The United Nations Global Compact as a Global Governance

Mechanism of Corporate Social Responsibility and Sustainable

Development

Iuliia V. Bulgakova

and Sergei D. Nabok

International Relations, Saint Petersburg State University, 13B Universitetskaya Emb., Saint-Petersburg, Russia

Keywords: Sustainable Development, The

United Nations

Global Compact, The

United Nations

Sustainable

Development Goals, Corporate Social Responsibility, Global Governance.

Abstract: The study analyzes the United Nations Global Compact initiative (UNGC) as an attempt to develop a global

governance mechanism to address the issues of corporate social responsibility (CSR) at the global level. The

UN Global Compact is one of the most ambitious attempts to create a global governance system of business-

society relations. Reflecting the Sustainable Development Goals at the corporate level, it strives to create a

flexible self-regulating CSR system in such fields as human rights, labor relations, environmental protection,

and anti-corruption. The key advantage of the GC as a global governance mechanism is its reliance on

institutions and reputation of the UN as a leading platform for international dialogue.

1 INTRODUCTION

The United Nations Global Compact (UNGC) is an

international initiative based on the voluntary

participation and commitment of the companies’

management to follow common principles and goals

ensuring the sustainable development objectives. The

initiative was defined and proposed by UN Secretary-

General Kofi Annan in 1999. At the World Economic

Forum in Davos, dedicated to the Responsible

globality issue, he pointed out the dangers that

accompany the globalization processes:

“Globalization is a fact of life. But I believe we have

underestimated its fragility. The problem is this. The

spread of markets outpaces the ability of societies and

their political systems to adjust to them, let alone to

guide the course they take. History teaches us that

such an imbalance between the economic, social and

political realms can never be sustained for very long”

(Annan, 1999). Kofi Annan claimed the need to give

the global market a “human face” and called for an

agreement on common values and principles that

would make it possible to solve this task. As J. Post

noted, “K. Annan has brought the issue to a head:

business cannot expect to benefit from global markets

https://orcid.org/ 0000-0003-3693-7594

https://orcid.org/ 0000-0001-7879-8014

without recognizing – and accepting – its social and

political responsibility” (Post, 2012, pp. 54-55).

In July 2000, the official start was given to the

initiative at the UN headquarters. The agreement is

based on 10 principles governing the companies’

activities in such fields as human rights, labor

relations, environmental protection, and anti-

corruption. The treaty’s official mission is “to

mobilize a global movement of sustainable

companies and stakeholders to create the world we

want” (www.unglobalcompact.org/what-is-

gc/mission). With this aim, the Global Compact

encourages companies to:

 Do business responsibly by aligning their

strategies and operations with Ten Principles of

UNGC;

 Take strategic actions to advance broader

societal goals, such as the UN Sustainable

Development Goals (Ibid.)

From a theoretical point of view, the UNGC can

be seen as a global governance initiative in the field

of global corporate social responsibility (Fritsch,

2008; Post, 2012; Voegtlin and Pless, 2014). The

conception of global governance proposes a view on

addressing global issues radically different from that

Bulgakova, I. and Nabok, S.

The United Nations Global Compact as a Global Governance Mechanism of Corporate Social Responsibility and Sustainable Development.

DOI: 10.5220/0010586100590064

In Proceedings of the International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure (ISSDRI 2021), pages 59-64

ISBN: 978-989-758-519-7

of the international relations perspective. Instead of

relying upon the agreements and treaties between

governments, it acknowledges the role of other

influential actors such as businesses, especially

transnational corporations (TNCs), non-

governmental organizations (NGOs), trade unions,

social movements, and others. As a result, the global

governance theory proposes a way of addressing

global issues on the basis of multilateral, multilevel,

voluntary-based and largely horizontal cooperation,

which is able to perform key governmental functions

(e.g. establishing norms and principles, goal setting,

policy development and implementation, conflict

resolution or control) without tight regulation and

hierarchical structures (Weiss, 2013; Zürn, 2018).

