the Global Compact has made a significant contribution to this in some – perhaps surprising – ways.
There is however an important ‘but’ – there is still a long way to go before sustainable business is common practice all over the world. Across many parameters, the world is moving in the wrong direction.
To start on a positive note, tremendous progress has been made in the past 15 years. In our assessment we explore change across three dimensions of the global economy:
- Corporate practices: Have businesses globally becoming more sustainable?
- Corporate operating environment: Have important conditions, drivers and factors blocking or enabling sustainable business changed?
- Dominant worldview: Have our worldviews, mindsets, attitudes and beliefs regarding the role and responsibility of business changed?
Below I present highlights from the 16 findings that cut across these three levels.
You can read the full report here.
Changes in corporate practices: Deeper and more systematic but BIG gaps
CORPORATE PRACTICES: WHAT HAVE WE FOUND?
- Taking root: The global spread of sustainability
- Into the fold: Expanding the scope of corporate sustainability
- Moving up: Sustainability gaining strategic ground
- Mind the gap: Actions and intentions are still not aligned
- Chain reaction: Sustainability cascading through the value chain
- Nowhere to hide: Transparency is becoming the new norm
- Smarter together: New forms of collaboration between business and society
Firstly, sustainability is taking root all over the world and is gradually penetrating deeper into all markets and sectors. Today, more than 8,000 companies from 156 of the world’s 193 countries participate in the Global Compact. Big players are also coming along. At present, 25 per cent of the Fortune Global 500 companies have joined the initiative. Although this does still represent a marginal share of the Global Economy (around 1,8 per cent according to our calculations), getting these huge economic actors on board are tremendously important. Looking at the global labour force, 58 million people worldwide work for a Global Compact signatory today, as opposed to only 3 million in 2005.
Secondly, we see that sustainability is moving from the margins, and upwards and inwards in business organisations. More CEOs and boards are today not only talking about sustainability, but increasingly also accept oversight and responsibility for performance in this area. This sends clear signals that sustainability is becoming more strategic. In the recent PwC Global CEO Survey, 75 per cent of CEOs believe meeting societal and environmental needs is important. Among Global Compact participants, 93 per cent of CEOs believe sustainability is key to future business success.
Third, companies are developing more sophisticated approaches to sustainability today than 15 years ago. Around the year 2000, corporate responsibility or CSR was primarily about compliance or charity. Today, sustainability is more systematically embedded into core functions and core systems in organisations, ensuring that risks are more proactively assessed and impacts better managed. But more importantly, leading companies today see sustainability as a differentiator and driver of innovation, technology and product development. As a result, we are seeing the contours of a new economy emerging, and it is circular, sharing, regenerative and collaborative – contributing to solving pressing societal challenges while generating value for the company.
Fourth, companies are getting ready to get naked. With the arrival of smartphones and social media in the mid-2000s, and increasing public scrutiny of corporate practices and misconduct, transparency is becoming the norm. Most global companies today are issuing sustainability reports, and there are encouraging efforts underway to make reporting more useful for stakeholders such as investors.
Fifth, a significant change is that companies have expanded their responsibility to their value chain, and increasingly expect suppliers to uphold the same standards. Our findings show that 17 per cent of Global Compact participants require their signatories to participate in the Global Compact. This trend is a hugely important to spread principled, sustainable business practices all over the world.
Finally, we see that collaboration is not only on the rise, it is changing form. 15 years ago, companies were facing issues alone – and a high degree of mutual scepticism and mistrust characterised relationships with other stakeholders. Today, stakeholder dialogue, consultation and partnerships have become part of business, and cross-sector collaboration is actively used to foster technological innovation and product development with win-win effects for society and the environment.
Gap between commitment and action
Unfortunately, all is not rosy. There is a significant gap between commitment and action and the vast majority of business is still not involved. While sustainability is penetrating deeper into markets and sectors globally, only a marginal percent of business are serious about their sustainability impacts. For instance, only 2 per cent of the world’s publicly listed companies participate in the Global Compact, and when it comes to engagement by small and medium sized companies, this is percentage-wise almost zero.
Moreover, most companies that do have sustainability on their agenda still struggle to effectively embed this into day-to-day operations. For instance, while 90 percent of companies report that they have a human rights policy in place, only 20 per cent report that they are conducting human rights risk assessments. The numbers are similar in the area of anti-corruption.
In short, there is a huge room for improvement across the board. Changes – although promising – have been gradual, and will not take us to where we need to be in the next 15 years.
Changes in the operating environment: Are the frameworks working?
THE CORPORATE OPERATING ENVIRONMENT: WHAT HAVE WE FOUND?
- Playing catch-up: Bringing regulation up to speed
- Voluntary is booming: Business is taking the lead
- Adding value to society: Investors’ sights set on sustainability
- From confrontation to collaboration: A new relationship with NGOs
- Open for business: The UN embraces corporate partnerships
Looking at the enabling environment, encouraging changes can also be found, particularly in the areas of finance and education.
