Georg Kell on the evolution of the U.N. Global Compact and the future of corporate responsibility

At the end of the day, I'm convinced humanity will be forced again to collaborate. We will be forced because we will face common challenges. And that logic will kick in again. So we don't see it currently, international cooperation is at the low point, but I'm convinced it will come back. Welcome to decoding corporate responsibility, a production of the Massava Rakhmani Centre for Business and Government at Harvard Kennedy School. I'm your host, Jane Nelson, Director of the Centre's Corporate Responsibility Initiative. And through the series, I'm speaking with some of the world's leading pioneers and practitioners in the fields of responsible business and finance. We're focused on exploring lessons and insights from the past, so that together we can find practical and feasible ways to improve the future. And I'm especially pleased to welcome today's guest, Gail Kell. Over the past 30 years, Gail Kell has been one of the pioneering leaders in shaping the norms, institutions and networks for responsible business and finance around the globe. He is currently chair of Arabesque, which is a technology company that uses AI and big data to assess sustainability performance for investment analysis and precision making. He is also one of the founders and the former Executive Director of the United Nations Global Compact, which was created just over 25 years ago, and is now the largest corporate sustainability initiative in the world with some 25,000 companies and organisations that are participating in it from over 160 countries, among many other networks that he has built over his career. So it's really wonderful to have you with us, Gail. Great to be with you today, Jane, and looking forward to our conversation. Thank you. And what I'd like to do is start with a little bit of your personal and professional journey, you know, after growing up in Germany, studying engineering and economics. I know you spend time living in Asia and Africa, and then joining the UN, initially, in Geneva. And then within a decade, you found yourself working in the office of the UN Secretary General, the late Kofi Annan, at the UN's iconic headquarters in New York, and having a major influence together with our late friend and colleague, Professor John Ruggie, in shaping the way the entire UN system engages with the private sector. And so I'd love you to start with getting just a sense of what was it that got you interested and so committed in the global role of responsible business and finance and dedicating your career to that role? Well, initially working at the United Nations, one thing that really inspired me was 92, the Rio Conference on Environment and Development. This was an amazing gathering where new ideas were launched, and for the first time business showed some interest on UN agendas. That was 92. And then I was called in 97 into Kofi Annan's office to help build an engagement with the private sector. Up to that point, you need to, and you know Jane, the United Nations had no relationship with the private sector, with the exception of a few specialized agencies, obviously. Why? Because the legacy of the Cold War was still around. The UN had to be neutral. It couldn't embrace market-based concepts. It couldn't embrace communism. It had to be neutral during the Cold War. And eight years after the end of the Cold War, I strongly felt that Kofi Annan and Kofi Annan felt it's time to engage all stakeholders of the United Nations, civil society, academia, and of course the private sector. So I started initially doing a few speeches for Kofi Annan, making the case why a strong UN is good for business, global rules, stability, and so forth, these were generic arguments. And then came this moment when Kofi Annan said, "Look, I was at the World Economic Forum, and I am supposed to go there again, but I only go there if I have really something important to say. So can you produce me a really good talk for the World Economic Forum?" And that's what he said to me, and to John was my boss then, John Ragi next door, and I was his private sector guy basically. So I started working on the speech together with John the year before in '98, and we discovered, or I randomly actually, while listening to Let's Eveline, still waiting to happen, may sound absurd, but. And then we had this wonderful encounters, including this historic meeting where you were present-chain, in Turing at the Stuff Training Center of the United Nations, when things came together all of a sudden, because it was clear the UN had a lot to offer in terms of norms that are relevant for the globalization debate, human rights, workers rights, environmental stewardship, anti-corruption. So this is where the idea for the speech global compact was genuinely born, and then the speech itself was hugely, hugely successful. Kofi Annan made the front pages of old papers. That was quite amazing. And I thought, and John thought, "That's it, you know, we made a good speech, and I was already on the next topic on trade issues, upcoming Seattle battle." And then CEOs and ambassadors came back and said, "Look, these are fine words, but you know, it would be even better if we had something concrete going." And then finally we went for a meeting in New York with CEOs, and again we thought, "This is our exit meeting with declared victory. The principles are now known, and then let's walk away." And that was in 2000, but then that meeting turned out to be just the beginning, because that's where learning, partnerships, collaboration, dialogue became the pillars for multi-stakeholder global local public-private collaboration. And then the building effort started as you know, the local networks. So that's really the story. So you could sum it up really, and I wrote the piece for the Oxford Handbook of International Handbooks on some point. The background is really a utility thinking, how to make the UN relevant again, how to find another way to implement more effectively agreements and norms that governments in principle have all agreed to. Because the universal declaration of human rights, the fundamental principles of works and rights, the Rio Declaration of Environment, the anti-corruption convention, in principle governments agreed to it, that actually celebrated every other years. But implementation is the issue, and asking the private sector to be part of the implementation was really the trick in this. And not