Corporate Social Responsibility (CSR) is one of

global issues, in which global governance appears to

be a promising and effective approach. With the

growing impact of TNCs on world economy, social

development and environment, and the gaps in

national regulations, developing effective self-

regulatory initiatives is crucial for sustainable

development. The UNGC pretends to be the most

influential and large-scale attempt to develop a global

governance mechanism for global CSR. The present

study analyses the contemporary state of the initiative

and its actual and potential ability to function as a

global governance mechanism.

2 METHOD

The study analyses the content and results of the

UNGC from a theoretical perspective of global

governance (Weiss, 2013; Zürn, 2018). We use the

methods of historical and comparative analysis as

well as statistical data and documentation from the

official UNGC resources

(www.unglobalcompact.org) to describe the

normative principles underlying the initiative, key

actors involved it their spreading and implementation,

and the institutions through which it functions as a

global governance mechanism.

3 RESULTS

The normative core of the UN Global Compact

consists of 10 principles, whose promotion and

implementation are considered to be the main goal of

all the participants’ activities. Initially, the Treaty

included nine principles related to three areas of

concern: human rights, labor relations, and

environmental protection and sustainable

development. These principles were defined based on

existing supreme-level international legal documents:

the Universal Declaration of Human Rights, the

Declaration of the International Labour Organization

on Fundamental Principles and Rights at Work, the

Rio Declaration on Environment and Development.

According to G. Kell and J. Ruggie (1999, p.104),

regulatory areas and specific principles were selected

based on the fact that they were most relevant at the

corporate level, while meeting the global rulemaking

goals and are based on existing international

agreements at the same time, with many of which

being binding. A little later, in 2004, another principle

was included in the Global Compact, which addresses

issues of financial integrity and anti-corruption. The

source of this principle was another existing

international document – the UN Convention against

Corruption. Thus, the current normative basis of the

UNGC includes the following ten principles

(www.globalcompact.ru/about/ten-principles):

1. Businesses should support and respect the

protection of internationally proclaimed human

rights.

2. Businesses should make sure that they are not

complicit in human rights abuses.

3. Businesses should uphold the freedom of

association and the effective recognition of the right

of collective bargaining.

4. Businesses support the elimination of all forms

of forced and compulsory labor.

5. Businesses should support the effective

abolition of child labor.

6. Businesses should support the elimination of

discrimination in respect of employment and

occupation.

7. Businesses should support a precautionary

approach to environmental changes.

8. Businesses should undertake initiatives to

promote greater environmental responsibility.

9. Businesses should encourage the development

and diffusion of environmentally friendly

technologies.

10. Businesses should work against corruption in

all its forms, including extortion and bribery.

The ten principles forming the normative core of

the Global Compact are not reduced to the extremely

general formulations outlined above. For each

principle, there is a detailed definition of what is

meant by it, how a business should implement it in its

activities, and why it may be important for it.

Participation in the UNGC is voluntary and is

based on commitment of the organization’s

management to comply with the Treaty principles and

ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure

report on the progress on an annual basis. Companies

joining the UNGC sign a letter addressed to the

Secretary-General containing their commitment to

the ten principles of the Treaty and their commitment

to integrate them into their strategy and operations

and undertaking to send an annual Communication on

Progress (CoP), which describes the actions taken by

the company to implement the principles. In turn,

when applying for membership, the non-profit

organizations also make commitments to comply

with the UNGC principles and to be ready to send a

Communication on Engagement (CoE) on a regular

basis (every 2 years), describing the organization’s

activity aimed at promoting the UNGC principles.

The UNGC participants are primarily commercial

companies, both large and small, as well as non-

governmental organizations, representatives of

authorities and the UN structures. As of early 2021,

the number of participants exceeds 13 thousand,

making the UNGC the largest CSR initiative. In early

2021, more than 12 thousand commercial companies

and more than 500 business associations have joined

the UN GC initiative worldwide

(www.unglobalcompact.org/interactive). About 90%

of them remain active. The dynamics of the joined

participants number remains steadily positive. In

2000, the initiative was launched with 44 participants

registered; in 2005 there were more than 2.2 thousand

of them, and in 2010 their number exceed 6.3

thousand, in 2015 – 8.4 thousand, and in 2019 – 10.5

thousand (UNGC, 2020, p.27). The local GC

networks are present on every continent, with their

number reaching 68, which makes it possible to talk

about the global coverage of the GC system.

