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  • Gautami Govindrajan

Less Bark, More Bite: Analysing the Effectivity of the UN Global Compact

Updated: Jul 2, 2023

This blog post has been authored by Gautami Govindrajan, a third year student of National Law University, Jodhpur

In an era of greater awareness regarding sustainability, Corporate Social Responsibility is becoming a closely scrutinized issue. With consumers becoming more aware of the impact of corporations both environmentally and socially, there has been a growing emphasis on sustainable practices by companies. Scandals such as the Wal-Mart fiasco, the Nestle and Mars controversy highlight this wave of awareness and the call for reform in the production of goods. Consumers no longer turn a blind eye to unsustainable practices by corporations; and are demanding goods that are ethically and sustainably produced and sourced. Reports of human rights violations and environmentally damaging practices have led to the boycott of companies, which leads to a loss in sales and reputation.

The UN Global Compact (“Compact”), the world’s largest corporate sustainability initiative, aims to create a global movement of sustainable companies and stakeholders. It crystallises the core concepts required for ethical and sustainable protection into ten simple principles which aim to guide corporations in their production and operation. With over 9000 companies joining the initiative and a reach spanning over 150 countries, the Compact is widely hailed as the most successful corporate sustainability initiative. But is the Compact truly the roaring success it makes itself out to be?

The problem arises when we try to examine the binding value of the Compact. The Global Compact, as it states itself, is a purely voluntary initiative. It neither monitors nor imposes sanctions on the behaviour or actions of companies. The Compact, in fact, views itself more as a guide dog than a watch dog. Matthew Stausberg, the Compact’s head of public affairs, even said that it was neither the Compact’s mandate nor intention to monitor compliance, or lack thereof, with the principles. Moreover, the Compact Principles (“Principles”) are soft law, which is non-binding by its very nature. All of this highlights that while the Compact aims to provide parameters and best practices to companies with regards to sustainability, it has no means to actually enforce these.

Criticisms have been levelled at the Compact due to its vague and unclear nature. Its Principles have been criticised as being broad and unclear, as they give one-line suggestive guidelines only. Further, the Compact ends up being used as a Public Relations gimmick by large corporations, attempting to “blue-wash” their image. They present themselves as ecologically and socially responsible institutions which even have the support of the UN, while simultaneously breaching several of the Compact’s core values. Membership in the Compact therefore becomes a convenient front for companies to represent to consumers that they are committed to sustainable values without any effort to actually realising these values.

Joining the Compact is simple – a business can apply to join by filling out the application form available online, and thereby expressing its commitment to the Compact principles. There are virtually no regulations in this regard and there is thus no means of filtering out those companies who have a genuine commitment to sustainability. There is no means of monitoring compliance, and the only obligation imposed upon the companies is to submit a yearly report of their sustainability strategy. This gives corporations free rein to enforce policies that appear to be sustainable in nature, but are in fact, not so whilst also getting formal approval from the UN to satisfy its customers. This ends up running contrary to the Compact’s mission and objectives and is the biggest flaw in its operation. Ingeborg Schwenzer has also commented on this issue, saying that while giving due consideration to minimum ethical standards in international sales contracts, companies holding themselves out to be adhering to certain values should be held liable for lack of compliance with the same. By failing to do so, the Compact frustrates its own existence.

On the other side of the debate, it has been argued that it would be unfair to criticise the Compact for something it never purported to be- a compliance-based initiative to measure corporate behaviour. Moreover, the application of any principle is always embedded in local contexts. Overspecified principles would be counterproductive, as they would limit available solutions to companies from the very beginning. The intentional vagueness, therefore, enables corporations to contextualise the application of the principles based on their specific conditions and needs.

The problem, however, remains: there are several lacunae in the application of the Global Compact. Disputes arise regarding the applicability and binding value of the Compact in individual sales contracts. While the Compact principles can certainly be incorporated into the contract itself, and, thereby become part of the conformity requirements; a lack of further specification leads to challenges by parties on account of vagueness. The Compact principles act as broad, umbrella principles which are often difficult to apply in a purely practical context. Being extremely wide in their ambit, it is difficult to specify the exact nature and extent of conformity requirements that would arise out of the Compact.

The problems of the sheer lack of any kind of enforcement or monitoring are multifarious, as can be seen from the discussion above. What the Compact needs, to be more effective in its application, is some mechanism of ensuring that the companies it gives its approval to are companies that actually follow the ten principles of ethical and environmental sustainability. The application process needs to weed out companies who do not have a genuine commitment to sustainability– one way to do this is to have some criteria for the companies to fulfil with regard to their sustainability policy and strategy. Further, the self-made reports are not sufficient proof of compliance. A more reliable method would be for the companies to have to undergo an independent, third-party evaluation to guarantee greater compliance with the Compact Principles. Some minimum criteria to be fulfilled could also be laid down to ensure that Compact companies are indeed committed to these principles. Moreover, the Compact needs some way in which it can sanction companies for non-compliance. It cannot allow companies to “blue-wash” their activities and benefit from simply being a part of the Compact. A step has been taken in this regard by delisting non-compliant companies, but this alone is not enough. The problem needs to be tackled at its very root.

​The Global Compact is undeniably a step in the right direction. It provides an arena where companies can commit to more sustainable practices. The Learning Network is certainly a good initiative, giving companies a chance to learn from the experiences of other companies, and a platform to air ideas and solutions. However, this in itself is not sufficient. What the Compact requires is greater stringency in accepting its applications, and means to ensure that the companies it backs actually adhere to the values enshrined in its ten principles. This would make the Compact more effective in its application, and help corporations move towards a regime of greater sustainability.

Display cover image source: Getty images

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