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Living wage platform expands focus

Living wage platform expands focus

04-11-2019 | Insight
An investor group set up to promote living wages is broadening its scope outside garments after marking its first anniversary.
  • Laura Bosch Ferreté
    Laura
    Bosch Ferreté
    Engagement analyst
  • Carola van Lamoen
    Carola
    van Lamoen
    Head of Active Ownership

Speed read

  • Platform Living Wage Financials celebrates successful first year
  • Collaboration was PRI ‘Active Ownership project of the year’
  • Focus on garments supply chain moves to other industries

Founded in October 2018, the Platform Living Wage Financials (PLWF) is an alliance of 12 mostly Dutch financial institutions that aims to improve conditions in the notoriously low-paid clothing manufacturing sector. In September 2019, it won an award for ‘Active ownership project of the year’ from the Principles for Responsible Investment – the first time that the prize was awarded.

A living wage is defined as one that covers a family of four’s monthly expenses, with a bit left over for saving. However, it can be difficult to calculate for any location, given the vast national and regional variations in the cost of living, including within the same country. The concept of a living wage also differs from a national minimum wage, which is set by a government, applied nationally, and is usually infrequently updated. Legal minimum wages are also usually below the living wage threshold.

The PLWF collaboration uses engagement with investee companies – mostly clothing and footwear brands – to raise wage levels in their global supply chains, with a special focus on manufacturers in emerging markets where working conditions can be challenging. Now the engagement work has expanded its focus to include the food, agricultural and retail sectors.

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Speaking up for living wages – delegates at the forum.

Raising the bar

“The initiative started to unite the forces from different financial institutions to assess the performance of companies in the garment sector in relation to the payment of living wages in their supply chains,” says Laura Bosch Ferreté, Robeco’s Engagement Analyst working on the project.

“We use that information to engage with the companies and raise the bar in the sector. Labor-related issues in the supply chains of garment industry have been particularly under the spotlight since the Rana Plaza disaster in Bangladesh in 2013 where more than 1,000 employees died because their building collapsed.”

“Rana Plaza was a health and safety issue, but when deep diving into the social issues in the garment sector, a recurring problem is that the living standards of the workers are so low that they are stuck in jobs with poor labor conditions. If your provide them with a living wage – namely an income that makes ends meet – that not only has an impact on their living standards in the short term, it also enables them to flourish in their communities.”

Taking the right steps – delegates assembled before the Rotterdam event.

Financial materiality

A major challenge is convincing a company that paying higher wages – and therefore raising its costs in a fiercely competitive environment – is in its long-term interests. This forms part of the importance of proving the financial materiality of environmental, social and governance (ESG) factors to show that it is not only an ethical issue, but also enhances performance in the long run.

“There are some financially sound arguments for paying a living wage,” says Bosch Ferreté. “Higher-paid workers are more willing to stay in your manufacturing plant, so they become more expert in the production line, and can produce more efficiently.”

“There is also a cost saving component because you don't need to keep on hiring and recruiting new people on a regular basis, and you actually can focus more on employee satisfaction and improving their skills as a workers, which will in turn contribute to improving your productivity. Moreover, paying living wages contributes to avoiding major reputational, legal and regulatory risks that companies might face if they tolerate inadequate labor practices.”

Consumers versus costs

However, costs are still perceived as a major impediment for producers, even though labor costs can account for as little as 2% of a garment’s shop price. “The main problem is that the garment sector has a lot of pressure in terms of pricing, and then need to keep on decreasing the price of the garment that they sell, so the ones that pay the price for it are the workers who end up earning low wages,” says Bosch Ferreté.

“Consumer behavioral patterns are also exacerbating this issue, as they are driving the ‘fast fashion’ production model. The fast fashion industry faces pricing pressure, and that squeezes the suppliers, leading to more serious issues about labor practices. There needs to be a commitment from brands in terms of sourcing in a more responsible manner from suppliers in the long term.”

Expanding the scope

The initiative is now targeting other industries. “This year we started expanding the scope, so PLWF is also looking into the food and agricultural sector and the retail sector, including supermarkets,” says Bosch Ferreté.

The collaboration has enjoyed much success in its first full year, staging a forum in Rotterdam in October 2019 to assess the results so far and allow the participants to compare notes. It was attended by a large turnout of more than 100 people, including the institutional members such as co-founders MN and ASN Bank, along with several brands, NGOs, academia and representatives of the Dutch government. Robeco’s Global Head of Fundamental Equities, Fabiana Fedeli, opened the event.

Campaign is bearing fruit

“Last year we had the first round of assessments when we ranked about 20 companies that we engage on their progress in paying living wages,” says Bosch Ferreté. “In the second round this year, we saw some welcome changes in the rankings, which we presented at the event.”

“A good example of how the companies are moving on was a major brand that had actually moved from the ‘developing phase’ to the ‘maturing phase’. They had significantly improved their performance in terms of having a more comprehensive policy on living wages and a more comprehensive grievance mechanism in place to cover the potential violations of labor-related issues in their supply chains.”

“So, we've seen a fair bit of progress in the industry, even though we've only been engaging with them for a year. We think this collaborative platform actually raises awareness about the topic and creates more pressure in the entire industry to further improve their practices.”

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This information is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation.
The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). Robeco Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is subject to certain clientele restrictions under such license.
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