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Studies Demonstrate Benefits of Corporate Environmental Responsibility

July 1, 2007

Three studies by organizations such as the United Nations (U.N.) Global Compact and Goldman Sachs presented on July 5 at the Global Compact Leaders Summit find that an increasing number of business leaders see corporate responsibility as a way to compete successfully and to build trust with stakeholders -- and that sustainability front-runners in a range of industries can generate higher stock prices.

"The evidence is building that embedding universal principles and related environmental, social and governance policies into management practices and operations delivers long-term business value and is rewarded by markets," said Georg Kell, executive director of the U.N. Global Compact. "Fundamentally, for companies and investors, this is about managing risks and opportunities presented by globalization."

A report released by Goldman Sachs, one of the world's leading investment banks, showed that among six sectors covered -- energy, mining, steel, food, beverages and media -- companies that are considered leaders in implementing environmental, social and governance (ESG) policies to create sustained competitive advantage have outperformed the general stock market by 25 percent since August 2005. In addition, 72 percent of these companies have outperformed their peers over the same period.

Goldman Sachs analyzed the companies with respect to three areas: ESG performance; how well they are positioned vis-à-vis long-term industry trends; and the strength of their underlying financial returns.

At the Summit, the U.N. Global Compact also released its first annual review, a comprehensive survey that monitors the extent to which companies have implemented the 10 Global Compact principles in the areas of human rights, labor, environment and anti-corruption. Among the key findings:

• A majority of survey respondents have policies in place related to human rights, labor conditions, the environment and anti-corruption.
• 75 percent of respondents have engaged in cross-sector partnerships with one or more of the following sectors: non-governmental organizations, business, academia, the United Nations and other multi-lateral organizations.
• 63 percent of respondents said they participate in the Global Compact to increase trust in the company.

At the same time, there are important "performance gaps" in implementation, as highlighted by a complementary survey of chief executives participating in the Global Compact. The survey, prepared by McKinsey&Co., revealed the following:

• More than 90 percent of CEOs are doing more than they did five years ago to incorporate environmental, social and governance issues into strategy and operations.
• 72 percent of CEOs said that corporate responsibility should be embedded fully into strategy and operations, but only 50 percent think their firms actually do so.
• 59 percent of CEOs said corporate responsibility should be embedded into global supply chains, but only 27 percent think they are doing so.

"Taken together, these three reports show that for an increasing number of business leaders, corporate responsibility is no longer an option, it is a necessity in order to compete successfully," Kell said. "At the same time, in order to fully maximize these benefits and increase their competitive advantage in the global marketplace, companies must adopt a broader and deeper approach with respect to implementation of corporate responsibility principles."

The Goldman Sachs report can be downloaded in PDF format at http://www.unglobalcompact.org/docs/summit2007/gs_esg_embargoed_until030707pdf.pdf.

The U.N. Global Compact's annual review can be downloaded in PDF format at http://www.unglobalcompact.org/docs/summit2007/gc_ar_embargoed_until_020707.pdf.

The McKinsey&Co.'s survey results can be accessed in PDF format at http://www.unglobalcompact.org/docs/summit2007/mckinsey_embargoed_until020707.pdf.