Morley Fund Management’s Proposal for Collaborative Engagement on
the UN Global Compact by UN PRI Signatories
Morley would like to propose that signatories to the UN Principles for Responsible
Investment (PRI) engage with a sample of the companies that have signed up to the
UN Global Compact. The proposal is to engage with the Chief Executive of listed
Global Compact signatories, via a jointly signed letter, in order to either: (1) welcome
particularly good practice, or, conversely, (2) challenge non conforming companies to
regain full participant status. This action would support Principles 2, 3 and 5 of the
We have identified 73 listed companies from around 3000 Global Compact
signatories where engagement would be appropriate. The Compact database has
not yet been fully catalogued, but currently includes 19 non-communicating and 5
inactive companies. It also highlights 49 companies that the Compact believes are
producing particularly good reporting (see Appendix 2 for the full list of companies).
These companies are domiciled in 21 different countries, suggesting that a
collaborative approach involving global investors should be more effective than
individual attempts at engagement.
PRI signatories are requested to consider signing the draft letter (see Appendix 3).
Collaborating investors will receive feed back on the results when the Global
Compact next evaluates the communications status of its signatories. This is
currently anticipated to be in the fourth quarter of 2007.
Morley Fund Management requests the support of other PRI signatories in using their
combined influence to help the Global Compact achieve its aims. The following sets
out the background to this proposal:
2.1 What is the UN Global Compact?
The UN Global Compact is the largest voluntary corporate citizenship initiative in the
world. It is currently engaged with around 3,000 companies from 100 countries, as
well as 700 civil society and international labour organisations. It was launched in
2000 as an initiative to promote responsible corporate citizenship, and to commit
businesses to being part of the solution to the challenges of globalisation.
Participants work to advance ten universal principles (see Appendix 1) in order to
foster a more sustainable and inclusive global economy. These principles cover
human rights, labour standards, the environment and anti-corruption. The ten
principles are based on various international treaties and agreements that have been
translated into a business context.
There are of course limits to how much voluntary corporate citizenship initiatives are
able to achieve. For example, a company signing the Global Compact does not
guarantee that it will uphold these ten principles. Nevertheless, the Compact has
successfully raised the profile of corporate impacts on human rights, labour
standards, and the environment – and has arguably increased the quality of the
board room debate on these potentially material issues by signatory companies. As a
result, we see a corporate statement to adhering to the Global Compact as a positive
public statement, and believe that it deserves the support of PRI investors.
2.2 What is the Business Case for Corporate Participation in the
A company’s ability to manage and mitigate exposure to social and environmental
risk is increasingly relevant to long-term financial success. Participating in the Global
Compact signifies a corporate high-level commitment to being accountable and
transparent. The Compact also attempts to encourage greater participation and
engagement between businesses and their stakeholders. It provides a framework for
companies to enact on commitments to upholding human rights, promoting labour
standards, protecting the environment and eliminating corruption. In so doing, it helps
companies to maintain their license to operate.
2.3 Is the Global Compact Relevant to Shareholder Value?
There are very few industry studies of the direct link between shareholder value and
Global Compact status. However, WestLB recently published research on the
materiality of extra-financial factors based on a sample of 540 European companies
(Garz, H & Volk, C. What really counts: The materiality of extra-financial factors,
WestLB, February 2007). It found evidence of a link between extra-financial risk, cost
of capital to a firm and shareholder value. The report suggested that compiling a
sustainability report (such as a COP) was among the most important catalysts for
change – contributing to accumulation of knowledge, questioning of processes and
the establishment of suitable structures and practices. The regression technique
used found a modest but statistically significant positive correlation between Global
Compact signatory status and shareholder value. There was a similar positive
correlation with public reporting based on GRI guidelines.
2.4 How is corporate adherence to the Global Compact evaluated?
Once a company has committed itself to the Compact, it is expected that changes to
business operations should be set in motion so that the principles become part of
strategy, culture and daily operations. However, it is not possible for the Compact to
directly assess the extent to which this takes place. As a result, the company is
required to publish in its annual financial report, or similar document, a description of
the ways in which it is supporting the Global Compact and the ten principles. This is
known as a Communication on Progress (COP).
The rationale of the COP is to raise the transparency and public accountability of the
initiative, through a repository of corporate practices that serve as a basis for
continuous improvement. There are many ways to structure a COP However, use of
a globally recognised reporting framework such as that developed by the Global
Reporting Initiative (GRI) is encouraged by the Compact where businesses are of a
scale and complexity that warrant that form of disclosure.
Failure to submit a COP puts the company at risk of being identified as ‘non-
communicating’ and later ‘inactive’, and ultimately removed from the Global
Compact. For further information see www.unglobalcompact.org
3.0 The Case for Collaborative Engagement by PRI signatories
The 73 companies targeted for engagement are domiciled in 21 difference countries
around the world. It is unlikely that they will be collectively held by any one
institutional investor. A collaborative engagement initiative by global investors should
therefore increase the influence of the initiative.