just a trick, but a groundbreaking change in a fundamentally new way, not just of the UN engaging with the private sector, but mobilizing business, both individually and collectively to take responsibility, both for managing negative impacts, but also harnessing the incredible capabilities that business has to solve global challenges. Maybe one aspect is quite interesting, because the growth of the global compact was almost linear, you can say, from day one, it continued growing and growing and growing, it was quite amazing. And then only over time did we invent integrity measures, and in 2005, a governance structure to put the global compact on a solid foundation, so not making it subject to UN government affairs. Then the political support, as you know, chain, you wrote the first ever report to the channel assembly, that legitimized that approach, and that report to the channel assembly helped to build the political support, without which it wouldn't have worked, because countries such as India, Indonesia, where initially opposed, they feared interference of Western values. So this was all a delicate balancing act, but then it took off, and then a lot of things happened once you are in this building in the premierial mode, like the Who cares wins initiative, which created the ESG movement, came in 2005, then we created PRI, the Sustainable Stock Exchange Initiative, the principles for responsible management education, and all these are still alive, by the way, and actually going strong, which is amazing. Yeah, it's incredible, in fact, I was just reading today, the principles for responsible investment now have over 5,000 asset managers that are signed up with close to $140 trillion under management, so definitely still going strong. And in fact, I'd like to shift to that, because you mentioned the Who cares wins report, which I think came out in 2004, and connecting financial markets to a changing world, and I think a great example of some thought leadership that you provided some of the evidence and some of the case for building in this case, an investor movement, and obviously it was attributed to being a real investor. the report and the project that coined the term ESG, environmental, social governance, risks and metrics, particularly for the investor community, but also increasingly adopted by the business community. And obviously we've seen a backlash in recent years against ESG. I'd be interested in new reviews, both the sort of some of the causes of that, but also is this a temporary pause or are we at the beginning of a new era for business responsibility and sustainability? Yeah, then let me just make one point very clear, who cares wins and the report future proof 2007, which documented the diffusion of the ESG terminology is important to also have a look at, because it shows that who cares wins approach was exclusively focusing on materiality. And that's important, because investors made it very clear that their fiduciary responsibility is to take into consideration issues that may become financially relevant. There may not yet quite be relevant, but there's a high probability. And with that mindset, PRI was created at the New York Stock Exchange, and with that mindset, the ESG terminology initially grew. It was only later on by 2014 or 2012 when some academics, including from Harvard, I don't want to name them now, came up with correlation, implying that good ESG factor analysis on one hand and financial valuation on the other is correlated. And that's where everybody jumped on. Wall Street , Champton, Hong Kong, Exchange, and everybody. And then the business community realized, oh, investors call this ESG what we call responsibility to. So let's also call it ESG, so then we can better position ourselves on the rating scale. And that's where ESG became everything for everybody. And it lost its initial focus, just for clarifying this historical. The backlash on the one hand, as you all know, I want to make this very short and crisp on that point. We are already living in a new era. The old era of the World War II is over, a fully concur with Mark Karnis interpretation. It's very sad, but true, and it doesn't make sense to be sentimental, but the rule-based global system has been unraveling since 2015, if not before. In my historical understanding, it started with the invasion of Iraq or the reaction to 9/11, a friend or enemy. That's where the end of history did not really end. It started all over again, because friends and enemy are not on the same table. Then came the financial crisis. It really divided the world. The Western consensus, market consensus was no longer embraced by other major economies, especially China. And that's where the rifts started to show. And then the rivalry, initially competition, then the rivalry. Today, we have rivalry between countries and polarisation within, especially in the Western countries. Sustainability is still going very strong in Asia, Asia, in Brazil, in China, green tech is booming, and so forth. But here, obviously, we have legislative backlash. We have a total of going back to fossil fuels, from outside of the US becoming a petrostate. That's the interpretation around the world. And that's the reality of today. Also in Europe, the Pendulum is one back because forces of reaction have jumped on that bandwagon to also push back. Now that's why we are currently in so mixed signals. But at the same time, they are countervailing irreversible forces which drive this agenda forward. And that's why I'm very confident that yes, currently there's backlash that actually shows up in downsizing less activities, less exposure, not just green hashing, but actually reducing investments in certain critical areas. But rest assured, the cycle will turn around again because number one planetary forces will ultimately force us one way or the other to react much more forcefully than we do today on the environmental side. And that's irreversible in the short run. So that will trump ideology and business and politics. Secondly, we have so much innovation already going on in green tech. That's also irreversible. Technological change is irreversible. And after that, AI, I want to talk about it in just a moment separately. If you connect AI with sustainability, leveraging from smart everything to smart everything and innovation, wow, you're on the winning streak. And then certainly, quite very clearly, we know that at the end of the day, I'm convinced humanity will be forced again to collaborate. So