Field visit: the UN Global Compact in New York

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10-02-15 16:36 | Field visits

The UN Global Compact was launched by Kofi Annan at the World Economic Forum in Davos in 1999. The initiative is based on UN principles concerning human rights, labor standards, environment and anti-corruption and has 8,000 member companies from 140 countries. In short, it means that companies should take international norms into account and act in compliance with them. UNGC has also established local networks. These networks are intended to be used by companies to share experiences and “best practice” and by that together create a more sustainable future. The Nordic countries have a common network.

The UN Global Compact is the largest voluntary sustainability initiative of its kind, and to ensure that members actually follow the principles the organisation has tightened the requirements for the participating companies to annually publicly communicate what they done in the area of sustainability.

UN Global Compact has also invited 50 companies out of the 8000 to join what is called the Global Compact LEAD. This category is characterised by companies that have already shown leadership in sustainability and responsibility, but who want to take their commitment to a higher level. Examples of these companies are Unilever, Coca-Cola, Nestle, Novo Nordisk and Novozymes.

Meeting with Georg Kell
The RI team from Nordea Asset Management met Georg Kell who helped design the initiative from the beginning and is today heading the organisation. George Kell is also one of the initiators of PRI (Principles for Responsible Investments), an initiative that aims to integrate sustainability in the asset management industry so that these issues can be addressed in each individual investment decision. At Nordea Asset Management, we signed the PRI in 2007, and have since taken significant steps to incorporate sustainability issues when making investment decisions in all of our asset classes.

Georg Kell told us that the approximately 80 employees at the UNGC operate through various working groups and that all areas, i.e. environmental, labor standards, human rights and anti- corruption, are all equally prioritized. However, right now extra focus is given to environmental issues, due to the COP21 meeting (Conference of Parties on Climate Change) in Paris in late 2015. At this 21st Conference the issue at the top of the agenda will be how to limit global warming to two degrees Celsius.

Another pressing issue at UNGC is corruption, which continues to be a major global problem. However, Kell said he sees a positive trend among the largest global companies when it comes to dealing with these issues, not least in countries where the problem is greatest. He also mentioned that in addition to corruption, the supply chain remains one of the biggest challenges for companies, especially for the large multi-nationals, which often have long and complex supply chains.

Furthermore, Georg Kell explained that for businesses it is more important than ever to operate sustainably. News spread instantly, making it virtually impossible for companies to hide irregularities in their operations or by suppliers. Whether climate change or corruption is the issue, it will always require a combination of volunteerism and having policies in place. Another positive trend that was mentioned is that more and more colleges and universities start courses focusing on sustainability issues.

Although the increasing number of companies and organizations that have signed the PRI, since start, Georg Kell thinks that the financial sector is about 5-7 years behind other industries when it comes to managing ESG factors in its business. Manufacturing companies, as an example, are significantly ahead. He argued that many companies follow the curve above, i.e. surfing the initial wave of success linked to the release of various sustainability initiatives, but unfortunately jump off the projects when the costs of reporting, training, auditing, monitoring of suppliers, etc. begin to increase. By doing that companies are missing out on the benefits to the business both in terms of reducing the risks and taking advantage of new and exciting business opportunities. A difficult question is to determine when a company’s efforts to reduce the risks manifest in actual numbers, i.e. the time (the “question mark” in the graph) it takes to achieve a sufficiently good risk management system to avoid the big disasters.

Georg Kell also emphasized that there is still a communication gap between companies and analysts. Companies need to be clearer in providing information on strategies and initiatives taken to prevent incidents, and analysts must begin to ask more about this. At Nordea Asset Management, we have taken a major step in this area. We regularly raise these issues with the companies when we meet them. However, we need more investors to do the same. Lastly, Georg Kell noted that Nordic companies often do more than what they are communicating within the area of sustainability, while Anglo-Saxon firms tend to do the opposite.