Companies have a vital responsibility to ensure that the global marketplace is one of inclusion and acts as a force for improving, not injuring, social and natural environments. Because business interests increasingly overlap with development objectives in today’s global society, there is a growing need for responsible business practices and partnerships with government and civil society. This issue of the Compact Quarterly is devoted to the role of business in the development of economies and societies.

President Vicente Fox Pledges Mexico's Commitment to the Global Compact

There are many encouraging signs that more and more companies understand the need to act responsibly. The Global Compact is now the largest, most inclusive corporate citizenship initiative in the world – proving that the vision is thriving and steadily becoming a reality. Recent launches of local Global Compact Networks in Lithuania, Kenya and Mexico and the emergence of regional support centers in South Africa and Barcelona suggest that, indeed, the notion of principled corporate behavior is increasingly recognized and valued in regions and cultures far and wide. Noteworthy is the Egyptian Network’s reliance on the Compact’s principles as a modernizing tool for improved positioning in international markets.

China – with its strong growth and increasing global presence – is a great opportunity. From the Global Compact vantage, an open, pragmatic market model employing comparative advantage will result in collective benefits – leading to more partners and overall strength in the global marketplace. The recent emergence of protectionist tendencies and old ideologies is misguided. The best avenue forward is through commerce, which can act as a strong force for promoting market development and reducing poverty. This coming November, the Global Compact Summit: China will provide a forum for knowledge sharing and networking with top decision-makers from all sectors of business in China – creating a strong, ethical underpinning to allow for stable, inclusive global market growth.

Another positive signal for corporate responsibility is the level of financial sector engagement in the Global Compact. A fundamental transition is underway – financial analysts, asset managers, stock exchanges and pension funds increasingly understand the deepening interdependence between a company’s future risk and its environmental, social and governance (ESG) behavior. Due to the efforts of key players in the financial sector, ESG criteria are moving center stage as long-term value drivers of corporate performance – an occurrence that will provide powerful incentives for participants of the Compact to deepen policies with regard to implementation of the Principles.

An important milestone in the evolution of the Global Compact, and voluntary initiatives in general, was reached on 30 June with the passing of the first deadline for participating companies to communicate to stakeholders on their responsible business practices. The Communication on Progress seeks to promote transparency and make companies more accountable to their stakeholders with respect to their commitments. While this is only the beginning of a long journey to demonstrate credible engagement, more than 700 stakeholder communications were documented. Overcoming language and cultural issues, resource constraints and other factors will be critical in the next phase in order to broaden adoption of this transparency policy. Findings on this first phase by an external expert group are available on the Global Compact website.

Despite much progress in the corporate responsibility agenda, there are critical gaps to bridge. One essential area for attention is the need for a more pronounced link between business and development assistance. Misperceptions abound in the business community – for instance, that development aid distorts the market, crowds out competition and is barrier to entry. From the development perspective, business solutions must be applied to boost the effectiveness of aid. Too often, aid programs are “one-offs”, focusing on filling government voids instead of taking a holistic approach that places business growth as an end goal. It is essential that development funding yields maximum benefits and contributes to broad-based growth and vibrant business development. For this to occur, each sector must recognize that development assistance and business can reinforce – not contradict – each other. For example, education investment leads to skilled labor and strong infrastructure promotes the establishment of business.

Another challenge is that replication of successful solutions and social initiatives has yet to occur on a large scale. Until we better understand the ingredients for best practices and then determine the model for diffusing this knowledge, the full impact of responsible corporate practices on economic and social development will not be realized. One attribute of successful initiatives is already clear: building on core business competencies. To date, scalable projects have been those which enhance the viability of a company’s business model. Certainly, conducting learning forums and developing appropriate incentives for sharing knowledge will aid in the discovery process.

Now, the required building blocks are in place for the Global Compact to achieve global impact. Only with your active engagement can we build upon this foundation to achieve societal commitments – reducing poverty, improving education and health, protecting the environment – through inclusive global markets.

Sincerely,

Georg Kell
Executive Head

The need for steady economic and social development in Africa has been in the global media spotlight recently, due largely to Prime Minister Tony Blair’s focus on the issue through his role as Chairman of the Group of 8. Samuel Dossou-Aworet, an African business leader and Executive Vice President of the African Business Roundtable, shares his thoughts with the Compact Quarterly on why businesses of all sizes are the lifeblood for improving economic and humanitarian conditions throughout Africa, and provides compelling arguments for why responsible business practices have the power to shape the future of development.

N. Srinivasan

Since liberalization in 1991, India’s economy has grown steadily. It has become both more resilient to external shocks and more competitive. Concurrently, India’s businesses have seen excellent growth. Yet, India remains the country with the largest number of poor people in the world. The socio-economic developmental challenges facing India are immense: education, health and environment on one hand and infrastructure, regionally-balanced growth and governance reforms on the other. Thus, the challenge before Indian companies is to link the growth in their own businesses with helping India achieve the Millennium Development Goals (MDGs).

