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Labour standards in emerging markets

Peter van der Werf The labour standards situation differs greatly from country to country and sector to sector. Generally we see that in most developed markets the level of government regulation and industry body oversight is of good quality and ensures sufficient respect for labour standards. The situation is different for emerging markets. In the majority of the emerging markets workers are exposed to labour conditions that are not up to par with the set of labour standards Robeco expects as a minimum level. We use the UN Global Compact principles as our guidelines for labour standards and ask companies to comply with these ten principles. The labour standards principles find their foundation in the International Labour Organization guidelines.

UN Global Compact principles
The UN Global Compact is a worldwide standard for business conduct regarding human rights, labour standards, environmental management and bribery and corruption. The UN Global Compact currently has over 10,000 signatories. The following four out of the ten UN Global Compact principles apply for labour standards:
  • Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
  • Principle 4: the elimination of all forms of forced and compulsory labour;
  • Principle 5: the effective abolition of child labour; and
  • Principle 6: the elimination of discrimination in respect of employment and occupation.
Translate principles to criteria for labour conditions
We measure good labour conditions for workers on several criteria. First of all the companies need to hire workers without discrimination and when recruited the workers need to receive a written contract and receive payment of wages that are at or above the legal minimum wage. The payments need to be on time and without illegal deductions on the pay slips. Secondly, labour conditions at the workplace need to be safe to guarantee the workers health. The amount of hours worked per week needs to stay within the legal minimum and not exceed 60 hours per week, where workers need to be free to decline overtime hours. In addition, the workers need to have the right to form and operate a union that can represent them collectively in negotiations with the employer.

Sectors at risk
There are several sectors and countries that are classified as high risk regarding labour standards in emerging markets. The food and agriculture sector has a high risk exposure to labour issues upstream in the supply chain. For several tropical commodities most production takes place in developing countries in Africa, Asia or Latin America. Furthermore the seafood, electronics, toys and private car makers sectors are exposed to labour standards issues and therefore are part of our (enhanced) engagement programme.

Food & Agri sector
Palm oil, sugar, coffee, tea and cocoa are all classified as high risk commodities for labour standards. Cocoa for example is a crop produced solely by smallholder farmers and child labour is rampant. In answer to these issues many of the food producers and retailers have invested heavily in programs to fight child labour, most notably in West-Africa. Emerging Market companies under engagement on labour standards are Olam International, Cosan, Wilmar, Golden Agri Resources and Noble Group. Developed markets companies with large exposure to production in emerging markets are the traders Bunge, Archer Daniel Midlands and Associated British Foods; food producers Mondelez, Nestlé, Unilever and Coca Cola and retailers Ahold, Carrefour, Tesco and Metro.

Seafood sector
Another example where we engage on the topic of forced labour in the supply chain is shrimp production in Thailand. Migrant workers are used under modern day slavery conditions on fishing vessels in the supply chain of Charoen Pokhpand Foods (CP Foods). CP Foods is the largest producer of shrimp in Thailand and has large retailers such as Tesco, Wal-Mart, WM Morrison and Costco as clients that have exposure to forced labour in their supply chain through sourcing from CP Foods.

Sectors with large exposure to production in emerging markets
A third group of companies that to date still has major issues with labour standards are the labour-intensive manufacturing industries in China. The group for example comprises of technology component and assembly companies producing smartphones and tablets and companies that produce toys. We are in dialogue with Foxconn, one of the main assembly suppliers to Apple, and have seen good progress in improving labour standards since the occurrence of a significant number of suicides at the factory premises in 2010. Furthermore in our ‘Supply chain of electronics’ theme we engage with companies such as Apple, Samsung, Panasonic, Sony and Toshiba on labour standards in their supply chain with most production also taking place in low-wage Asian countries. The toys industry has a large exposure to Chinese production as well and we have recently initiated our dialogue with US-based company Mattel, focussing on the degraded quality of their audit system and transparency of audit results, next to the excessive amount of overtime recorded per month for the workers in their factories and their suppliers factories.

Supply chain management in automotive sector
Finally, a fourth sector at risk for labour standards issues is the automotive sector that has significant exposure to emerging markets. We have recently successfully closed our dialogue with Toyota Motor on issues with unions at their Philippine subsidiary. We have started an engagement with General Motors after the major explosion in August 2014 at a second tier supplier in China with a large number of fatalities. The company has fully denied any responsibility for working conditions beyond their first tier in the supply chain, which places the private car makers industry as a high risk industry in terms of supply chain management of labour standards issues.
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