1. Introduction
2. Data sources
3. Calculation
4. Supplementary notes
1. Introduction¶
The United Nations Global Compact (UNGC) Violator Flag allows for the easy identification of companies that have a high or potential risk of violating one or more of the ten UNGC Principles. The Flag also makes it easy to establish whether the UNGC violations are primarily linked to the operations (O) or to the supply chain (S) of a company.
For each company and each Principle, the UNGC Violator Flag will have one of three values:
- “Violator” (red): high risk of violating the UNGC Principle
- “Potential Violator” (yellow): potential risk of violating the UNGC Principle
- “No Violator” (gray): no strong evidence of violating the UNGC Principle
Companies classified as “UNGC Violators” are those that have had significant and credible exposure to risk incidents associated with one or more of the ten UNGC Principles.
2. Data sources¶
RepRisk dataset¶
The UNGC Violator Flag draws on the RepRisk dataset - the world’s largest database of risk incidents associated with companies and projects. To gather information on incidents, RepRisk leverages machine learning and curated human analysis to screen a large number of public sources and stakeholders daily. Reports on risk incidents are synthesized based on a strict, rules-based methodology. Read RepRisk’s full methodology.
Each incident in the RepRisk dataset is rated based on severity, reach, and novelty:
- Severity [1, 2, 3] reflects the harshness of the risk incident or criticism; where [3] denotes a very severe risk incident or criticism and [1] denotes low severity.
- Reach [1, 2, 3] of the information source (influence based on readership/circulation as well as by its importance in a specific country); where [3] denotes high reach and [1] denotes low reach.
- Novelty [1, 2] reflects the newness of the issues addressed for the company, i.e., whether it is the first time a company/project is exposed to a specific issue in a certain location; where [2] denotes the first time a company is exposed to this issue and [1] denotes repeated occurrences.
| Company ID | Story ID | Incident Date | Severity | Reach | Novelty | UNGC Principle 1 (Human Rights) | UNGC Principle 2 (Human Rights) | UNGC Principle 3 (Labour) | UNGC Principle 4 (Labour) | UNGC Principle 5 (Labour) | UNGC Principle 6 (Labour) | UNGC Principle 7 (Environment) | UNGC Principle 8 (Environment) | UNGC Principle 9 (Environment) | UNGC Principle 10 (Anti-corruption) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 21 | 8371607 | 2023-04-13 00:00:00 | 1 | 3 | 1 | F | F | F | F | F | F | F | F | F | F |
| 21 | 8370431 | 2023-04-10 00:00:00 | 1 | 3 | 2 | F | F | F | F | F | F | F | F | F | F |
| 25 | 8371407 | 2023-04-12 00:00:00 | 1 | 1 | 2 | F | F | F | F | T | F | T | T | T | F |
| 21 | 8371855 | 2023-04-14 00:00:00 | 2 | 3 | 1 | F | F | F | F | F | F | F | F | F | F |
| 24 | 8372709 | 2023-04-18 00:00:00 | 1 | 1 | 1 | F | F | F | F | F | F | F | F | F | F |
Notes:
- In "unsharp" risk incidents, the company is mentioned but the exact nature of the criticism is not precisely defined due to the nature of the report. Since the UNGC Violator Flag is designed to identify companies with a significant and credible risk exposure to risk incidents associated with the UNGC Principles, we exclude "unsharp" incidents from the calculation.
- We use a granular specification of severity and sharpness for the respective UNGC Principle if available based on substory-level information.
3. Calculation¶
The underlying risk metric of the RepRisk UNGC Violator Flag is the RepRisk UNGC Violator Index (UNGC VI), which is based on the risk incidents related to a company over the previous two years. Very severe risk incidents are given a higher importance than severe and less severe risk incidents. Furthermore, the UNGC VI underweights risk incidents reported in less influential sources.
The threshold for being classified as a “UNGC Violator” is higher for highly scrutinized companies, i.e., particularly multinationals that are more exposed due to their size, global footprint, and saliency towards media and stakeholders. This approach helps to balance the information available on smaller companies that may inherently be more vulnerable to risks.
3.1. UNGC Violator Index (VI)¶
The UNGC VI for company $k$ and UNGC Principle $g$ is calculated as follows:
$$ \text{UNGC VI}_{k,g} = \sum\limits_{i \in \text{N}} w_s (i) \times w_r (i) $$
$$ w_s(i) = \left\{\begin{matrix} 1, & \text{if Severity of incident } i \text{ is } 1\\ 25, & \text{if Severity of incident } i \text{ is } 2\\ 100, & \text{if Severity of incident } i \text{ is } 3 \end{matrix}\right. $$
$$ w_r(i) = \left\{\begin{matrix} 1/3, & \text{if Reach of incident } i \text{ is } 1\\ 1, & \text{if Reach of incident } i \text{ is } 2\\ 1, & \text{if Reach of incident } i \text{ is } 3 \end{matrix}\right. $$
With $N$ comprising the company's incidents from the past two years that are associated with UNGC Principle $g$.
3.2. UNGC Violator Flag¶
The UNGC Violator Flag is determined by comparing the UNGC VI to two threshold values, $C_V$ and $C_P$:
$$ \text{UNGC Violator Flag}_{k,g} = \left\{\begin{matrix} \text{“Violator”}, & \text{if UNGC VI}_{k,g} \geq C_V\\ \text{“Potential”}, & \text{if } C_V \geq \text{UNGC VI}_{k,g} \geq C_P\\ \text{“Blank”}, & \text{if UNGC VI}_{k,g} \leq C_P \end{matrix}\right. $$
The thresholds depend on the number of incidents the company was associated with in the past two years (see the figure below).
3.3. Supply Chain Flag¶
The UNGC Violator Flag shows whether the UNGC violations are primarily linked to the company's supply chain (indicated by S) or operations (indicated by O). This is determined by comparing the UNGC VI to the UNGC VI calculated only based on supply chain incidents:
$$ \text{Supply Chain Flag}_{k,g} = \left\{\begin{matrix} \text{S}, & \text{if } \frac{\text{UNGC VI Supply Chain}_{k,g}}{\text{UNGC VI}_{k,g}} \gt 0.5\\ \text{O}, & \text{else} \end{matrix}\right. $$
4. Supplementary notes¶
4.1. Back-calculations¶
To ensure an optimal risk estimation, the UNGC Violator Flags are based on all data points currently available in the RepRisk dataset. Back-calculations may thus be performed in case new, previously not considered, incidents are added. For example, the Flag of company $A$ on day $t$ will first be calculated on day $t$ but may be recalculated later, if new incidents impacting the initial calculation are added.
4.2. Excluded sectors¶
Note that companies from sector 79 (development banks, central banks, and export credit agencies) are excluded from the calculation of the UNGC Violator Flag because of their distinct role as governmental and intergovernmental bodies.
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