we don't see it currently international corporations at the low point, but I'm convinced it will come back because societies will be forced. So for corporates, it makes really sense to align with these long term forces because they will come one way or the other. And in many parts of the world, in many regions, it's still going strong. And I mean, to building on that a little bit, I'd love to unpick each of those bits. So absolutely agree with you on the planetary forces. And I think we're already seeing that in terms of insurance markets beginning to price and extreme weather events, et cetera. Can you say a little bit about that, how markets are responding? And then I'd like to come back to AI and some of the other points that are made. Actually, I should have made it more explicit. The way nature impacts on societies via market mechanism is actually phenomenal and very effective and systemic and scalable from the beginning. So I'm totally excited about the fact that the physical impact of climate change alone now already is driving enormously insurance costs for real estate. And we still treat it as an isolated issue, but the system behind it, of course, extreme weather, flooding, extreme heat, and so forth fires. They make insurance costs much more expensive. That's a direct consequence of the physical impact of human activities on the natural environment. Secondly, commodity prices, agriculture, the worst material recently commented on it, that it drives inflation commodity prices, especially agriculture. And they quoted a few examples, coffee prices and so forth. Why? Because of drought. Cacao, West Africa. Why? Because of drought. Olive oil. Why? Because of drought and extreme weather. And there's much more to come with scientific certainty. So inflation driving aspects through commodity prices is happening as well. In addition, a recent study showed that banks looking at the bottom line increasingly taken to consideration the exposure to these risks. Of course, like insurance companies now factor it in. So in lending, bank lending, it's factoring as well. In other words, market signals increasingly convey to us the relevance of this agenda. So not responding to it would be foolish. We just don't name it yet. Or here in this country, the worst material couldn't name the systemic reason behind it. But everybody understands and knows. So I'm actually quite optimistic. So to speak, that we will be forced one way or the other to adjust because markets are extremely efficient in conveying risks and opportunities in more or less aggregate correct way. Sometimes with delay and arguably not sufficiently well in advance, the tragedy of the horizon is a real issue. But ultimately, when it really happens, it does convey the realities. So I'm quite upbeat that the Sustainer-Pleater agenda will see a huge reboot through market signals. Yeah. And I just say, sad, not necessarily the trajectory we want to see and the tragedy of the horizon, not being the result we want. So the more that coalitions and business leaders and thought leaders can make the case that this is what's on the horizon and we need to be adapting, I think, you know, is incredibly important. Shifting a little bit to your point also on technology, again, is almost impossible to have a conversation about responsible business and finance these days without discussing AI and both the opportunities and the risks of AI. I know your own company is harnessing a core part of its business model. But can you just share your thoughts on the implications for the sustainability agenda, both the enormous sort of energy demands, water demands, land demands of AI infrastructure and value chains and at the same time, the incredible opportunity to harness AI, to solve sustainability challenges and create fundamental new business models and financing models as part of that. Let me make first some basic principles clear when it comes to AI and technology in a wider sense. I think it's really key that we realize and recognize that technological change is irreversible. It is what it is. humans. create knowledge and they codify it and it can be replicated. You cannot put it back into the black box. That's how it is. We have tried very hard with nuclear technology and we still are trying very hard in Iran to contain the diffusion of bomb-making capabilities and the ultimate forces were employed to contain the spread of nuclear technologies. Yet Pakistan succeeded to get it, North Korea got it, India got it, Israel got it, now Iran is on the edge. So we try to avoid it. Yes, the point I'm making is it's almost impossible to contain technological change even if you put all the power of the world behind it, even then. So that's number one. That's why I argue we have no choice but to make the best out of AI. So it doesn't make sense to lament about its diffusion and to predict as with all technologies at the end of the day it depends for what purpose we are using it. You can use a hammer to build a house or use a hammer to kill somebody's mashing heads. So and the more powerful the technology is and AI is extremely powerful. The more responsible we have to be or should be and the more important it is also that we employ it with the purpose for good purpose and there are many many many great great use cases already out there that suggest we are extremely privileged to leverage AI to advance agendas and issues that are of concern to all people everywhere on health, on environmental stewardship, on minimizing risks, on supervising from deforestation to everything else. Smart grids, smart energy transmissions, smart everything it starts. Yes, the downside is clearly the enormous consumption of electricity for cooling of centers but I believe personally and I've seen it or I can observe it that ultimately this will be the boost for renewable energy to go to truly scale and you see the progress that is made now in battery technology coming out from China on storage management is enormous so soon you can have decentralized renewable power driven electricity generation and you can store the power over time. As is the case already in Nigeria, Pakistan where you know it's wonderful to see how electricity is brought to remote villages with actually modern technology so this is all in the making and we can do much more, we can green the desert so to speak, we can we can really deliver all the benefits for humanity, we can deliver all the SDGs if it truly wanted so technology is the tool to that end