Without adequate reporting on progress, companies’ adherence to the Global
Compact’s ten principles represent little more than a statement of good intentions.
While an engagement focus on reporting is only a part of the process of improvement
advocated by the Global Compact, it represents the most obvious initial area in which
PRI signatories have the most potential leverage and influence. It is through the
COP process that participants can be held to account by stakeholders, including us
as the investment community. Where companies have committed to produce a COP,
but not delivered on that commitment, then investors can use their influence to
ensure that the management does deliver. Equally, where companies have produced
notably good communications, then this should be welcomed.
In terms of the specific rationale for PRI signatories, we believe that the initiative
supports three principles:
Under Principle 2, signatories pledge to ‘be active owners and incorporate ESG
issues into our ownership policies and practices.’ The proposal for engagement
on the Global Compact offers an ideal opportunity to exert ownership influence and
encourage ‘non-communicating’, and ‘inactive’ companies to re-engage.
Principle 3 states: ‘We will seek appropriate disclosure on ESG issues by the
entities in which we invest.’ Possible actions include requesting information from
companies regarding their adherence to relevant international initiatives, and specific
reference is made in the principles to the Global Compact.
Principle 5 states ‘We will work together to enhance our effectiveness in
implementing the Principles.’
4.0 What would I need to do?
Participating investors need only provide comments on the letter (see Appendix 3),
the name and title of the person signing it, and an electronic copy of the signature.
Some investors may wish to lead more involved engagement programmes on the
Global Compact. This could involve engaging with companies that are not signatories
to the Global Compact but perhaps should be. Alternatively, it may involve engaging
with Global Compact signatories that are producing a COP, but where there are
substantive questions about their performance or practices.
5.0 How can I register my interest?
Please contact Steve Waygood, Head of SRI Engagement at Morley Fund
Management via firstname.lastname@example.org or +44 (0)20 7809 6327.
Appendix 1 : The UN Global Compact Ten Principles
Principle 1: support and respect the protection of internationally proclaimed human
Principle 2: make sure that they are not complicit in human rights abuses.
Principle 3: uphold the freedom of association and the effective recognition of the
right to collective bargaining;
Principle 4: (work towards) the elimination of all forms of forced and compulsory
Principle 5: (work towards) the effective abolition of child labour; and
Principle 6: (work towards) the elimination of discrimination in respect of
employment and occupation.
Principle 7: support a precautionary approach to environmental challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility;
Principle 9: encourage the development and diffusion of environmentally friendly
Principle 10: work against all forms of corruption, including extortion and bribery.
Appendix 2 : Global Compact Signatories Where Engagement is Proposed *
Symbol Company Name USD m Country Global Compact Status
B0LCB0 AarhusKarlshamn AB 1,046.3 SWEDEN Non-communicating
527313 Altana AG 10,074.9 GERMANY Non-communicating
ANSW Answers Corp. 113.8 UNITED STATES Non-communicating
561752 Apranga 246.0 LITHUANIA Non-communicating
591591 Axfood AB 2,129.4 SWEDEN Non-communicating
712854 Banca Monte dei Paschi di Siena S.p.A. 16,650.8 ITALY Non-communicating
B1NVX6 Bankas Snoras 200.1 LITHUANIA Non-communicating
207437 BBVA Banco Frances S.A. 1,831.3 ARGENTINA Non-communicating
674125 Biocon Ltd. 1,163.0 INDIA Non-communicating
218353 Cemento Polpaico S.A. 419.6 CHILE Non-communicating
587526 Fleury-Michon 296.0 FRANCE Non-communicating
565227 Grindeks 147.5 LATVIA Non-communicating
727952 Klaipedos Nafta AB 144.1 LITHUANIA Non-communicating
552172 Lifosa AB 217.3 LITHUANIA Non-communicating
595249 Nordea Bank AB 44,610.5 SWEDEN Non-communicating
335600 Premier Oil PLC 1,974.6 UNITED KINGDOM Non-communicating
598411 TEO LT AB 766.9 LITHUANIA Non-communicating
707624 Unibail 12,821.4 FRANCE Non-communicating
238600 Usinas Siderurgicas de Minas Gerais S/A 9,721.3 BRAZIL Non-communicating
610000 Dena Bank 257.0 INDIA Inactive
ECIL ECI Telecom Ltd. 970.1 ISRAEL Inactive
B01WTJ Gruppo Ceramiche Ricchetti S.p.A. 134.8 ITALY Inactive
B0GWF4 Hindalco Industries Ltd. 4,109.6 INDIA Inactive
B19DVX Invensys PLC 5,260.9 UNITED KINGDOM Inactive
