Georg Kell of UN Global Compact: economic downturn increases demand for value

A while ago, I invited you to contribute to my interview with Georg Kell, Executive Director of UN Global Compact, that took place on February 25, 2009 in New York City. Many thanks to everyone for great questions. Mr. Kell and I had an interesting discussion and I'm happy to share with you the most inspiring highlights.

1. On CSR definition
In simple words, our definition of sustainability and corporate citizenship – we hardly use the term CSR – is the voluntary commitment on behalf of CEOs to implement universal principles and to take actions in support of broader societal goals. The constantly changing macroeconomic environment dictates different priorities for voluntary engagement. Ten years ago the central issues were sweatshops and supply chains. Today, the focus is shifting towards environmental sustainability and climate change.

2. On the boundary between government and businesses
The boundary between government and businesses remains very important today. However, there are a lot of places around the world where the public sector is far from being perfect. According to Transparency International, around 70 countries suffer from systemic corruption. Therefore, we have to do everything we can to improve the situation in these countries. Businesses have a choice: they can either accept existing low standards or set higher standards within their own operations. UN Global Compact argues that because governments fail in so many places around the world, there is a need to engage private actors to set good examples.

Even in ‘high-standard’ countries there is need for improvement. There are areas where through innovation and voluntary action it is possible to move beyond compliance and ahead into the future where the government has not yet been. Climate change in US is a good example. Until very recently, climate change was not advanced by the US administration. Yet, a number of companies recognized the need to push forward with innovation and took voluntary action on climate change before the government started regulating this sector.

3. On achievements
The most important achievement is that today, companies all around the world recognize the importance of non-financial issues - environmental, social and government - in shaping corporate competitiveness. Only ten years ago the ESG issues were considered the exclusive prerogative of governments.

Another achievement is that the UN Global Compact helped open up the United Nations to and restore the working relationship with the private sector. Ten years ago the business community was largely suspicious of the UN – a legacy of earlier attempts to regulate business. Through the UN Global Compact, the UN has gained confidence to enter into partnership with the private sector. Today, this partnership is largely based on principled pragmatism.

4. On remaining gaps
Despite these significant achievements, huge implementation gaps remain. Firstly, many corporations started the journey at their headquarters but have not yet consistently implemented their commitment in their subsidiaries and supply chains. Secondly, not much progress has been made on the anti-corruption front. In some parts of the world, the clock is turning backwards and corruption is on the rise.

5. On corruption
We want all UN Global Compact participants to have explicit and proactive anti-corruption policies and annually disclose their actions in this area. A very small number of companies now do so. With proper policies in place, companies would be better prepared to act swiftly when things do go wrong.

6. On the recession
The economic downturn has increased the demand for values. Corporate philanthropy and sponsorship are being cut, but corporations do not cut what makes them strong tomorrow. They are more active in their search for a meaning of sustainability. One result of the downturn is that success will no longer be measured by quarterly returns, but rather by medium and long-term value creation. While some companies have initially joined the UN Global Compact for differentiation purposes, now they see a real business proposition behind it.

7. On risk and climate change
The crisis has revealed that the risk assessment tools used in the financial sector were totally inadequate. The UN Global Compact argues that a comprehensive approach to risk management requires the inclusion of non-financial issues. The next systemic crisis – which is in the making right now - will most likely be associated with climate change. In order to be prepared, we need to switch from a reactive to a proactive, forward-looking attitude.

8. On the logo policy and free rider issue
We have a very strict policy governing the use of the UN Global Compact logo by participants. Every use of the logo has to be approved by the Global Compact Office.

On the free-rider issue, every participating company is required to issue, on an annual basis, a public Communication on Progress (COP) detailing progress made in the implementation of the UN Global Compact’s principles. Companies that repeatedly fail to do so are delisted. As of today, we have delisted 950 companies, about 30 companies per month. We are now in the process of refining the COP policy by introducing minimum quality standards. It will take some time until these refinements become operational.

9. On organizational change
One of the UN Global Compact’s primary objectives is to promote organizational change so that corporations embrace universal principles as benchmarks for ethical behavior. Many brand-name companies have long ago embarked on this transformation process and search for good ethics and values. What the UN Global Compact has added is the global value framework. One of our most popular publications, Raising the Bar, projects a management change model which is similar to the quality change model and includes such steps as CEO commitment, awareness within the organization, incentives for change, the capacity of the organization to take stock internally of its status quo, the capacity to identify risk of exposure and opportunity for improvement. Organizational change is a never-ending exercise in continuous improvement.

10. On Global Compact 2.0
Global Compact 2.0 is an adaptation to the current context where sustainability issues are increasingly driving the agenda. Ten years ago, the UN Global Compact was launched against the backdrop of anti-globalization protests. Today, the biggest challenge ahead of us is to come to grips with climate change. The significance of this issue cannot be overstated. It can only be solved through global cooperation involving all societal actors. Climate change will affect our lifestyle, our consumption patterns, global security, and poverty. The entire UN agenda – I predict – will be redefined by climate change.