Issues relating to sustainable development and the Global Compact

Bernard Cochemé, UN

Questions are being raised more and more frequently as to how the United Nations Joint Staff Pension Fund deals with issues relating to sustainable development and the principles of the Global Compact. To begin with, in order to understand the question and seek to answer it, it seems useful to recall what the concept of sustainable development means and to which principles the Global Compact refers.

Both sustainable development and the Global Compact have been promoted by the United Nations.

The concept of sustainable development originated in the work of the World Commission on Environment and Development, established by the General Assembly in 1983 and chaired by Ms. Brundtland. Its goal was to formulate a global plan of action that would put forth a long-term strategy on the environment, along with new ways of seeking to reconcile the goals of development and protection of natural resources. In its report, published in 1987 under the title “Our common future”, the Brundtland Commission offered its vision of a type of development that would, in its words, “meet the needs of the present without compromising the ability of future generations to meet their own needs”. This definition was restated in the Rio Declaration on Environment and Development adopted in June 1992 by the United Nations Conference on Environment and Development (the first “Earth Summit”).

The States that participated in the Rio Conference also adopted an international plan of action, Agenda 21, which constitutes a road map for a more sustainable and enduring type of development, one that takes economic, social and environmental factors fully into account.

The Rio Declaration and Agenda 21 are the two background documents that have served as the basis of many initiatives over the past decade, from the fight against the “greenhouse effect” to protection of the environment and biodiversity, the promotion of fair trade, and so on.

The Global Compact, meanwhile, was initiated by the Secretary-General of the United Nations, Kofi Annan, who, in addressing the World Economic Forum held in Davos in January 1999, proposed to give market globalization a more human face. In view of the ever clearer risks of globalization, particularly the risk of excluding a large part of the world’s population, he appealed to the social responsibility of companies and invited them to form partnerships with United Nations agencies, labour representatives, non-governmental organizations and other civil society actors in order to implement the demanding vision of a sustainable development guided by universal values. In accordance with the formula used at the time, the aim is to “combine the power of markets with the authority of universal values”. The values to which the Global Compact refers are those of the Universal Declaration of Human Rights of 1948, the 1992 Rio Declaration on Environment and Development and the International Labour Organization Declaration on the Fundamental Principles and Rights at Work adopted in 1998. In total, nine principles were chosen from these basic texts, and they now underlie the commitments of those who have voluntarily decided to adhere to the Global Compact.

The Pension Fund cannot but be concerned with the goals and principles set forth above, which are the raison d’être and the basic mission of the organizations of the United Nations system, and which constitute the values shared by their staff. There is a need, however, to flesh out this approach, which has meaning only insofar as these values and principles are embodied in long-term plans of action and in day-to-day operational activities.

Several points regarding the Pension Fund are mentioned below; they concern the three main components of its activity, which can be summarized as follows: management of pensions and other types of related benefits; the Fund’s own internal management; and management of its investments. They all show that the Pension Fund is concerned not only with the principles and values of sustainable development and the Global Compact, but that in many areas its involvement can make a difference to its own members, first and foremost of whom are its participants, beneficiaries and related organizations.

The Pension Fund and meeting the needs of current and future generations

One of the basic principles of sustainable development is the responsibility of economic and social actors towards current and future generations. The pensions area is directly involved, as it manages entitlements that are to be implemented in the medium and long term and, accordingly, involves several generations. What is at stake here are issues of intergenerational equity: for instance, not shifting to future generations the burden of underfunded prior commitments. For the Pension Fund, this concern has been part of its history since the choice was made at its inception to set up capital reserves to cover its commitments. The central indicator of whether that goal has been met is a contribution rate consistent with a long- term equilibrium deriving from a comparison of projected expenditures and total current and anticipated resources. This long-term equilibrium is calculated on the basis of hypotheses using demographic projections and economic hypotheses involving, in particular, anticipated financial returns. If unrealistic scenarios are adopted or if the results obtained are regularly below expectations, the resulting imbalances, if not redressed, will inevitably affect the situation of future generations, to whom the burdens will be shifted. Generally speaking, such imbalances do not generate immediate problems and are often perceived as painless, since existing reserves provide a cash flow that may give a false sense of financial security and a largely artificial availability of funds. In view of this type of risk, the responsible approach, which has always been the one adopted by the Pension Fund, rests on a number of technical and institutional mechanisms that are implemented over time; thus, actuarial analyses are performed every two years by an independent actuary. The demographic and economic hypotheses to be used are considered during the year preceding the actuarial calculations, with the participation henceforth of a Committee of Actuaries and an Investments Committee, and are then further reviewed and approved by the Standing Committee of the Joint Staff Pension Fund Board. Moreover, the very structure, nature and amount of the benefits was subjected to a thoroughgoing analysis by the working group established by the Board in July 2000 with a threefold aim, namely, to evaluate the chief factors that would influence the definition of the Fund’s needs in the future, examine the economy measures adopted since 1983, along with any additional measure likely to be imposed upon the conclusion of the aforesaid analysis, and submit proposals designed to meet the long-term needs of the Fund and its constituent groups. The report submitted to the Board in July 2002 contained a number of proposals with short, medium, and long-term horizons. These were regarded as forming a solid basis for the responsible governance of the Fund’s long-term equilibria. Such governance methods and mechanisms clearly contribute to establishing a climate of confidence — an essential component of sustainable management.

(To be continued)