According to the annual progress report, more than 77

million people work in the organizations participating

in the GC (Ibid.)

According to the UNGC report, in 2020 more than

half (54%) of the corporations from the largest global

companies list comprised by the Financial Times

participated in the initiative (Ibid.) We analyzed the

2020 ranking of the world’s largest companies, which

is regularly published by Fortune magazine and takes

such indicators into account as the revenue and profit

volume and dynamics, asset value, and the staff

number (Fortune, 2020). The results roughly

correspond to this data. Thus, out of 50 largest TNCs

from the Fortune Global-500 list (by the annual

revenue amount), 19 corporations have joined the

Global Compact, including Cinopec, Royal Dutch

Shell, BP, Daimler, AT&T, Total, Ford Motor,

General Motors, Glencore, Microsoft, and others. A

few other large TNCs are represented by their

regional divisions or subsidiaries only. In particular,

this is the case of Walmart retailer, holding the top

line in the rating, as well as of the Brazilian division

of China Construction Bank. More than half of the top

50 TNCs has not joined the initiative. These include

the largest Internet companies (Amazon, Alphabet),

high-tech corporations Samsung, Volkswagen, and

Honda, resource corporations CNCP, Saudi Aramco,

and Exxon Mobil, financial corporations, and medical

sector TNCs.

In terms of institutional arrangement and

governance, the UNGC initiative is neither a

hierarchical structure nor an organization with a

clearly defined structure. It is a mechanism for

organizing multilateral cooperation and promoting 10

Principles, which is based on the network principle.

However, the initiative features a set of tools defining

the organization and administration process of such

interaction. From 2002 to 2004, the initiative was

controlled by the Advisory Board consisting of 20

representatives of business, governmental, and non-

governmental organizations, appointed directly by

the UN Secretary-General. The Advisory Board

activities contributed to the development of a new

specific area related to combating corruption and

defining the corresponding principle.

With the GC expansion and development, a need

for new organizational mechanisms arose to ensure

achievement of the Treaty objectives. In 2005, the

Global Compact governance framework was

developed, providing for establishing several

governing bodies, including the UN Global Compact

Council chaired by the UN Secretary-General, which

acts as a strategic and political body specifying the

main directions for the initiative development. In

2017, the governing structure was updated in

compliance with the new Strategy and following

intense consulting with stakeholders. The operational

governance of the initiative is performed by the UN

GC Management (Main Office) currently headed by

S. Ojiambo.

Aimed at financing the UNGC activities, the

Global Compact Fund was established in 2006, which

provides the required financial, operational, and

software support for the initiative activities. The Fund

receives finance from the contributions from

commercial companies participating in the UN

Global Compact; in 2017, the number of key donors

exceeded 1.5 thousand

(www.unglobalcompact.org/about/finances).

Besides, financial support is provided by

government contributions through a specially

established trust fund. The key donor states form a

Government Group that currently includes China,

Denmark, Finland, France, Germany, Italy, the

The United Nations Global Compact as a Global Governance Mechanism of Corporate Social Responsibility and Sustainable Development

Netherlands, Norway, Spain, Sweden, Switzerland,

and the United Kingdom. The Global Compact does

not receive any funds from the UN budget.

Local networks play a special role in the UNGC

structure, which include national or regional

associations of the parties to the Treaty, established to

promote its principles in particular geographical

regions. Such networks are self-governing structures

that can nominate candidates for being elected to the

GC Council and participate in activities of the

regional and global network councils.

The most important milestones of the initiative

development over the recent decades are related to its

integration with the UN sustainable development

activities. In 2015, the UN General Assembly

approved a key strategic document on sustainable

development – the Sustainable Development Goals

(SDGs) (United Nations, 2015). It is an ambitious 15-

year action plan aimed at poverty eradication and

creating conditions for sustainable development. The

Plan covers 17 specific goals, which the Member

States commit to make efforts for. The document

contains such goals as poverty and hunger

eradication, healthy lifestyle, high-quality education,

gender equality, decent employment and economic

growth, responsible consumption and production,

war on climate change, etc.