710889 ABB Ltd. 43,963.5 SWITZERLAND Notable
525076 ABN AMRO Holding N.V. 90,561.6 NETHERLANDS Notable
597980 Alcatel-Lucent 30,587.1 FRANCE Notable
004864 Allianz SE 98,592.0 GERMANY Notable
049015 Anglo American PLC 78,600.4 UNITED KINGDOM Notable
550190 Banco Bilbao Vizcaya Argentaria S.A. 85,040.2 SPAIN Notable
008314 BASF AG 59,556.5 GERMANY Notable
B19GH5 BNP Paribas S.A. 108,738.9 FRANCE Notable
B0Z867 Carrefour S.A. 54,494.0 FRANCE Notable
612156 Chennai Petroleum Corp. Ltd. 773.2 INDIA Notable
453278 Coca-Cola Co. 119,840.1 UNITED STATES Notable
B04TZX Coloplast A/S 4,306.7 DENMARK Notable
738137 Compagnie de Saint-Gobain S.A. 39,082.1 FRANCE Notable
Companhia Brasileira de Distribuicao Grupo Pao de
266777 Acucar 3,668.6 BRAZIL Notable
554389 DaimlerChrysler AG 83,912.2 GERMANY Notable
415558 Danisco A/S 3,992.6 DENMARK Notable
023740 Diageo PLC 56,665.5 UNITED KINGDOM Notable
527178 Endesa S.A. 57,840.4 SPAIN Notable
595748 Ericsson, L.M. Telefonaktie A 61,487.3 SWEDEN Notable
401234 European Aeronautic Defence & Space Co. EADS N.V. 26,257.1 NETHERLANDS Notable
517617 France Telecom 76,480.6 FRANCE Notable
B02XBR Hewlett-Packard Co. 112,991.9 UNITED STATES Notable
711075 Holcim Ltd. 27,327.1 SWITZERLAND Notable
045949 Imperial Chemical Industries PLC 12,680.1 UNITED KINGDOM Notable
220570 Interconexion Electrica S.A. 2,825.9 COLOMBIA Notable
450270 Lafarge S.A. 28,522.4 FRANCE Notable
712387 Nestle S.A. 151,602.3 SWITZERLAND Notable
B11HK3 Norsk Hydro ASA 42,805.1 NORWAY Notable
710306 Novartis AG 136,237.3 SWITZERLAND Notable
707752 Novo Nordisk A/S 31,198.5 DENMARK Notable
465853 Novozymes A/S 6,313.7 DENMARK Notable
253999 Petrobras Energia Participaciones S.A. 2,222.6 ARGENTINA Notable
710352 Peugeot S.A. 18,541.7 FRANCE Notable
068470 Pfizer Inc. 186,748.8 UNITED STATES Notable
471279 Renault 37,083.3 FRANCE Notable
252509 Repsol YPF S.A. 39,921.4 SPAIN Notable
B09CBL Royal Dutch Shell Class A 221,781.4 NETHERLANDS Notable
*NB This list may be subject to some updating as the Global Compact database
has not yet been fully catalogued.
Appendix 3 : Draft Letter to Global Compact Signatories
Re: <Company Name’s> Global Compact Signatory Status
As signatories to the UN Principles of Responsible Investment (PRI), we have
recently been examining the companies that have signed up to the UN Global
Compact, which is one of the PRI’s founding institutions.
We believe that the Compact has successfully raised the quality of the debate
surrounding corporate impacts on human rights, labour standards, and the
environment, which we regard as potentially material issues. As a result, we see a
corporate statement to adhering to the Global Compact as a positive public
statement, and believe that it deserves our support.
As existing or potential investors in your company, we would like to … [[[Then one
of the three following paragraphs.]]]
[[[1. To companies that have submitted exemplary COPs:]]]
… take this opportunity to congratulate <name of company> on being selected by the
Global Compact as having submitted a notable Communication on Progress (COP).
We welcome this accolade, which demonstrates a serious commitment to
responsible corporate practices.
[[[or 2. To companies that have become ‘non-communicating’:]]]
… express our concern that <name of company> is no longer in full engagement with
the Global Compact. It has come to our attention that you have been designated as a
‘non-communicating’ member. We urge you to re-engage with the Global Compact
as soon as possible to avoid further measures that may ultimately result in expulsion.
Alternatively, we would welcome a written explanation as to why this is not possible
at this time.
[[[or 3. To companies that have become ‘inactive’:]]]
… express our grave concern that <name of company> is no longer in full
engagement with the Global Compact. It has come to our attention that you have
been designated as an ‘inactive’ member. We urge you to submit a Communication
on Progress as soon as possible to avoid losing participant status. Alternatively, we
would appreciate an explanation as to why this is not possible at this time.
We recognise that reporting on the Global Compact principles can be time
consuming. Nevertheless, a company’s ability to manage and mitigate exposure to
social and environmental risk is increasingly relevant to long-term financial success.
The Compact provides a framework for companies to enact on commitments to
upholding human rights, promoting labour standards, protecting the environment and
eliminating corruption. In so doing, it helps companies to maintain their license to
operate and protect shareholder value.
Morley Fund Management, et al…