Playing catch-up: Bringing regulation up to speed

Regulation is more geared towards driving sustainable corporate behaviour than ever before, but enforcement remains a challenge. In some areas regulation is lagging behind, and progressive companies are leading the push for better governance.

At the turn of the millennium, many international conventions and treaties
existed on issues relevant to the Global Compact principles. Some gaps existed
which have since largely been addressed, for instance corruption through the
UN Convention Against Corruption (2003). However, for many areas of global
importance, governance gaps remain, and uniform and effective implementation
at the national level continues to be a challenge.


NATIONAL REGULATORS ARE STEPPING UP

There is a clear trend towards more national regulation across most markets on
all issue areas of the Global Compact. Yet where international rules have been
agreed, the pace of local implementation has been slow.
Where strong national environmental, equality and labour laws exist, they
continue to positively influence corporate behaviour. Regulation in the area of
business and human rights remains in its infancy. But following the new UN
Guiding Principles on Business and Human Rights, many governments are
in the process of developing national action plans which could result in more
business regulation.

Globally, there remains a need for greater coordination and consistency in
regulatory development to create a more level playing field. With regard to
mandatory reporting, the new EU Directive on disclosure of non-financial and
diversity information is a positive development. This will require some 6,000
large companies to disclose information about their environmental, social and
governance performance from the Financial Year 2017.
It is difficult for multinational companies to operate while regulations remain
inconsistent across markets. There is a risk of companies exploiting these differences.

Sharp practice by multinational companies continues to attract criticism,
and attention remains focused on corporate tax transparency and the offshoring
of environmental and social responsibilities to less regulated markets.


ENFORCEMENT: A DEAL-BREAKER

Whilst more stringent laws and regulations have come into force since 2000,
there remains a challenge around inconsistent implementation of laws and
regulations. Judicial corruption remains widespread in many countries and
standards of governance and the rule of law are likely to become major sustainability goals in their own right.


BUSINESS RAISES THE BAR
Prior to 2000, few channels existed for constructive engagement between business
and government with regard to sustainability. Business struggled to take
part in environmental initiatives. Today, leading companies are often ahead of
regulation and drive the debate to improve regulation and make it smarter. Yet
progressive companies do not form the majority, and there are still considerable
challenges with less progressive companies blocking positive change.

“If there is enough clinical mass of business
that say ‘We want it’, you de-risk a political prosess.
It’s also our task as businesses because it’s very difficult nowadays to be a politician. In order to give the politicans more courage, we as businesses need
to help de-risk the political process.”
PAUL POLMAN, CEO, UNILEVER

THE ROLE OF THE UN COMPACT:
BRINGING THE VOICE OF BUSINESS TO THE TABLE

What has been the role of the Global Compact in catalysing change as regulatory
regimes respond to responsible business needs?

By providing a platform for business to interact with governments and the UN,
the Global Compact has enabled a clearer role and more structured way for
companies to engage constructively at an international governmental level.
Examples of this include the Global Compact’s Caring for Climate initiative,
which is the main interface between business and the political negotiations
around a new international agreement on climate change. The Global Compact
convenes the Caring for Climate Business Forums in association with the
UN climate change conferences. Another example is how the Global Compact
is consulting with business for the development of the post-2015 Sustainable
Development Goals.


INSPIRING LEGISLATION

The Global Compact enjoys the support of the UN General Assembly and has
been recognised in a number of other inter-governmental contexts. The G825
has regularly referenced the Global Compact in its declarations and communiques
over the last 15 years. This is now accompanied by similar recognition
from the G20, as in the Action Plan for Development set out at the G20 Seoul
Summit of 2010.

On 6 December 2013, the UN General Assembly renewed the mandate of
the Global Compact Office in its resolution, Towards global partnerships: A
principle-based approach to enhanced cooperation between the United Nations
and all relevant partners (A/RES/68/234).

The Global Compact has also been explicitly referenced in national regulation
on mandatory reporting requirements. This has been seen in Denmark and
Norway, and some Global Compact Local Networks are actively contributing to
the public debate around new policies and regulatory developments.


GUIDANCE ON RESPONSIBLE POLICY ENGAGEMENT

The Global Compact has developed ground-breaking guidance in the area of responsible policy engagement with government. There has been a wide recognition that business should align its public policy engagement with sustainability principles. There have been notable examples of companies taking lobbying actions that are in direct conflict with their stated values, either individually or through trade associations.

Progressive companies see the value in urging governments to enact policies
that support sustainable business. Where businesses advocate for key goals,
there is huge potential for transformative impact. On carbon pricing, a call by
business for an effective, well-functioning carbon market and to put a true value
on the cost of carbon would provide powerful momentum.


THROUGH THE GLOBAL COMPACT AND PARTNERS, BUSINESS IS CALLING ON GOVERNMENTS TO:

  • Set a global price on carbon. For example, six major oil and gas companies have now called for governments to introduce carbon pricing systems.
  • Address corruption and foster good governance.
“Businesses can make decisions much more
quickly than the political process. Companies have
the potential to make a very powerful positive impact
by joining together and renouncing corruption.
That would deal with the supply side of
corruption very substantially.”
JERMYN BROOKS, CHAIR OF BUSINESS ADVISORY BOARD, TRANSPARENCY INTERNATIONAL