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Shoulder to Shoulder

Investors encouraged to work more closely with unions to protect the rights and livelihoods of workers in the fast-expanding gig economy.

It has been almost eight years since Uber lost a high-profile labour rights case at a UK employment court which declared the firm could no longer describe drivers as self-employed.

The 2016 landmark ruling ensured thousands of workers were entitled to the national living wage, and would be eligible for holiday and sick pay, as well as pension contributions.

In 2021 the US Supreme Court upheld a similar lawsuit – originally filed in 2016 – which secured Uber drivers’ positions as employees.

The stock price of the ride-hailing and courier services company fell 1.6% in pre-market trading on the day of the Supreme Court ruling as traders considered the negative implications for the firm.

Ongoing disputes

Yet despite the attention the Uber rulings received, it seems large, listed companies – especially those dependent on the ‘gig economy’ – may still struggle to identify an employee when they hire one.

This February Royal Mail delivery drivers – working under the ParcelForce brand – took the firm to court for classifying them as self-employed, which not only denies them access to holiday pay and the minimum wage, but also means they have no control over the days or hours they work.

In the same month, food delivery workers raised concerns about pay and conditions in a Valentine’s Day strike across the UK and North America impacting Uber, Door Dash, Deliveroo and Just Eat.

The disruption saw London-headquartered Deliveroo’s share price slide steadily from 120.4 pence (150 US cents) on 14 February to 116.6 pence two weeks later.

This is not just an issue for asset owners in regard to loss of returns, according to Remi Fernandez, Manager, Human Rights, Social and Governance Issues at the UN Principles for Responsible Investment (PRI), which issued a paper in June 2022 offering guidance on ‘How investors can advance decent work’.

It also has a fundamental bearing on their commitment to upholding basic human rights, he says, as enshrined in the UN Universal Declaration on Human Rights, the OECD Guidelines for Multinational Enterprises and the core conventions of the International Labour Organization (ILO).

Fernandez says: “Institutional investors have a responsibility to respect human rights as formalised by the UN and OECD in 2011. The PRI decent work paper articulates how investors can support workers through ensuring minimum decent work safeguards.”

The PRI recommends investors support the four pillars of decent work comprising workers’ voice and social dialogue, which includes collective bargaining and freedom of association; a living wage paid regularly and on time that enables saving for long-term needs; access to benefits and health and safety protection; and equal opportunity of treatment.

To enforce the four pillars, the PRI encourages investors to conduct stewardship, engage with policymakers and drive meaningful corporate disclosure on working conditions.

Making an impact

The PRI’s work – and that of UK NGO ShareAction’s Good Work Coalition, which has 43 members with US$6.6 trillion in assets under management and advisory – is having a discernible impact in driving asset owners and managers to act. In turn, some companies are implementing better work and pay conditions.

A report by the Committee on Workers’ Capital (CWC) highlights that large European asset managers largely voted in support of fundamental labour rights during 2023’s proxy season. Although Fernandez notes “this approach was not shared with US peers who pursued alternate means of engagement”.

Meanwhile, members of the Good Work Coalition supported a ShareAction co-ordinated shareholder resolution on the Living Wage at UK retail group Sainsbury’s in 2022, which led to the company guaranteeing the real Living Wage to all directly employed staff.

The move has had repercussions across the sector. Dan Howard, Head of Good Work at ShareAction, says: “We’ve since seen the major UK supermarkets benchmarking their minimum pay rates to the real Living Wage rate.”

Yet despite the advent of the Good Work Coalition and the publication of the PRI recommendations almost two years ago, the ILO says “millions of workers worldwide – in both the formal and informal economies – continue to earn very low wages compared to the cost of living and live in poverty”, meaning they are “unable to afford healthy food, decent housing, medical care or schooling for their children”.

One reason investors are failing to make more of a difference, Howard says, is because they are simply not exposed to those companies that significantly rely on gig workers.

“The challenge is that many investors who have strong stewardship policies and approaches may not hold shares in companies within the gig economy due both to concern for workers’ rights and regulatory compliance. This places limits on the scope of their engagement with these companies.”