so my argument is yes we need to contain the dark sides and its negative implication how to build bombs and how to produce chemicals that destroy the water supply, you could theoretically get an agent now to do that for you even produce it but we need ethical guidelines absolutely but we also need positive applications and so that humans go into it and if I just briefly tell you what my own firm is doing, I'm in the business of asset management now it's something I never thought I would do because money doesn't really interest me but it's phenomenal what you can do now with AI, you can do a materiality test of your portfolio, you can actually analyze how your portfolio is affecting sustainability issues and then the assistant will tell you why that is so and how that is so you can ask the AI agent to construct for your personalized hyper-customized portfolio with specific sustainability preferences you have and then it will do that for you almost at no additional costs and highly performance oriented so AI really delivers now on that front it connects on the retail side the individual citizen person with the values it wants to express in its day-to-day activities including on investing so there's an endless list of use cases and I think for the sustainability movement to more explicitly embrace that dimension it's really important because that is the future the AI revolution is in full swing and it will fundamentally reshape our lives and our industries and if we succeed in connecting these two trends now we probably can accomplish quite a lot. Yeah and I think building on that the potential to accomplish things that that sort of nexus or interface and convergence of AI and digital technology with life sciences technology and materials technologies is also literally just scratching scratching the surface on what is possible as long as there are those principles and ethical guidelines and obviously an element of regulation and oversight around how the use cases are actually implemented and by who? Yeah I want to even go a step further and so the AI dimension is one driver for sustainability as we move forward the other one is actually the current complicated security landscape and you may be surprised and wow you know everybody's now investing in military equipment militarization is the big topic but when we focus on energy when we focus on on material conservation on supply chain we see there's huge opportunity circular economies take urbanization by making more resilient and stronger security oriented economies less vulnerable. Absolutely absolutely and I think that using not just the language but the strategies of resilience, supply chain resilience city resilience, community resilience as well as security and linking and I think we hear that with the energy trillema you know we need energy security we also need energy affordability and access and we need energy transition so you're taking a broader approach to how we frame and how we implement corporate responsibility and sustainability I think is the way forward and I think as we come to that Gauwag I know we're getting close to being out of time but I would love to finish with after you're 30 years of leadership in this field I think you've touched on you know some of the sort of fears and potential worries and concerns and risks and as well as some of the hopes but what would your call to action be and you know for all of our listeners but I think particularly for young leaders in business and government and civil society in terms of how we can best harness both business and finance to help drive a more inclusive sustainable and secure and resilient world and communities. I think it's really important these days but it always is important to not forget history to try to understand where we come from because we are now running the risk of repeating mistakes of the past I hope we will not but we are running a risk and after World War II you know we all understood that war is bad and trade and investment is actually good because it connects so one call would be to be considerate and to reflect on on the past not that we can perfect in learning because we forget sadly enough but we should be able to learn and we should aspire to do so that's one thing the other one is to see the positive on the imagination on the possibility side and to focus on it very explicitly because it gives us hope it gives us motivation inspiration that's why I stress so much the link between AI and sustainability because creating something positive inspires people it gives them strength it gives them belief in the future and optimism and I think that's really in short supply these days so that is my second point my third point would be basically it's an ethical issue down the road in the end of the day all questions are ethical and I'm not just saying good and bad Eveland and good but we continuously need to ask ourselves is this right what you're doing or not so if you lose sight of the North Star of ethical behavior we are genuinely running the risk of going down the red hole humanity has been so many times and it always tends to end up really in disaster so I would say having a more ethical orientation and always asking is it right and continuously asking that question is also very important so with these three pointers I hope I yeah that that that's one of the many ways that it brings us full circle back to the the 10 principles of the UN Global Compact doesn't hurt and so the global framework's universal principles of fundamentally respecting human rights including labor rights we are respecting and protecting the environment and supporting and respecting good governance and you know tackling tackling corruption and those principles if if business and finance and and leaders as individuals can adhere to those can hopefully address some of the the the headwinds that we're facing in the world at the moment around. equity and inclusion and sustainability. So thank you so much, Gail, and thank you, in particular for your amazing sort of 30 years of leadership and commitment and mentorship to so many people and for being our guest today. Thank you, Jane, for the real pleasure of being with you today. And I would also like to thank our listeners and please join us for our next episode of decoding corporate responsibility from the Massava Rakhmani Centre for Business and Government at Harvard Kennedy School. I'm your host Jane Olson and thank you very much for listening and being part of our community.