Adoption of the Plan laid the basis for including

the SDGs as an important element of the Global

Compact. Since most of the goals cannot be achieved

without active and responsible participation of

business, the UN considers the UNGC as a

mechanism for involving the corporate sector in the

implementation of this plan, with the reference to the

SDGs becoming a part of the initiative’s official

mission.

A new role of the UN Global Compact was

enshrined in the Global Strategy 2020 adopted in

2017 (UNGC, 2017). This political document

outlines the key steps required to enable all the parties

to the Compact to develop an SDG-consistent

mindset and organizational culture. The strategy

involves developing the coordination between the

participants, responsible business practices, and

building a strong brand of the UNGC as a global

“platform of platforms” for accumulating and

spreading the business experience compliant with the

key principles of the treaty. According to the

developers, the Strategy was expected to result in

forming a global movement in the SDGs field among

the world’s leading companies.

4 DISCUSSION

To understand whether the UN Global Compact

performs the function of the global governance

mechanism, we must evaluate its normative

principles, actors and institutions in terms of their

ability to balance the interests of business and society

at the global scale, and on the principles of

multilateral, multilevel and largely horizontal

cooperation.

As regards the normative core of the UNGC, we

must conclude that it only partially corresponds to the

goals of global CSR. This is especially evident when

comparing the Ten Principles with other major

initiatives in CSR, such as Global Reporting Initiative

or ISO 26000 international standard (GRI & ISO,

2014). The four areas covered by the Ten Principles,

are all present in other CSR initiatives and are

considered as important indeed. However, there are

several other areas of responsibility, important for

both society and corporations’ strategic interests,

which are not reflected in the UNGC normative core.

Particularly, relations with customers and local

communities are increasingly important for

companies – and this is properly reflected in the

survey among the UNGC participants conducted by

the initiative officials (UNGC & Accenture Strategy,

2019, p.25). The fact that some of the strategically

important responsibilities issues are not reflected in

the normative system of the Global Compact,

objectively reduces its potential as a mechanism of

global governance in CSR.

As regards the actors’ composition and dynamics,

several observations are essential. The positive

dynamics and geography of the UNGC membership

indicate a gradually increasing coverage of this

initiative and, accordingly, its capability of acting as

a mechanism of governing the relations between

business and society on the global scale. At the same

time, when assessing the observed results, it is

necessary to consider not only absolute, but relative

statistics as well. Currently, the number of active

companies-participants and signatories of the UNGC

is around 12 thousand. At the same time, more than

100 thousand companies are registered in Russia

alone – disregarding their branches, as well as small

businesses, financial organizations, budget and

government agencies (Rosstat, 2020). Given that only

50 organizations represent Russian business in the

GC, including business associations, the commercial

sector coverage is less than 0.05%. It is doubtful that

the system, covering such a small share of the

corporate sector, can become an effective mechanism

ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure

for balancing the interests of business and society and

promote the CSR principles dissemination.

It should also be kept in mind that the Global

Compact was launched more than 20 years ago and is

supported by the largest international organization,

whose status enables it to be treated as the main

contender for the role of the global governance

moderator. Despite this fact and the positive

dynamics, the total number of enterprises involved

remains insignificant across the globe, thus,

objectively limiting the possibility of using even

those simplest mechanisms being applied within the

GC for shaping the corporate policies and activities in

compliance with the CSR principles.

At the same time, when assessing the results of the

UNGC activities by the number of organizations

joined, it is necessary to consider their different scales

of operation. It is obvious that large corporations are

more influential regarding the general nature of the

relations between business and society on the global

scale, adoption and dissemination of certain CSR

practices and standards. Therefore, participation of

large TNCs is a more meaningful indicator. Even

though many of the world’s largest TNCs have

refused to join the UNGC so far, their average

involvement in the initiative is much higher than in

other business categories, including large-scale ones.

The fact that a large number of leading TNCs that

set the industry standards and rules of market

behavior participate in the Global Compact is a factor

contributing to adoption of its principles, at least

declaratively. This promotes achievement of the

UNGC goals, regardless of the extent, to which these

companies de facto follow the declared principles in

their activities.

