Engagement with companies on staff issues is important to investors, according to panellists.
Investors increasingly recognise that mishandling of workers’ rights can pose a material risk to investee companies, said Teni Ekundare, Head of Investor Outreach at FAIRR Initiative, an investor network focused on ESG risks in the global food sector.
Ekundare and Tenisha Elliott, Associate Responsible for Investment Team at BMO Global Asset Management, discussed workers’ rights during a UK Sustainable Investment Forum (UKSIF) webinar hosted by Forum CEO James Alexander. He pointed out that workers’ rights are now a “big topic” on the ESG agenda.
Ekundare said that, while workers’ rights have come to the forefront during the past few years, issues “have existed in the food system for decades”.
It took the mass sacking of staff by P&O Ferries and rehiring of contract workers on below minimum wage salaries to bring the rights issue to the “front pages” of newspapers, she added.
As an asset manager, BMO believes poor management of ESG issues such as workers’ rights will have a negative impact on the bottom line of investee companies, said Elliott.
“I have seen traction on this view in the market and more emphasis by asset managers on stewardship programmes. As an active investor, we try to mitigate risks and are not afraid to do that by escalating concerns through our voting approach.”
Staff as an asset
Alexander said while many companies proclaim that “staff are their biggest asset”, that is not always aligned with a company’s actions. Elliott agreed, noting there was a disconnect between the way a company thinks about its employees and company culture and how that affects productivity.
The mismanagement of employee rights such as protection from discrimination, good health and safety standards and fair wages can have a knock-on effect, particularly reputational damage, Elliott added. “If workers are not paid adequately, they cannot do their jobs as effectively as you would hope.”
BMO “dives into” how companies manage employment processes and engages with them to deploy frameworks around best practice in workers’ rights. “This has a positive impact on the bottom line and the growth of the company,” said Elliott.
Ekundare said some some companies “hide behind” regulatory workers’ rights standards that are “not fit for purpose”. Companies should not seek to meet minimum regulatory standards, but should be looking to achieve “best in class” treatment of workers across all of their operations.
Alexander said parts of the “gig economy”, where workers are on zero hours contracts and paid only the minimum wage, were not sustainable long-term from a social and regulatory point of view. The burden borne by lower paid workers was highlighted during the lockdown phases of the COVID-19 pandemic, when these workers continued to work to keep essential services operating.
Ekundare pointed out recent unionisation at an Amazon warehouse in New York as an indication that workers are becoming more aware of the need for protection. Companies that regularly engage with unions are less likely to face employment issues and the bottom-line impacts associated with them, both Ekundare and Elliott said.
As workers recognise the need for protection, consumers are considering the treatment of workers by companies in their purchasing decisions, walking away from companies whose employment practices do not align with their values.
True costs of products
Many of the problems connected with low wages are due to the “true cost” of goods not being passed on to consumers, Elliott and Ekundare said.
Elliott observed: “A company like Amazon is facing headwinds as fuel prices rise; who pays for these additional costs? Will it be the Amazon drivers or will Amazon raise its prices? Will consumers use Amazon if its prices increase?”
The food industry also has cost issues with products such as meat and chocolate being under-priced, leading to very low wages for workers in those industries.
“There are ethical brands coming through onto the market whose products are more expensive, but there is also more demand for such products from consumers,” said Ekundare.
Investors should engage with investee companies to ensure they have good workers’ rights policies in place and can assess the impact of those on operations, said Elliott. “Investors should ask companies about how they conduct risk assessments, what the gap is between wages and cost of living, and how these issues are integrated into the board’s approach.”
Investee companies must be able to show how they implement workers’ rights and how their employees engage with those policies, added Ekundare.