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February 19, 2010
Investors Call on 86 Global Compact Signatories to Produce Annual Communication on Progress
    by Robert Kropp

A coalition of investor signatories to the Principles for Responsible Investment identify 86 large, publicly traded companies as laggard in producing annual Communications on Progress as required by the Global Compact, and urge them to do so or risk delisting.


Monitoring the follow-through on the commitments by nearly 6,000 corporate signatories to the United Nations Global Compact has to present a daunting challenge. For the third year in a row, the Global Compact has had help in doing so, from a coalition of global investors managing over $2.1 trillion in assets, all of which are signatories to the UN backed Principles for Responsible Investment (PRI).

This year, the investor coalition, which includes such funds as Aviva Investors, Boston Common Asset Management, and the General Board of Pension and Health Benefits identified 86 large, publicly traded companies as “laggards,” and in a press release called on them to honor the reporting requirements of the Global Compact.

SocialFunds.com spoke with Gavin Power, Deputy Director of the Global Compact, about the organization’s reporting requirements.

Power said, “Member companies must file an annual Communication on Progress (COP), which must include a statement of support for the Global Compact from the CEO or Chairman, descriptions of actions undertaken to address the four areas of human rights, labor, the environment, and anti-corruption, and measurement outcomes.”

New signatories are required to communicate on their progress in at least two of the four principle areas. After five years, companies must report on all four areas.

“It’s a serious commitment for companies to make,” Power continued.

The investor coalition has met with growing success over the three years of its initiative. In 2008, 33% of companies identified as laggards subsequently submitted reports to the Global Compact. Last year, 50 out of 105 companies responded by submitting reports.

Vidette Bullock Mixon, Director of Corporate Relations at the General Board of Pension and Health Benefits, the largest faith-based pension fund in the US, told SocialFunds.com, “Working with other institutional investors is so important in encouraging the companies in which we invest to improve their public disclosure and transparency.”

Steve Waygood, Head of Sustainability, Research, and Engagement at Aviva Investors, said in a statement, “Last month’s publication of new interpretative guidelines for ESG disclosure by the US Securities and Exchange Commission has underlined the massive momentum on this issue. A company’s ability to manage and mitigate exposure to ESG issues is an important factor for many mainstream investors.”

The investors engage with laggard companies privately, and only after a year are companies that fail to produce a Communication on Progress identified publicly and delisted by the Global Compact.

“The investors feel strongly that they get better results through private negotiations,” Power said. “Given their success rates, we’re comfortable with that policy.”

“We hate to lose companies, but this is a critical requirement,” Power continued. “In the last two years, we’ve delisted almost 2,000 companies for failing to communicate progress. If companies are unable to report on their disclosure, then we’re unable to comment on their commitment and progress.”

The companies targeted by the investors are among the 900 publicly-traded companies that are signatories to the Global Compact. Of the 900, about half are considered to be large, with at least 250 employees.

“We launched the Global Compact ten years ago, with 50 signatories,” Power said. “Since then, we’ve been growing at a rate of 100 companies a month.”

“Most of the companies identified as laggard joined in the earlier years of the Compact, and might not have taken their commitments seriously enough,” Power continued. “Many of the large companies that are joining now are undertaking significant due diligence in advance, and as a result the number of laggard companies is decreasing.”

The investors also praised 44 companies for producing reports designated by the Global Compact as notable. Notable companies include only two from the US, Newmont Mining and Dow Chemical.

“There are very few companies from the US among the notables,” Mixon observed.

“Companies whose reporting receives a notable status have to meet not only the basic requirements by including criteria in two or more categories,” Power said. “They must also provide detailed descriptions of the practical actions they have implemented. Their reports must include measurements of outcomes as well, that allow us and others to check on their progress. Their reporting process must also include stakeholder dialogue.”

Another collaboration between PRI and the Global Compact is the Seoul Initiative, launched on October 2008. The initiative calls on companies listed in the MSCI World, FTSE All-World, and IFC Emerging Markets Indices to participate in the Global Compact.

“As a result of the initiative, 108 large publicly traded companies joined the Global Compact last year,” Power said. “These companies have enormous supply chains and employee bases, and it’s very important that they join the Global Compact. In a globalized world, companies operating with extensive supply chains are exposed to a range of risks in the areas we cover. We provide a platform to address those issues.”

“Increasingly, we’re seeing large companies requiring their suppliers to join the Global Compact,” Power continued.

As regulatory requirements for corporate sustainability reporting increase, Power observed, such voluntary initiatives as the Global Compact could prove to be complementary to to such requirements.

 

 
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