Although the dominance of TNCs in UNGC is

important for the promotion of its principles, its side

effect is devaluation of other actors participating in

the initiative or affected by it. Many types of actors

including small businesses, NGOs, municipalities

and academic sector are underrepresented in UNGC

and especially in its governing bodies responsible for

agenda setting and policy development. Such

disbalances contradict the very idea of global

governance as multilateral, network-based

mechanism, where different voices can be heard and

decisions are made on consensus and shared values.

Finally, the UNGC should be evaluated in terms

of its institutions and their ability to ensure the

principles of global governance. The very fact that the

company participates in the Global Compact cannot

be treated as an unambiguous evidence of its

compliance with its principles in practice and with the

CSR concept in its everyday activities. Nevertheless,

the decision to participate in the UNGC system and

make certain commitments is an indirect indicator of

companies’ recognition of CSR as a strategically

important field of activity.

In terms of achieving the Global Compact goals,

regular reporting is more important than a formal

declaration of commitment to the principles (Amer-

Maistriau, 2009). Unlike the latter, it requires some

effort from the company to justify how its policies

have changed and contributed to sustainable

development. Regardless of the extent to which the

information contained in the progress report is true,

participation in the preparation and reporting means

involvement in governance, even in its simplest and

most passive forms.

The Global Compact institutional infrastructure

creates conditions for interaction between various

groups of actors (large and small businesses, non-

profit organizations, governments, and international

organizations) at various levels: from local (national)

networks to global ones. Within the UNGC system,

certain mechanisms have been created for addressing

a wide range of management tasks: defining the

global CSR principles and goals, transferring

knowledge, and exchanging experience, adopting

voluntary commitments, and publishing reports,

cooperating, and coordinating various stakeholders’

opinions and activities. By operating within the UN

system, the initiative gains high-quality management

and organizational support, access to the decision-

making system for supreme global political decisions,

a high expertise level, and strong brand.

At the same time, the UNGC has important

system limitations. Stakeholders have unequal

opportunities to represent their interests and

participate in policymaking. The existing system

promotes preferential representation of TNCs and the

UN to the detriment of many other actors (SMEs,

local NGOs, employees and trade unions, the research

community, consumers, local communities). Such

unequal influence and actors’ capabilities endanger

provision of the UNGC system with unbiased

expertise and assessments, as well as shifting

institutional mechanisms in favor of the most

influential actors’ interests. Most of the UNGC

participants are deprived of real opportunities to

participate in forming the regulatory core of the

initiative and influence the programs and

recommendations content. The existence of serious

structural constraints creates prerequisites for

reducing the UNGC effectiveness and efficiency.

The United Nations Global Compact as a Global Governance Mechanism of Corporate Social Responsibility and Sustainable Development

5 CONCLUSIONS

The UN Global Compact is one of the most ambitious

attempts to create a global governance system of

business-society relations. Reflecting the Sustainable

Development Goals at the corporate level, it strives to

create a flexible self-regulating CSR system in such

fields as human rights, labor relations, environmental

protection, and anti-corruption. The key advantage of

the UNGC as a global governance mechanism is its

reliance on institutions and reputation of the UN as a

leading platform for international dialogue.

In many important aspects UNGC corresponds to

the idea of global governance. It has a consensual

normative foundation, voluntary participation of key

stakeholders, the independent local networks ensures

the multilevel coordination and importance of

horizontal interactions, and it relies mainly upon

‘soft’ governance methods. However, it also has

several important structural limitations. They include

unequal representation of stakeholders with the

dominance of TNCs an UN-related structures, limited

coverage of the CSR issues by the Ten Principles, a

number of important governance functions

(implementation of the UNGC principles and

policies, assessment and monitoring of compliance

with these principles, moderation of stakeholder

relations, conflict resolution) not being provided by

the existing mechanisms.

Despite these limitations, UNGC is an important

attempt to develop a global governance mechanism to

address the increasingly important issues of global

CSR. Its basic institutional infrastructure and steadily

growing population of participating companies and

organizations create opportunities for further success

and the promise to develop a truly self-regulatory

system.

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ISSDRI 2021 - International Scientiﬁc and Practical Conference on Sustainable Development of Regional Infrastructure