In order to conduct a meaningful engagement with our investee companies, we carry out an annual assessment of their performance against a robust living wage assessment methodology. This is aligned with the Reporting Framework of the United Nations Guiding Principles on Business and Human Rights (UNGPs), with large part of the assessments having also received external assurance.
Methodology upgrade
Some aspects of the assessment have become stricter following the update of our methodology at the beginning of 2020. The methodology upgrade was carried out in collaboration with an external accountancy firm to ensure a robust process whilst remaining to the UNGPs. It was needed to raise the bar and encourage further progress in the sector. We believe companies need to move beyond policy disclosures and showcase their performance on accelerating the payment of living wages on the ground.
Another change from previous years is that we added a new category when communicating the results. Instead of max 40 point divided into 4 categories we now have 5 categories whereby we reserve the last 36-40 points for companies that truly lead – meaning do everything in their sphere of influence to enable living wage to be paid in their supply chains.
2020 Assessment Results: The quest for living wages persists
In September 2020 members of the Garment & Footwear working group have concluded the assessment of 29 companies. The results from our 2020 living wage assessment are presented in the figure below. It portrays an accurate image on the progress companies have made in terms of translating corporate policies on living wages into concrete practices.
Companies under scope
We publicly disclose the results of 27 companies out of 29 that have been assessed in 2020. Two companies are excluded from this year’s overview of the final assessment results as the engagement with these companies has only started relatively recently. PLWF members leading the relevant engagements have focused on building a meaningful dialogue on the companies’ overall sustainability strategy and the position of workers’ rights and compensation in this strategy. These companies are namely Fast Retailing and Home Depot.
Due to corporate structure changes from our investee companies we had to discontinue our engagement efforts with some companies under our engagement scope in previous years. This contributes to explain why the list of companies might vary slightly from year to year.
Key findings
- Overall results are in line with previous years. Despite the upgrade in our methodology and slight change in scoring and weighting, we see quite a similar picture this year compared to previous years. There is overall progress in embedding the relevance of living wage within the industry. Only one company has effective processes in place to ensure progress to a widespread payment of a living wage across its supply chains. None of the companies assessed proved to have sufficient processes in place to guarantee the full payment of living wages across its own operations and supply chain.
- Living wages remain on top of the corporate agenda. Most of the companies assessed are classified in the maturing and developing phase. This implies that companies recognize the payment of a living wage as a salient issue and embed this in their formal policies. Yet this is not consistently followed by formal processes to address this issue, such as setting target wages around a living wage benchmark.
- Compliance with national minimum wages prevails as a fundamental requirement. Although the policy of many companies make reference to a living wage, the hard requirement for suppliers is always compliance with the national minimum wage. We recognize the need to establish this basic requirement from a legal and compliance standpoint. However we would expect companies committed to respect human rights to establish wage requirements linked to appropriate living wage estimates.
- Due diligence steps do not always follow a sequential order. We would expect companies to prioritize their efforts by mapping the high risk areas in their supply chain where wages diverge significantly from living wage estimates. This assessment should be followed by concrete actions to close the wage gap and consistent measurement of the effectiveness of these actions. In practice we recognize that few companies follow this linear due diligence assessment. Instead, companies might prioritize key suppliers or sourcing areas when analyzing wage levels, without providing a compelling rationale behind this approach.
- Limited evidence on outcomes from multi-stakeholder initiatives. Industry-wide collaborations are crucial to ensure the sector advances towards concrete solutions to accelerate the payment of living wages. Most companies collaborate with multi-stakeholder initiatives, still there are limited disclosures on how these partnerships contribute to drive wage improvements on the ground. We would expect companies to articulate the strategic relevance when participating in these initiatives, whilst formulating how the outcomes from these programs contribute to close the wage gap.
- Meaningful disclosures are paramount. Companies in the garment and footwear sector operate in a highly competitive industry with mostly tight margins. In order to mitigate adverse impacts on human rights in the supply chain, basic disclosures on the relationship with suppliers and how wage levels are being monitored and accounted for in their procurement and purchasing practices are indispensable.
Outlook for 2021: Stitching back together the garment supply chain
We recognize the fashion industry has been severely affected by the COVID-19 pandemic in 2020, impacting not only garment brands but also their supply chains. Yet workers in low-cost manufacturing countries have been hit hardest given the lack of robust social protection systems in these markets. They are more exposed to sudden termination, lack of severance pay, inadequate social security and health insurance.
This epidemic has shifted investor focus on how companies treat their employees, customers and suppliers. There has been a special focus on this industry, as vulnerabilities in the garment and footwear supply chains have been exposed at its crudest. Payment of living wages can play a pivotal role in building resilient supply chains in the long run, whilst contributing to substantially reduce the pressure on garment workers. If there was ever a time for working towards a living wage it is now.
The fundamental question to be answered is whether the current business model in the garment and footwear industry will ever be suitable to the living wage requirements. We firmly believe these two can go hand in hand, only if all parties involved in the industry are committed to structurally work towards respecting this fundamental human right. We will continue to leverage our influence as investors to work towards this goal through our meaningful engagement and assessment efforts.
More information
We also encourage you to refer to the recently-published ASN Bank publications for more information on the methodology update and findings from the 2020 living wage assessment cycle