Focusing on the 'S' in ESG: Labour & Decent Work

August 17 2023 - Juliana Burden, Head of Ethical Research

Global labour standards continue to decline

In June 2023, the International Trade Union Confederation (ITUC) published the tenth edition of its Global Rights Index, which ranks 149 countries according to a review of workers' rights in each country. The 2023 Index indicates that violations of workers' rights have reached record highs, with ITUC Acting General Secretary Luc Triangle stating that across both high-income and low-income countries, working people are facing a historic cost-of-living crisis and rapidly accelerating inflation driven by corporate profiteering, and a crackdown on the right to collectively negotiate wage rises and take strike action.

Cost of living crisis hitting UK workers hard

In the UK, inflation driven by the increase in the cost of necessities such as energy and food has left millions of households struggling to pay their bills. Data published by the Office of National Statistics (ONS) show that in the year to June 2023, the price of food and non-alcoholic beverages rose by 17.4% and that around four in ten adults now say they are finding it difficult to afford their rent or mortgage payments.[1] The Trussell Trust reports that by late 2022, around one fifth of those using its nation-wide network of foodbanks came from a working household with the types of workers being referred to food banks including trainee nurses, teaching assistants, factory workers, retail employees and delivery drivers who are finding that their income is no longer sufficient to cover basic living costs.[2] Such poverty has led many to borrow or use credit to pay for essentials leading to increased levels of indebtedness. For those at the sharp end of the crisis, this has also meant greater vulnerability to exploitation as people are forced into accepting insecure or unsafe work in order to make ends meet.

Responsibilities and opportunities for companies

While the UK government has introduced a number of support measures intended to alleviate the impacts of the crisis, particularly for the lowest income households, it is widely recognised that companies also have a vital role to play. Recent research undertaken by the Work Foundation at Lancaster University indicates that two-thirds of senior business leaders acknowledge that assistance from employers is essential in supporting staff through the cost of living crisis but just 40% had introduced any assistance since the start of 2022.[3] Such measures have included one-off cost-of-living payments and pay rises above standard rates as well as financial advice and interest free loans but overall, this support has tended to be ad-hoc and short term. The Foundation recommends more permanent structural change such as the strengthening of employment rights by government in order to ensure everyone has access to secure work and for employers to introduce pay which tracks inflation. The Living Wage Foundation, an initiative of Citizens UK, which works alongside community organisations, unions and companies, has long campaigned for employers to provide their staff with a decent standard of living by paying the real Living Wage (vs. the National Minimum/Living Wage), adopting Living Hours and Living Pensions as well as good employment practices. The Foundation reports that over 13,000 companies currently voluntarily pay the real Living Wage including half of the FTSE 100 (although not all of these have accreditation from the Foundation).[4]

Trade unions also stress the need for companies to recognise and support employees' rights; the ability to unionise and bargain collectively can enable workers to negotiate higher pay and better working conditions, and to ensure they have the right representation in the workplace. Having a unionised workforce has also been found to benefit employers as well[5]; in the UK, figures published by the Department for Business & Trade in 2022 show that almost half of UK employees who were trade union members had stayed with their employer for 10 years or more, compared to under a quarter of non-union member employees. [6]

U.S. labour laws failing to protect unionised workers

Recent media reports have exposed the risks that unionised workers can face; in the U.S., major corporations such as Amazon, Apple, Chipotle, Tesla and Trader Joe's are accused of engaging in illegal anti-union tactics against staff. Such tactics have included firing employees in retaliation for backing a labour union, thereby deterring others from doing the same, unnecessarily prolonging contract negotiations with unions and employing consultants to dissuade workers from joining a union. [7] The National Labor Relations Board (NLRB) is tasked with safeguarding employees' rights to organize but since the National Labor Relations Act does not provide for substantial penalties for illegal actions, its regulatory powers are limited meaning there is little incentive for businesses to cease anti-union activities.

Support for improvements is coming from investors, as shareholder resolutions filed at company AGMs in North America in 2023 clearly show that investors are paying to attention to workers' concerns - resolutions include those pushing for fair pay and improved working conditions.[8]

Drivers for Change

The ITUC Secretary has stated that;

“To reinforce the fabric of our societies, to renew and establish democracy and to support working people we need a new social contract: decent jobs, just wages, social protection, fundamental rights, including safe and secure work and the assurance of equality and inclusion."[9]

These goals seem ambitious in such troubled times but there are encouraging signs which indicate that in addition to companies and investors taking action, lawmakers in some jurisdictions are also focused on driving positive changes for workers. In the U.S., a number new regulations proposed by the Federal Trade Commission, various states and the Securities and Exchange Commission also aim to strengthen workers' rights and expand the scope of regulatory disclosures for companies on human capital.[10] These moves follow on from new legislation in the EU such as the Corporate Sustainability Reporting Directive (CSRD) which entered into force in January 2023 requiring large companies and listed companies to publish regular reports on the social risks they face, and on how their activities impact people (and the environment).[11] Increased transparency on social indicators enables employees, investors and other stakeholders to make more informed decisions about the companies that they work with. Progress may be slow but it is moving in the right direction.

At Ethical Screening, the Social element of our ESG research into listed companies includes data for a range of key performance indicators relating to labour standards such as; commitments to uphold the principles of the ILO Core Conventions; pay a real living wage; disclosure of the proportion of the workforce that is unionised or covered by collective bargaining agreements; health and safety performance; equality, diversity and inclusion. In addition, our Ethical screening criteria enable clients to exclude companies from investment where serious breaches of labour and human rights have been identified.

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