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UN Group Reaches Agreement for Regulation of Corporate Activities

ECONOMICS, CORPORATE CITIZENSHIP

by Jim Kelly

Wednesday, June 16, 2010

 On May 28, 2010, the United Nations Global Compact announced that it has reached an agreement with the Global Reporting Initiative to align their efforts in advancing corporate responsibility and transparency. As a result, the UN is one important step closer to globally governing all environmental, social, and governance aspects of corporate operations.

The United Nations Global Compact ("UNGC") is a policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor, environment, and anti-corruption. Structured as a public-private initiative, the UNGC is a policy framework for the development, implementation, and disclosure of principles and practices that are designed "to build a more sustainable and inclusive global economy." The UNGC is the largest corporate citizenship and sustainability initiative in the world, with over 7700 corporate participants and stakeholders from over 130 countries.

According to the UNGC, corporations that engage in the Global Compact benefit by "adopting an established and globally recognized policy framework for the development, implementation, and disclosure of environmental, social, and governance policies and practices." Yet, until now, the UNGC had not adopted a detailed practical framework that participating corporations could adopt and use to implement universally accepted environmental, social, and governance ("ESG") policies. The UNGC's agreement with the Global Reporting Initiative ("GRI") provides such a framework.

The GRI Reporting Framework sets out the principles and indicators that organizations can use to measure and report their ESG performance. The cornerstone of the framework are detailed ESG guidelines, the third version of which, known as the G3 Guidelines, was published in 2006. Now that the UNGC and GRI have reached an agreement, the GRI can revise the G3 Guidelines to incorporate the UNGC's ten principles and other ESG reporting standards as they have evolved during the past four years.

Once the UNGC's ten principles in the areas of human rights, labor, environment, and anti-corruption are incorporated into the GRI's next iteration of its ESG guidelines, the UN and non-governmental and civil society organizations will have a vehicle for annually assessing the ESG policies and practices of corporations and demanding remedial action. If necessary, the UNGC and its allies will publicly shame corporations that fail to agree to implement or adhere to the GRI Reporting Framework. Over time, human rights groups will argue that the voluntary GRI guidelines have become customary international law and bring lawsuits against corporations for alledged damages resulting from their failure to adhere to the Guidelines.

Interestingly, the timing of the announcement of the UNGC-GRI agreement may have been designed to coincide with the May 26, 2010 announcement by the International Standards Organization ("ISO") that an ISO Working Group on Social Responsibility, which includes experts and observers from 99 ISO member countries and 42 public and private sector organizations, has approved the draft ISO 26000 for processing as a Final Draft International Standard. ISO 26000 provides guidance to corporations on social responsibility. ISO 26000 will be released for a two-month vote by ISO member countries in August-September, followed by publication as a full-fledged ISO International Standard by November.

To a large extent, the ISO's development of ISO 26000 threatened to invade a space in the global governance of corporate social responsibility that the UNGC had been cultivating for years. For this reason, in November 2006, the UNGC and ISO entered into a Memorandum of Understanding ("MOU") to cooperate "with a view to ensuring that the ISO International Standard on Social Responsibility and ISO activities relating thereto are consistent with and complement the Global Compact ten principles." Even with the MOU in place, it remained unclear whether the UNGC was comfortable with the ISO's development of a set of "competing" ESG standards in the form of ISO 26000. In any case, the timing of the announcement of the UNGC-GRI agreement makes it clear that the UNGC and GRI will be operating on a separate track from the ISO effort.

Regardless of which effort wins the day, it is clear that the UNGC-GRI and ISO efforts constitute a significant development in the global governance of corporate ESG policies and practices, the full scope and impact of which, frankly, is staggering.

Jim Kelly is the President of Solidarity Center for Law and Justice, P.C., a public interest civil and human rights law firm based in Atlanta, Georgia. The opinions expressed herein are his own.



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