The Global Compact 100, developed by Sustainalytics, is composed of a representative group of Global Compact companies, selected based on implementation of the ten principles and evidence of executive leadership commitment and consistent base-line profitability. This stock index, announced ahead of the Global Compact Leaders Summit 2013 showed total investment return of 21.8 percent by the end of its first year, surpassing the S&P global mid and large-cap benchmark over this period.
The index does not look at sustainability performance in isolation of basic financial health. The Global Compact 100 marries corporate performance on environmental, social and governance (ESG) issues with a requirement of consistent base-line profitability.
The performance of the Global Compact 100 should not be seen as evidence of a causal relationship between a commitment to corporate sustainability practices and stock performance. Rather the index suggests that companies exhibiting enhanced environmental, social and governance (ESG) have the potential to perform better in financial markets over time.
Companies are eligible for the Global Compact 100 if they or their parent company have been Global Compact signatories for a minimum of one year, are publicly listed, and fall within the research universe of Sustainalytics, which provided the research for the index. The Global Compact includes nearly 8000 corporate signatories, of which approximately 1000 are publicly traded; of these, Sustainalytics covers close to 700. Additionally, companies in the index must pass a financial screen that requires positive pre-tax earning, on average, for the 3 years preceding the index annual review. In the case that a company is already a constituent of the index, it will only be removed if there are two consecutive years of negative 3-year average earnings figures.
The constituents of the Global Compact 100 are reviewed on an annual basis in September. Constituents are chosen for the Index with the three goals of sector representation (free-float market cap weights) within a range of the key, well-known global indexes; geographic representation within a range of the key, well-known global indexes; and to choose companies that have strong practices and performance in adhering to the principles of the UN Global Compact around management of human rights, labour rights, the environment and anti-corruption. Among the indicators used in the selection of the constituents were the company’s level of reporting in relation to the Global Compact required annual Communication on Progress and whether the company’s chief executive submitted its required annual letter of support for the Global Compact and its principles. Factors such as industry, size and location also affected the selection process, in order to ensure that the Index had adequate geographic and sectoral diversity.
As part of the index annual review, there may be changes in the constituents to better align the sector or geographic representation of the Global Compact 100 with global indexes or to replace some constituents due to changes in company practices or performance with respect to implementation of the Global Compact principles.
During the backtesting period from Sept. 2010 to Sept. 2013, the Global Compact 100 showed similar performance to the Global mid and large-cap indexes and outperformed in the more recent two years. The data for total returns based in US dollars is as follows:
Deputy Director and Head of Financial Markets
powerg (at) un.org
Manager of Investor Engagements with the UN Global Compact
danielle.chesebrough (at) unpri.org
(Last updated: 10 February 2015)