Navigating UNGC and OECD Standards: A Practical Guide for Investment Managers

Introduction

As sustainability expectations mature, investment managers are increasingly required to demonstrate robust, globally-aligned approaches to managing environmental and social risks. At the heart of this are two frameworks: the UN Global Compact (UNGC) and the OECD Guidelines for Multinational Enterprises.

Alignment to these frameworks can provide a reliable, accountable way to manage regulatory risk and demonstrate commitment to responsible investment practices.

However, lengthy and convoluted supporting documents and a lack of prescriptive guidance can make it difficult for stakeholders to know what to put in place and how to evidence their commitment.

Under the SFDR 2.0 proposals, companies breaching the UNGC principles or OECD Guidelines face automatic exclusion from labelled funds, elevating the importance of robust screening for Article 8 and 9 fund managers and those considering them.

This article provides a practical guide to help firms demonstrate and determine alignment to the UNGC and OECD standards.

UN Global Compact (UNGC)

The UN Global Compact (UNGC) is a voluntary, principles‑based initiative open to companies of all types and sizes, offering a simple route to demonstrate commitment to responsible business practices. Participation requires only a CEO signed letter of commitment, through which firms publicly endorse the 10 UNGC Principles covering human rights, labour standards, environmental responsibility, and anti‑corruption. Rather than prescribing detailed processes, the UNGC focuses on transparency and accountability, with participants expected to publish an annual Communication on Progress (CoP) report outlining how the principles are being embedded into policies, practices, and outcomes. The UNGC is widely recognised as a simple way for organisations to signal their commitment to environmental, social, and governance values and principles.

OECD Guidelines

The OECD Guidelines for Multinational Enterprises (OECD Guidelines) provide a more process driven and prescriptive framework for responsible business conduct, setting out clear expectations for how firms should manage environmental, social and governance risks in practice. Rather than focusing on high‑level principles, the OECD Guidelines require firms to implement a six‑step due diligence process to identify, prevent, mitigate and remediate adverse impacts across areas including human rights, labour standards, environmental impacts, bribery and corruption, governance, consumer interests and supply chains. For EU‑facing investment managers, alignment with the OECD Guidelines has become a practical necessity, as key EU sustainability regulations such as SFDR 2.0, the EU Taxonomy, CSRD and the forthcoming CSDDD explicitly recommend the OECD guidelines for due diligence and to help firms demonstrate compliance with minimum standards and credible sustainability practices.

UNGC vs OECD

While the two frameworks are similar in their outlook and aims, their requirements are quite different.

A key consideration for investors and managers is in the way terms are defined by these frameworks. Under the OECD Guidelines for example, “risk” refers to the potential for a company to cause adverse impacts to people, the environment or society which contrasts with investors’ usual understanding of risk as the likelihood of financial underperformance or regulatory non‑compliance.

Similarly, OECD “due diligence” is defined as an ongoing process to identify, prevent, mitigate and account for adverse impacts, whereas investors typically view due diligence as a pre‑investment check to assess financial and legal risks. These differences may (at least initially) be challenging for investors who are accustomed to interpreting both concepts through a financial lens. To comply with the OECD Guidelines, investors must adopt a broader perspective, requiring them to evaluate and manage external, societal harms, not just risks that affect portfolio performance. As such, understanding these concepts will be critical for those seeking compliance with SFDR 2.0.

The table below provides a high-level overview of what’s required by each framework and why an investment manager might choose to align with one or both of the frameworks.

	UN Global Compact (UNGC)	OECD Guidelines
Description	Voluntary, principles-based commitment under the UN (10 Principles).	Government endorsed standard with detailed due diligence expectations.
Focus	Values driven global norms and public commitment.	Operational due diligence across human rights, labour, environment, and governance.
Application	All companies	Multinational companies and investors.
Requirements	Commit publicly (website, reports etc), embed principles into policies (RI, stewardship etc), annual CoP reporting.	Annual reporting demonstrating implementation of 6-step OECD due diligence framework (assess, mitigate, track, report). Include alignment disclosures in reports (ESG, Stewardship, SFDR, TCFD) and website disclosures and DDQs.
Participation	Formal participant via CEO commitment letter.	No membership; firms publicly adopt and operationalise the Guidelines.
Regulatory alignment requirements	Moderate – referenced in EU regulations.	High – required under SFDR and other EU regulations.
Reporting	Annual Communication on Progress (CoP).	Evidence-based reporting on due diligence, risks, mitigation and remediation.
Monitoring	External tools and data for screening violations in investment portfolios (MSCI, Sustainalytics etc)	External tools and data for screening violations in investment portfolios (MSCI, Sustainalytics etc)
Due diligence	High-level expectations; not prescriptive.	Detailed, risk-based, and process-heavy.
Supply chain consideration	Encouraged through principles.	Explicit and central to compliance.
Best for	Public signalling, early-stage ESG maturity, reputation.	Robust ESG processes, EU regulatory alignment, complex global portfolios.
Difficulty level to adopt	Simple; low commitment.	Challenging; prescriptive requirements.
Why adopt	Global credibility, simple to implement, strong signalling.	Strong due diligence credibility, aligns with EU rules, detailed process guidance.

The UNGC and OECD frameworks help investment firms demonstrate a credible commitment to responsible business conduct by aligning their practices with globally recognised standards on human rights, labour, environmental management, governance, and due‑diligence expectations.

While both frameworks share similar aims, they differ in scope and depth of requirements. In practice, firms may choose the UNGC for its strong signalling value and ease of adoption, and pair it with the OECD Guidelines for a more comprehensive, operationally rigorous, risk‑based due‑diligence approach that aligns closely with EU regulatory expectations.

If you’d like more information or advise on aligning with the UNGC or the OECD Guidelines, please get in touch.