While environmental risks and governance issues like boardroom excess and chairmanship have been on investors’ radars for years, it has taken a while for the trio of ESG factors to be rounded out. The ‘S’ has only recently come to greater prominence, as companies and investors identify social issues as factors to which they should be more alert – with headline issues including diversity, modern slavery and supply chain safety.
Leading companies are already taking steps to improve their approach – for example, in a significant step forward for the ‘Who Picked My Tea’ campaign, Twinings recently became the latest brand to publish a list of the plantations in India where it sources supplies. Often, however, there has been a missing part of the puzzle: shareholders. Concerted action by investors to understand and acknowledge better workforce practices is a key driver that is now falling into place.
Some of this heightened interest can perhaps be attributed to the catastrophic collapse in 2013 of the eight-story Rana Plaza building in Bangladesh, when more than 1,300 people – including many garment workers – lost their lives, with thousands more injured. Significantly, it took a long time for major brands to fully acknowledge the extent of their own links to the destroyed factories, as the web of supply chain contracts left a hazy picture as to who was actually fulfilling their garment orders, and under what conditions.
This preventable disaster acted as a catalyst for driving supply chain visibility up the agenda, for both consumers and the companies they favor. The introduction of new workforce legislation has highlighted that the risks are not confined to apparel but cover the full spectrum of the economy. Big money managers like pension funds have also been adding their voice to calls for more transparency so investors can be assured that companies are truly valuing their most important asset: their workers.
Better workforce data can generate rewards for investors and companies
Much like with climate, disclosure is a vital starting point for investors to understand and drive up performance in their investee companies. In order for investors to push for better workforce management, they need numbers on which to base their decisions and inform engagement with boards. But much of this data is lacking and, where it exists, many investors say it is fragmented and inconsistent.
To plug this gap, enter the Workforce Disclosure Initiative (WDI). More than 100 investors with $13 tn in assets under management (including UBS, Amundi, HSBC Asset Management, Legal & General IM, Nordea, OPTrust, Rockefeller & Co, Union Investments and AustralianSuper) are backing the WDI, co-ordinated by responsible investment charity ShareAction. The WDI provides a platform for companies to disclose key workforce information to investors via an annual survey and, crucially, it covers the workforce as a whole – both workers in direct operations and the supply chain.
To kick off the second year of the initiative, in July this coalition sent the survey to 500 companies around the world. Invited companies include Ahold Delhaize, BASF, China Mobile, Gap, IHG, Rolls-Royce, Sodexo and Walmart. The WDI digs below the surface to provide investors with insights on the makeup of who is being recruited, trained and retained within companies, with an eye on how this links to company strategy.
Several companies that participated in the WDI’s pilot year found the process beneficial in terms of their own internal insight, too. Edward Dixon, sustainability insights director at Land Securities, says of the WDI: ‘This is pushing us to look at areas we haven’t looked at before and is highlighting gaps in our knowledge. For us, the most noticeable data gaps are with our one-off contractual relationships and construction projects.’
Translating workforce disclosure into decent work for all
Thanks to investor engagement in the WDI’s 2017 pilot year, 45 percent of the targeted companies disclosed data. Respondents included Barrick Gold, British American Tobacco, Compass Group, Inditex, Microsoft, Nestlé, Sainsbury’s and Vinci. This year, investors expect companies to engage with the WDI request for workforce data and are keen for this information to be in the public domain.
According to Matt Christensen, AXA’s global head of responsible investment: ‘As companies have been reinforcing their disclosures on environmental topics over recent years, we wish to see a similar effort with social factors. Companies should disclose data that is material, consistent and comparable enough to truly understand their approach to workforce management in their annual reports.’
The ultimate goal of the WDI is to ensure better-quality jobs, in alignment with the UN’s Sustainable Development Goal Eight, which calls for decent work for all. And all is the key word here. Big-name companies can help to get the ball rolling by shining more light on their own workforce policies and practices, and those of their suppliers.
While demonstrating accountability on workforce issues and good governance practices is important for investors, it is of keen interest to wider stakeholders, too. With millennial recruits increasingly looking at the environmental and social impact of their employer as well as the incentives on offer, it is in the operational and financial interests of companies to demonstrate that their business models prioritize people as well as sustainable profits.
Clare Richards manages the WDI as part of ShareAction’s Good Work program