2018 engagement outcomes

What purpose serves this overview?

This overview of our engagement with the garment sector has two aims. First, we would like to give you, our stakeholders, an idea of how we work by providing an insider perspective of the engagement trajectory. We do not disclose any sensitive company information; this overview is anonymized for reasons of confidentiality and further growth in trust-building with our investee companies. Nevertheless, we would like to offer some high level insight of the topics and solutions discussed. Second, we would like to share our ideas for where the discussions need to proceed going forward. To that end, we are proposing a ‘best practice’ handbook to be used in and outside of our sphere of engagement.

What is our main impression from the 2018 talks?

In the publication of the 2018 assessment results, we categorized the companies under review into four stages: companies in an embryonic stage, developing stage, maturing and a leading stage. Most companies we engage are in the developing and maturing stage. The type of conversation we have depends on the stage a company finds itself in.

Embryonic: Typically, companies in the embryonic stage know the concept of a living wage, but they have not yet incorporated it in any policy nor did they adopt any living wage definition. In our view, this does not always stem from the unwillingness on the part of the company’s board or sustainability department, although we have also encountered examples of companies that do not perceive living wage as a salient issue for their business and thereby choose not to address it. Often, company inaction has to do more with a lack of time and/or human resources dedicated to the implementation of specific labour rights. We therefore advice these companies to first and foremost do a salience analysis and determine if living wage is indeed a salient risk in their supply chain. In general, wages are considered a salient risk in this sector, but there may be circumstances where the company sources from middle- or high-income countries where collective agreements or legal minimum wages safeguard a decent standard of living for workers and their families.

Provided an ‘embryonic’ company does identify wages as a salient issue, we ask it to start drafting a policy with a strong living wage definition. Joining an MSI that has a living wage in its Code of Conduct also contributes to embarking on the living wage journey. For 2019, we will check whether these companies have made the necessary steps to progress on this issue.

Developing: Our dialogue with companies in this stage revolved mostly around their living wage definition and stakeholder collaborations. We emphasize the need for a strong living wage definition as this sets the tone for the actual implementation of the company’s living wage commitment. The stronger the definition, the easier it is to draft a relevant wage ladder and/or determine a possible wage gap in production countries. Some companies have welcomed our insights regarding which definition is best and which MSI or experts they should engage with. Again, we did not sense a conscious aversion from these companies towards the topic of living wage. Often, we felt the companies were lacking information and guidance.

Companies in the ‘developing stage’ need to make progress on defining the wage gap and collaborative approaches to start making impact. We will carefully monitor this going forward.

Maturing: Companies in the maturing stage have been both individually and collectively working on living wage. Collectively, these companies have been working through MSIs such as the Fair Labour Association (FLA), Sustainable Apparel Coalition (SAC), Ethical Trading Initiative (ETI) and ACT (act on living wages). Although these initiatives have contributed greatly to raising awareness around living wage, we also see some challenges. Some companies lean too much on these MSIs, thereby ‘outsourcing’ their own responsibility towards determining the wage gaps and monitoring progress on the impact of their efforts. Occasionally, we also felt that some companies were not too active as a member of an MSI and they lacked awareness as to what was going on in the field of wages. The dilemma here is that most MSIs only disclose aggregate data of  wage projects which makes it hard for us investors to refer back to individual investee companies. Another interesting issue that came up during our talks with these companies was the vantage point from which they embarked on their living wage journey. The approach of some companies is very human rights-centred; these companies acknowledge that living wage constitutes a human right and that their suppliers should work toward it. Others put less emphasis on the nature of living wage as a human right, but are still trying to achieve better wages through raising efficiency in production lines. We do not oppose the latter, but we would like to see companies embrace living wage as a human right that needs to be respected, no matter the circumstances.

We appreciate that the efforts of these ‘maturing’ companies’ often function as best practices for others. Going forward, we would like to see more transparency on wage data and impact; in other words, does the implementation strategy actually result in better wages?