Engaging to improve labor practices in the post-Covid world

Robeco’s Active Ownership team has begun talks with eight companies in the retail and hospitality sectors and the wider ‘gig economy’ in Europe, North America and Asia.

The gig economy is where workers do not have fixed-term contracts guaranteeing certain rights, such as paid holidays or health care, and has grown massively during the pandemic. It includes workers such as delivery drivers who are not salaried but paid by the hour.

“Covid-19 spurred shifts in behavior among consumers and businesses that are causing the greatest disruption in labor-intensive sectors,” says Engagement Specialist Laura Bosch. “Our engagement program will encourage companies in the retail, hospitality, and gig economy sectors to uphold robust labor practices and human capital management strategies.”

The team’s priorities will relate to seeking decent work and fundamental workers’ rights, such as social dialogue, wages and benefits and occupational health and safety. They will also look for strong human capital management strategies, including diversity and inclusion, human capital development and employee engagement.

To ensure sufficient safeguards and corporate accountability on labor-related topics, the engagement will addresses companies’ overall transparency levels in reporting on issues and the governance structures they have in place to deal with them.

While many of these issues were present prior to the pandemic, they were made worse as people were forced to work from home, switching to online shopping and meal delivery during the lockdowns. This gives rise to six engagement objectives that the team will be pursuing, as shown in the graphic below:

“Covid-19 has brought labor practices in labor-intensive sectors under the magnifying glass,” says Bosch. “On the one side, sectors such as e-commerce and the online food delivery sector have grown two to five times faster than before the pandemic. The booming demand has highlighted the controversial working contracts defining gig work in the online food delivery sector and has shone light on the high-pressure work environment of food retail and e-commerce companies.”

“On the other side of the spectrum, the hotel industry has been facing a business crisis due to the social mobility restrictions imposed throughout the pandemic. Although sporadic demand, rapid-fire recruitment and retrenchment of staff have always been part of the hotel industry, the Covid-19 pandemic has amplified these previously hidden issues as workers struggled to secure an income whilst hotels remained closed.”

“The growing social pressures, regulatory changes, and trends towards increasing automation, have caught the attention of investors. Inadequate labor management can not only expose businesses to legal, operational, and reputational risks, but if improved can also strengthen companies’ competitive advantage in a post-Covid-19 world.”

Bosch says poor labor practices are an issue of ‘double materiality’ for investors. “The systemic perspective focuses on the impact a company’s activities have on the environmental and social well-being that can affect the real economy and subsequently the financial markets,” she says. “Meanwhile, the business perspective examines the impact environmental and social issues can have on a company’s valuation through adjustments of the value drivers.”

The impact that Covid-19 has had on the market cannot be underestimated; aside from the global disruption to trade and normal living, the International Labor Organization estimates that 144 million jobs were lost at the height of the pandemic.

Global labor income declined by 8.3% in 2020 relative to 2019, and most job losses were among more vulnerable workers who could not afford to lose all or part of their livelihoods.

“The 2020 labor market disruption far exceeded the impact of the global financial crisis of 2009,” says Bosch. “Covid-19 emphasized the importance of businesses’ social license to operate given the vulnerability and precarious employment status of some workers, exposing a prevalent lack of adequate safeguards necessary to protect workers and enforce their labor rights in times of hardship.”

“For the gig economy, which offers flexible, temporary, or freelance jobs through online platforms, Covid-19 has emphasized weaknesses in the current set-up. During the pandemic, food delivery apps experienced a sharp increase in demand, nearly doubling their revenues and leading to an increased need for gig workers.”

“Many of these gig delivery workers have been particularly exposed to occupational health and safety risks, due to low means of protective equipment, while having minimal access to paid sick leave and health care.”

“The challenge with the gig economy is that many workers are in desperate need for an income to provide for their families and thus accept low salaries and poor working conditions.”

“Our engagement program therefore focuses on protecting workers’ rights and upholding appropriate labor practices in labor intensive sectors, targeting those sectors that have experienced a massive disruption in their operations due to the pandemic.”