In the decade or so since the UN Guiding Principles on Business and Human Rights (UNGPs) were established it has become increasingly accepted that companies have a fundamental responsibility to respect human rights in their operations and supply chains.
As investors it is incumbent on us to assess the extent to which our investee companies are adhering to the key tenets of the UNGPs. The failure to do so can introduce operational, regulatory, financial and reputational risk.
Understanding of and scrutiny over the negative impacts of business operations on employees and workers in the supply chain is increasing, particularly as it relates to an ability to afford a decent standard of living. The International Labour Organisation (ILO) notes that, whilst 90% of Member States have minimum wage legislation, many workers still earn below a minimum wage or struggle financially to meet basic needs. Assessing the impact of low pay and acting to mitigate or remediate this risk is one tangible way businesses can align with the UNGPs. This is something we have encouraged in our engagement program with investee companies for several years.
Read more on our past engagement work on living wages in the retail sector.
Definition of a living wage: ”A wage that enables workers and their families to meet their basic needs.”
Human Rights supported by the payment of living wages
- Right to enjoy just and favourable conditions of work
- Right of everyone to an adequate standard of living
- Right to rest and leisure including reasonable limitation of working hours
- Right of protection of the family
- Right of protection for the child
- Right to health
Working with the Platform Living Wage Financials
As part of our living wage stewardship work we collaborate with other investors through the Platform Living Wage Financials (PLWF), an alliance of 19 financial institutions, representing over €6.5 trillion of assets under management and advice. The group aims to encourage and monitor investee company efforts to enable living wages in their direct operations and supply chains. For a second year running we have maintained our role chairing the Garment Working Group.
Under the Garment Working Group’s methodology, we assess companies on the transparency of their living wage policies, how they engage with stakeholder initiatives and worker unions, efforts to assess the impact of non-payment of living wages, the integration of assessment findings and how brands track the effectiveness of their programs to culminate in remedy for workers. In 2022, we analysed 34 garment and footwear brands across 12 countries and were pleased to report that 19 companies improved their score on the previous year. Additionally, for the first time H&M has been joined by Puma in achieving ‘Advanced’ status in terms of their efforts to mitigate living wage impacts.
Identifying room for improvement
Overall, brands need to focus more on articulating the effectiveness of their living wage programs. There should be greater accountability on staff whose role it is to implement human rights programs, including living wage. They should be incentivised to act and be held accountable for any underperformance. We consider the role of multi-stakeholder initiatives and trade unions to be under-utilised, especially given that improved wages and effective remedy for workers is likely best achieved collaboratively. Further, we expect brands to be more vocal in their support for freedom of association and collective bargaining and seek to be proactive in communicating with and upskilling suppliers on these issues.
For the year ahead, we hope to see more embedded responsible purchasing practices, with clear evidence that brand impact assessments feed through to costing models and supplier pricing negotiations. Finally, as important as living wage gap analysis is, we believe a worker-centric approach is just as important. Brands should talk directly to workers, including those in the supply chain, to understand job-satisfaction and other factors, and provide appropriate grievance mechanisms so the worker voice can truly be heard and acted upon.
Garment Work Diaries: lessons from Bangladesh
We recently spoke at the PLWF annual conference to present the Garment Working Group’s assessment results. A keynote speech focused on the Garment Worker Diaries, an initiative whose aim is to facilitate dialogue between brands and workers. They provided insights from their work on the ground in Bangladesh, where the impact of non-payment of living wages is acutely seen in the living conditions of workers, who often live with multiple family members in confined spaces and have limited access to basic amenities. Garment Worker Diaries used their proprietary methodology to derive living wage estimates under various scenarios to conduct wage gap analyses. The data highlighted that workers often felt they had no choice but to undertake excessive overtime, whilst this had the impact of increasing the average take home pay, the resulting wage was still not sufficient to support the basic needs of workers and their families.
We also led a panel and breakout sessions to further discuss obstacles to living wage implementation alongside panellists including FairWear, the Fair Labor Association and Puma’s Head of Sustainability.
Key takeaways from the discussions include:
- Finance, social dialogue, and accountability are essential to the realisation of living wages
- Operational understanding of the importance of the living wage should be embedded throughout the organisation, particularly in procurement departments
- The assessment of living wage impacts must be part of an iterative process, accounting for external factors such as the economic environment
- Brands don’t have a direct responsibility to pay supply chain workers but should ensure their purchasing practices are sufficient to enable suppliers to pay living wages.
Ultimately, we consider living wages to be an important enabling factor to the effective mitigation of other human rights abuses. We will continue to prioritise engagement on this topic and leverage our involvement with collaborative engagement groups, such as the PLWF.