Benefits of the UNGC standard for businesses
The United Nations Global Compact (UNGC) Standard is a crucial tool for businesses to demonstrate their environmental and sustainability improvements.
1. Enhancing corporate reputation and trust
Using the UNGC Standard as a recognisable framework means that potential business connections, such as consumers or even internal stakeholders, can gauge a company’s commitment to Corporate Social Responsibility (CSR). Using UNGC Standard as a verification tool, interested parties can then decide whether they are open to having a business connection with a potential organisation.
2. Aligning with Global Sustainability Goals (SDGs)
In 2015, the United Nations members adopted the 2030 Agenda for Sustainable Development, which includes 17 global Sustainable Development Goals focusing on topics such as clean energy, reduced poverty, and gender equality. Many of the UNGC Standard 10 Principles marry closely with the Sustainable Development Goals, covering overlapping factors such as human rights, environmental, and labour improvements.
4. Access to a global network of responsible businesses
Being part of a pact like the UNGC Standard gives you access to a wide network of companies voluntarily reporting on their sustainability behaviour. Businesses that sign up to such directives usually indicate that they are collectively trying to improve commercial sustainability activity, creating a network of environmentally and socially responsible businesses. This is beneficial because the sustainability actions of potential business connections could impact your business’ wider carbon footprint. Utilising contacts from within the Standard could help you find business connections that may improve, rather than harm, your carbon footprint based on their own CSR activities.
5. Improved risk management and regulatory preparedness
Non-binding sustainability reporting will help prepare your business for the future when more stringent mandatory reporting is introduced. Having an archive of sustainability-led data and data collection methods helps introduce the internal corporate pathways needed to implement mandatory reporting, making it easier to meet target deadlines, report accurately, and track positive change over time, leading to reduced risk.
5. Driving innovation through ethical practices
Non-binding sustainability reporting will help your business prepare for mandatory sustainability directives and foster innovation within your organisation. Introducing UNGC Standard frameworks allows a structure for sustainability activity to grow from within - for example, there may be ethical practices that your business may not be aware of that other businesses have implemented as part of UNGC Standard reporting and can be used as a model case study to base your own activities on. You could also follow the sustainable best practices set by other competitors within your industry based on UNGC Standard pact elements.
The challenges of the UNGC standard for businesses
The challenges of the UNGC Standard for businesses primarily revolve around two key areas: the voluntary nature of participation and the resource-intensive requirements needed to comply.
1. Voluntary nature and limited enforcement
Adherence to the UNGC Standard is entirely voluntary, companies can choose to opt out at any time. This flexibility raises concerns about the strength of commitment and accountability, as the absence of strict enforcement measures means there’s little to compel sustained, meaningful change compared to mandatory reporting systems.
2. Resource constraints and high compliance costs
For many businesses—especially small and medium-sized enterprises (SMEs)—the reporting mechanisms required by the UNGC Standard can be particularly burdensome. Without dedicated sustainability specialists or data analysts, SMEs may struggle to balance the perceived benefits against the substantial resources needed. These resources include:
Specialist staff and external consultants: Hiring or contracting experts to ensure compliance.
Monitoring and reporting tools: Investing in software and systems for accurate data collection.
Operational changes: Implementing energy-efficient technologies and other changes to meet sustainability targets.
Ultimately, businesses must carefully weigh whether the advantages of aligning with the UNGC Standard justify the time, effort, and expense required for full compliance.
Common criticisms of the UNGC standard
While the UNGC Standard is altruistic in its roots, it does have its shortfalls, particularly regarding penalties and enforcement. We look at two of the key pitfalls of the reporting initiative.
1. Is the UNGC too lenient on non-compliant companies?
Currently, participation is mandatory, and companies can leave the initiative at any time. Organisations do this by writing, and their reasons may be an inability to operate within the 10 Principles of the UNGC Standard. Some might argue that this removes accountability from participants.
Some actions will lead to enforcement, such as delisting, which means an organisation is removed from the UNGC Standard. Reasons for delisting include terminating all formal relationships with the UN Global Compact and/or Global Compact Network(s), banning the use of the UN Global Compact name or logo, and losing financial contributions such as annual contributions. But with no real risk of legal enforcement and the ability to leave at any time, why would a business truly see its ethical and sustainability goals through to completion?
2. Risk of “greenwashing” without strong oversight
As with any voluntary reporting mechanism, the UN Global Compact has fallen prey to false claims, leading to potential greenwashing. An investigation by the University of Zurich found greenwashing concerns related to more than 300 companies violating the UN Global Compact or OECD frameworks. Greenwashing occurs when a company inflates or fraudulently claims environmental progress, for example, putting focus on a single environmental attribute but disregarding a crucial unsustainable practice within the business. This situation could be improved by measuring against net zero targets that are more science-backed.
In summary, while the UNGC Standard enhances corporate sustainability and reputation, its voluntary framework and significant compliance costs can challenge its overall effectiveness.