Amid the ongoing instability in the Middle East, Habiba Al Marashi has succeeded in establishing two initiatives devoted to improving the state of society – first, the Emirates Environmental Group (EEG) in 1991 and then, the Corporate Social Responsibility Network in 2004. From her office in Dubai in the United Arab Emirates (UAE), a country that is experiencing development and economic growth at an extraordinary pace, Mrs. Al Marashi spoke with the Compact Quarterly about the role of business in peace and the profound link between Islam and business ethics. Additionally, she lays out reasons why the UAE is experiencing a development boom and makes a strong case for the endless opportunities to entrench responsible practices into the heart of business and government operations.

J. M. Witte

W. H. Reinicke

Originally conceived as a purely intergovernmental organization, the UN has begun, during the past decade, to reach out to civil society and business in search of new partners for shaping a new world. The gradual and ongoing process of opening and engaging business and civil society is a result of the increasing realization that the UN by itself will not be able to confront the manifold challenges of a globalizing world. In a world of complex and fast-changing transnational challenges, effective international cooperation among governments is certainly more important than ever before. Yet, in order to effect change and improve the living conditions of billions of people in a sustainable manner, partnering with civil society and business is more than just an option. In many ways, it has turned into a necessity for the UN in order to “get the job done”. In fact, partnerships have become a catalyst for reform and institutional innovation across the entire UN system.

Around the world there is a growing understanding of the need for business and civil society to promote policies conducive to inclusion and sustainability. Since national states by themselves lack the means to end poverty and poor income distribution, it is up to society to step forward and fill this void, striving for a more equitable social and economic world order. Generally speaking, a large part of the financial sector has believed that the tax generation stemming from its deals and transactions would suffice as the sector’s responsibility toward society. Yet, considering the utter poverty prevailing in so many countries, and considering the main financial centers’ ever-increasing proximity to the periphery as demonstrated by the free flow of capital -- a byproduct of globalization, the financial sector is remiss not to engage in social responsibility.

T. W. Dunfee

Global firms are the focus of increasing demands to play a role in mitigation or resolution of social, political and economic problems. Firms are expected to support peace generally and to shun regimes tainted by human rights abuses. They are asked to contribute their fair share of taxes and to support debt relief for impoverished nations. They are urged to play a critical role in creating a sustainable environment. The scope and range of the areas in which global firms can contribute to the social good presents difficult choices. Where should firms commit most of their philanthropic resources? Business has a critical role to play in fighting social problems, based on the comparative advantages it can bring to bear, if and only if, it uses its core competencies.

T. Yoo

Revolutionary changes in information and communications technologies have swept the planet, creating a more equal playing field for knowledge and opportunity, and serving as one of the driving forces behind globalization. These innovations are bringing people and business closer, and reducing borders and walls. At the same time, the gap between those with access to information and those with limited access is widening, and the vast majority of the world’s poor are not realizing the benefits of a knowledge-based global economy. The information technology industry, working in partnership with global organizations and governments, can and must continue be a catalyst for positive change that enables people around the world to improve their lives.

Widespread poverty reduction can only be achieved by improving access for the world’s impoverished to needed goods and services, as well as creating employment opportunities. Business investment in developing countries and regions can drastically improve livelihoods by establishing infrastructure, delivering access to basic necessities and generating local economic development. However, such corporate investments are often challenging and frequently perceived as high risk, causing interested companies to place promising opportunities on the “too complicated” pile. The Growing Sustainable Business (GSB) initiative was developed to address this dilemma by helping to bring risk-reward ratios into a commercially viable balance.

An important milestone in the evolution of the Global Compact, and voluntary initiatives in general, was reached on 30 June with the passing of the first deadline for participating companies to communicate to stakeholders on their responsible business practices. The Communication on Progress seeks to promote transparency and make companies more accountable to their stakeholders with respect to their commitments. While this is only the beginning of a long journey to demonstrate credible engagement, more than 700 stakeholder communications were documented.

Local network highlights include the launch of the Global Compact Regional Learning Forum for Sub-Saharan Africa, an anti-corruption leaders' forum in Malawi, the launch of the Global Compact in Lithuania, and more.

As the Global Compact has continued to expand rapidly around the world, the issue of governance has become increasingly important. On 24 June 2004, the Secretary-General asked John Ruggie and Georg Kell to conduct a strategic review of the initiative and develop a new governance framework that would transform the initiative from its initial phase of experimentation to one of greater focus, transparency and sustained impact. On 1 July 2005, after extensive consultations with representatives of all Global Compact participant and stakeholder groups, recommendations were provided to the Secretary-General focusing on which features of the Global Compact to retain, which features should be given greater emphasis, and what new elements should be introduced to best position the initiative to contribute to the Secretary-General’s vision.

Recent news includes a report of the Paris conference on the Millennium Development Goals (MDGs)attended by Chirac, Blair and Annan, the launch of a new business guide on emergency relief, President Fox pledging Mexico's commitment to the Global Compact, and more.

Companies and other stakeholders that joined the Global Compact between 1 April and 1 July 2005.

Global Compact related events through December 2005, including the Annual Networks Meeting in Barcelona, the Global Compact Summit: China, and various network launches around the world.