Into the fold: Expanding the scope of corporate sustainability

A broader range of social, environmental and governance issues fall under the umbrella of corporate sustainability today than 15 years ago. Leading companies recognise this diversity and are responding by becoming more sophisticated, targeting their efforts and resources where they matter most.

WIDENING THE CIRCLE OF RESPONSIBILITY

In 2000, corporate sustainability had yet to emerge as a priority for business. Most manufacturing and heavy industry companies were actively managing health, safety and environmental issues in their own operations, and this trend was already widening to other sectors. Some leaders were exploring their social impact and in exposed sectors, such as sports apparel, efforts were being made to understand and manage supplier labour standards.

Reflecting a growing understanding of expectations and responsibilities, companies today address a much broader range of environmental, social and governance issues, both within and beyond their operations along their whole value chain.

Human rights issues have emerged as an area of risk that business should consider and seek to manage. Driven in part by the UN Guiding Principles on Business and Human Rights, the understanding of operational and reputation risks has grown considerably. This has strengthened the business case for managing human rights, especially for companies with extensive supply chains and those working in close proximity to local communities. There has also been a significant change in the understanding of anti-corruption. While bribery was until not long ago legally accepted and even tax-deductible in certain countries, corruption is now recognised as an important business risk.


FOCUSING ON WHAT MATTERS MOST

As what falls within the scope of their responsibilities has broadened, more companies have begun to appreciate that not all issues present an equal risk to their operations. Emerging issues, and a better understanding of the impact that companies have on society beyond their direct operations, have created a risk landscape that is more complex than ever.

As they consider what their key risks and impacts are, companies are starting to focus on what they perceive to be the most important or ‘material issues’. By concentrating on the issues that matter most to their business and its stakeholders, companies are able to focus their resources on maximising benefit while delivering efficiency.

Accepted practices have emerged for using stakeholder engagement to support materiality assessments, such as the approach recognised in the latest G4 version of the GRI Guidelines for Sustainability Reporting. The integrated reporting debate has directed the question towards what information is the most important for investors to understand future business performance, addressing a wider range of ‘capitals’ than financial capital.

“The ten principles of the Global Compact have been helpful to all companies. When DuPont joined the Global Compact we already did a good job on three of the principles, but the other principles made us think; how can we be more proactive in managing these issues?”
CHAD HOLLIDAY CHAIRMAN OF ROYAL DUTCH SHELL FORMER CEO OF DUPONT

THE ROLE OF THE UN GLOBAL COMPACT:

WHAT SUSTAINABILITY IS ABOUT 

As companies focus on a more diverse range of issues relating to sustainability, what has been the role of the Global Compact in catalysing this change?

Since its launch in 2000, the Global Compact has directly contributed to the broadening of both companies’ awareness and responsibility, as well as their understanding of materiality.


THE TEN PRINICIPLES: DEFINING WHAT CORPORATE SUSTAINABILITY IS

The ten principles have helped to expand the scope of issues that companies should be managing as part of their responsibilities. By developing a rounded framework which covers environmental, social and governance issues, the Global Compact calls on business to “embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment and anti-corruption.”

As seen in Figure 12, more than one third of the companies surveyed in the 2015 Implementation Survey state that the Global Compact has had a significant to essential influence on the work done in implementing the principles. The human rights issue stands out as the area where the Global Compact has had the greatest impact, with 40% stating it has been ‘significant’ or ‘essential’.


SUPPORTING IMPLEMENTATION

Through organising hundreds of events around the world, and by publishing tools and guidance covering all of the principles, the Global Compact has raised awareness around the understanding that being sustainable today means working holistically on all of the ten principles and the issues to which they relate. They have helped companies as they identify responsibilities and work out what issues they need to consider in being sustainable companies.

By establishing a variety of ‘issue engagement platforms’, such as the Women’s Empowerment Principles, Caring for Climate and the CEO Water Mandate, the Global Compact provides signatories with the opportunity to engage more substantially on individual sustainability issues. Through these platforms the Global Compact has often set the agenda for some of the most pressing issues facing business.


INTRODUCING REPORTING REQUIREMENTS

In 2004, the Global Compact introduced mandatory reporting requirements for its participants as part of an effort to strengthen the accountability of the initiative. Today, all participants are required to report on all issues, and failure to do so can result in removal or “delisting” from the Global Compact database. As a voluntary initiative, the introduction of mandatory reporting requirements has contributed greatly to pressing companies to consider the impact of their operations and activities. The reporting requirement drives companies to report more comprehensively and assess management and performance on a broad range of issues.


ENCOURAGING ACTION WHERE IT MATTERS THE MOST 

Companies joining the Global Compact are expected to consider their impact on all of the issue areas. However, participants are encouraged to focus their efforts on where they have the greatest impact. Important partnerships with the Global Reporting Initiative and International Integrated Reporting Council that have materiality at their core have further underscored this. Recently, some have begun to question the ‘materiality versus morality’ question and wonder whether the focus on what is ‘most important’ is placing sufficient corporate attention on the big sustainability questions surrounding global systems and planetary boundaries.