Ethical Performance
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Global Compact removes 400 ‘free rider’ companies

February 2008

The UN Global Compact has taken its toughest action yet by striking off 394 companies that have failed to provide updates of how they are honouring their pledges on society and the environment.

The removal last month of companies that ‘do not demonstrate any intention of improving their standing’ from the online database follows a recommendation by the Compact’s multi-stakeholder board late last year.

The companies have all failed to report for at least three years on their observance of the Compact’s ten principles addressing the environment, corruption and human rights. The de-listing leaves 3380 businesses that are still ‘active’ in meeting their Compact commitments and a further 911 with a period of grace.

Many of the companies removed are from Asia. The Philippines accounts for 93, India 36 and China six. Among developed economies, the greatest number (41) are from Spain. Most are small and not all are listed.

In the same month a group of institutional investors has written to the chief executives of 78 listed companies that are failing to observe the Compact’s disclosure requirements. The investors, who include Canada Pension Plan Investment Board, Credit Agricole Asset Management (France) and Morley Fund Management (UK), admonish the companies for not meeting the requirement to make annual communications on progress that outline how they are complying with the Compact’s principles. Most of the laggards are listed in emerging markets and have market capitalizations above $100million (£50m).

Meanwhile, the heads of 25 mostly European companies considered by the same group of investors to have produced notably good COPs have been sent letters praising their efforts. The 20 investors manage $2.13trillion in assets and are all signatories to the UN Principles for Responsible Investment.

Steve Waygood, Morley Fund Management’s head of engagement, said: ‘We want to help to protect the credibility of the Compact, which suffers when companies free-ride on the good work of others. Where companies have committed to produce a COP but not delivered on that commitment then it is sensible for investors to use their influence to ensure that the management does deliver. Equally, where companies have produced notably good communications, then this should be welcomed.’

All COPs are published on the Compact website. Sanctions against companies that fail to issue COPs were introduced in 2005 after complaints that some companies were signing up to the Compact and taking little or no further action (EP9, issue 8, p5).

Global Compact | Global | Benchmarking

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