Today, the fact remains that laws and regulations still exist that block or undermine sustainability (think of the almost 500 billion USD of government subsidies to the fossil fuel industry every year), and in other important areas regulation is lacking (climate, oceans, cyber etc.). Leading companies are now calling on governments for better regulation on issues like carbon and corruption, such as the push by six major oil companies in May 2015. With shifting economic and political power at the international stage, more countries need to take on a greater responsibility for the intractable problems the world is facing.
Most promising is perhaps the awakening of the financial sector regarding the importance of non-financial risks. The Global Compact realised this was a critical factor as early as 2003, when it began inviting mainstream investors into dialogue with its business participants around difficult issues such as operating in zones of conflict. Today, strong investor / company alliances are forming on issues such as climate and water. There is a notable gap between commitment and action in this domain too, but the fact that a whopping 45 trillion USD in assets are now backing the Principles for Responsible Investment, launched by the Global Compact and UNEP-Fi in 2007, is an immense achievement. Even at the commitment level, this sends strong signals to the business community where capital will flow in the coming years.
Bottom-up drivers are also mobilising, and at present 500 business schools around the world, including world-leading institutions, have committed themselves to the Principles for responsible Management Education. In the UK, 50 per cent of business schools are now signatories to this initiative.
Changes in our worldview: Who’s getting it?
DOMINANT WORLDVIEW: WHAT HAVE WE FOUND?
- Wrong direction: A deep sense of urgency is emerging
- More than just buzz: Mainstreaming sustainability in the business sphere
- A balancing act: Redefining the fundamental purpose of business
- Key to the future: Sustainability is critical to business success
Perhaps the most significant change we have seen in this timeframe relates to our understanding of and attitudes towards the role of business in society. There is a clear trend towards challenging the old assumption about the purpose of business, and a new understanding of responsibility is emerging, where companies are also expected to deliver a broader range of social and environmental value.
Reflecting this change, corporate sustainability has gradually penetrated global business media such as The Economist, Bloomberg Markets and Fortune in the past decade, and more articles are published than ever before. As John Ruggie put it: “Even ‘The Economist’ magazine writes: ‘the question is not whether, but how, we go forward on corporate responsibility’. I think that is a big development”. Business media in non-English speaking countries, including China and Brazil, have also followed suit.
From being considered a target and the root of societal problems, business is now increasingly seen – and importantly sees itself – as having an important role in advancing societal development, environmental protection, peace and stability, and economic prosperity. In recent years, important studies by international banking giants like Goldman Sachs and Deutche Bank have concluded that companies with high ratings on environmental, social and governance factors outperform their peers in financial terms, have a lower cost of capital and represent less risk to investors.
Reflecting on the role and impact of the Global Compact
A multitude of actors and organisations have contributed to the change we have witnessed in the past 15 years. However, our findings show that the Global Compact has undoubtedly played a significant role in catalysing change in many areas: spreading the idea and practice of sustainable business around the world, creating a unifying framework that is universally accepted by business, governments and civil society, legitimising a broader range of topics on the corporate agenda and, not least, creating a safe space for dialogue and cooperation between different societal sectors.
Although still in the early stages in terms of mobilising the broad global business community, we believe that recent changes in the corporate operating environment suggest that corporate sustainability has both the potential and likelihood to scale significantly in the years to come.
Closing the gap: Pathways to the future
Let’s face the facts. There is a vast gap between where our economic system is today, and where it needs to be. The incremental progress we are making is not sufficient to ensure a resilient, stable and prosperous future for business and for humanity. Overall, across a range of varied parameters, the world is moving rapidly in the wrong direction (CO2 emissions, water scarcity, ocean acidification, social unrest and conflict), and the potential for disruption in the next few decades is growing increasingly real.
2015 will be a crucial year in deciding the course of the planet; key decisions will be made. The new Sustainable Development Goals, a set of targets on international development, are to be finalized in September, and world leaders will convene in Paris in December with the aim to achieve a binding and universal agreement on climate, from all the nations of the world. With this as the scene, the time has come for transformative change.
Catalysing such change in the global economy is an urgent but ambitious goal, which challenges the actors, institutions, norms, and many vested interests that comprise the status quo.
We offer three pathways we believe are crucial to accelerating progress towards a sustainable future. The pathways are interconnected and mutually dependent, and require the collaboration of all actors in society.
- Making sustainability ‘the business of business’ – we need to go big, and we need to go fast. Mobilising the vast majority of companies, and making sustainability part of daily business is crucial to improve the impact of economic activity and ensure that business becomes a force for good, balancing the need for financial profit with a new social purpose.
- Breaking down barriers and energising drivers – creating the right enabling conditions for sustainable business to succeed, by ensuring that regulatory regimes, financial flows, and important institutional frameworks surrounding business help, not hinder, radical new business models, innovations and products to emerge.
- New thinking for a new reality – shifting away from a focus on risk, and looking at the change that is urgent and needed as an opportunity for business, and for humanity, to shape a better, more desirable, more convenient and cooler future for all of us.
To do this, all stakeholders need to look at their own organisations and start planning how they can begin the transition towards a sustainable future. And as individuals, we need vision and courage but most importantly willingness to take action now.
We hope that you will find our report informative and inspiring.
Project Director – UN Global Compact Assessment
Group Sustainability Manager