Growing economy

However, given the rate at which the gig economy – which is reliant on independent workers employed on a temporary basis – is growing, it may be far less feasible for investors to simply avoid exposure to participating companies.

The gig economy is expanding three times faster than the total US workforce, and over 50% of US workers are likely to participate in the gig economy by 2027.

Meanwhile the European Council estimates there were 28.3 million gig workers in the 27-country EU in 2022, almost equal to the 28 million in the manufacturing sector, and expects the number to near double to 43 million in 2025.

Howard says: “Unfortunately, we are seeing an increase in independent contractor forms of employment, and I would expect this trend to continue if increased automation is implemented without consultation from workers.”

Given this expected growth, investors that have an interest in protecting workers’ rights need to be able to engage with companies and drive better practices.

The effectiveness of such engagements, PRI’s Fernandez says, is dependent on several different factors such as asset class, liquidity of instrument, and size of ownership stake.

“We encourage investors to seek to build leverage where they find it is currently insufficient. This could be through working with other investors and/or participating in collaborative stewardship initiatives.”

ESG Investor found some asset managers reticent to comment on their work with companies involved in the gig economy, including those that have been vocal about workers’ rights in the recent past.

Julia Wittenburg, Head of Active Ownership at J Safra Sarasin Sustainable Asset Management, says her firm looks at workers’ rights “in the context of a broader human rights analysis”.

She says: “We take related key performance indicators into account in our sector-specific sustainability and investment analysis and we also monitor our investments for human rights-related controversies.”

Wittenburg explains: “If such a controversy gets flagged for a company in which we are currently invested or a company that is in our investment universe, we may, depending on the severity of the issue, conduct an engagement with the company to form an opinion on the matter. In the past, we have downgraded our in-house sustainability rating in situations where a company failed to address the controversy sufficiently.”

Wittenburg says the asset manager has also co-signed investor letters on workers’ rights, using the example of an US investee company that failed to provide its workers with the possibility to unionise.

Collective bargaining

While Wittenburg does not refer specifically to Starbucks, the global coffee chain has recently been involved in an extended period of what the US Senate Committee on Health, Education, Labor and Pensions called an “aggressive and illegal union-busting campaign”.

The dispute resulted in a shareholder proposal at the Starbucks 2023 AGM which garnered support from 52% shareholders endorsing the call for a review of Starbucks’ adherence to freedom of association and collective bargaining commitments outlined in its Global Human Rights Statement.

This March Starbucks and the union organising its US employees agreed to begin talks with the aim of reaching bargaining agreements.

The Starbucks case highlights the importance of investors going beyond company reports and getting in touch with those working on the shop floor. However, according to UK-based proxy advisor PIRC making such contact is not always straightforward.

A spokesperson for PIRC says: “This is the killer question. You are not really talking to the company about workforce issues if your meetings only encompass management and executives. The best route is most often via a recognised trade union. We have also found that talking to employee representatives on boards provides a lot of insight into working practices.”

Ongoing disputes between workers and companies involved in the gig economy suggest that this is an area that should be firmly – and perhaps permanently – on the radar of ESG investors.

For all their potential flaws, these types of employment can offer welcome flexibility to workers. As Alex Marshall, President of workers’ union Independent Workers of Great Britain, told Aviva Investors in a 2022 research report, “this idea of being able to work flexibly around picking up the kids, instead of two people in the household having to go out and work full time, works for a lot of people.”

But Marshall also noted “flexibility should not have to come at the cost of workers’ basic rights”.

In terms of possible future progress on protecting workers’ rights, this March the ILO announced an agreement on the Living Wage which offers investors a policy against which to benchmark investee companies.

Meanwhile the CWC’s Labour Rights Investor Network, which formed in November last year and comprises investors representing more than US$2.2 trillion in assets under management or advice, says it will “call on companies they invest in to respect workers’ fundamental rights to freedom of association and collective bargaining”.

PIRC believes the network has the potential to move the needle. “Hopefully over time this will grow and develop in the same way that collaborative initiatives over climate change and other environmental issues have become established.”

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

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