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How can we tackle living wages? Episode two – Financial Professionals

This is a transcript of a discussion about living wages between Schroders’ Head of Active Ownership, Kimberley Lewis, and Annabel Beales, Director of Learning and Engagement of Business Fights Poverty.

You can listen to the full conversation by clicking on the play button at the top of the page.

Kimberley Lewis:

Hello, my name is Kimberly Lewis and I am Head of Active Ownership at Schroders. At Schroders, active ownership is engaging the companies that we hold on issues that impact the long-term sustainability of the business and wider society overall.

This is the second in several podcasts we are recording with guests from a range of organisations around the world on living wages and fair pay. I am delighted to be joined by Annabel Beales, the Director of Learning and Engagement of Business Fights Poverty.

Hi Annabel, so can you explain for our listeners a bit about who Business Fights Poverty are and also the report that you recently released?

Annabel Beales:

Of course. So Business Fights Poverty is a business led collaboration network which tackles issues associated with poverty and all its forms, and particularly the role of business in building a more equitable and resilient world. And our approach uses convening power to bring together business with civil society academic and government partners around specific common challenges that people are facing in this area.

So we do a lot of knowledge sharing through events and research collaborations, but also a lot of bringing together different people across different sectors, within sectors to drive real progress. And for us at the moment, we’re extremely concerned about what we are calling this “poverty tsunami” that’s coming towards as a result of complex challenges like climate change and the impact of COVID and also conflicts as we’re seeing at the moment.

And for us, living wages is a really key part of what business can do to help tackle this problem, the “poverty tsunami”.

So in May we launched a report called The Case for Living Wages, which was done in a partnership with Cambridge Institute for Sustainability Leadership, with Shift and also with support from Unilever. And it identifies how paying living wages is really an opportunity for business. It doesn’t only tackle poverty, but it can also improve business performance through positive impacts that are felt on core business operations within supply chains and also throughout the wider operating environment. And to make it as practical as possible, the report also sets out some key questions that companies can ask themselves and also that investors can ask themselves if they want to help progress in this area. And we also list some key resources and some of the many organizations who can help companies take steps to towards paying living wages.

And as part of the work that we’re doing on living wages as well, we’re bringing together small groups of professionals working within multinationals in private peer circles to talk about the challenges they’re facing in implementing living wages and to share insights and brainstorm together and we’re finding that a really helpful format for people to face the challenges together and to try and take steps to overcome the obstacles that they’re facing in that area.

Kimberley Lewis:

Well, I guess the first question is how do you determine what the living wage is?

Annabel Beales:

Great question. So the living wage itself is the amount of pay that’s needed by a worker in a particular place which is enough for them to afford a decent standard of living for them and their family and that could include things like food, water, housing, education, healthcare, other essential needs, and also a little bit put by for unexpected events.

So the amount that’s necessary to achieve that is obviously different in different countries and also in different regions of a country. So actually, deciding what a living wage is in any particular area is probably quite a complex thing to do and so there’s been a lot of work done on this, particularly by the Global Living Wage Coalition, but also lots of other different organizations.

So now we’re beginning to see different methodologies to calculate a living wage and also databases of different countries, different areas within different countries, that give companies information on what a living wage should be and allow them to benchmark where they should be paying a living wage against what they’re actually paying their workers currently.

And from that you can see what the “living wage gap” is, that’s the difference between the living wage level that’s set on these databases, or in consultation with workers in a particular area, and the amount that they’re actually being paid, assuming that’s lower.

And I think it’s also worth pointing out that while a lot of countries have minimum wages, often the minimum wage is actually less than a living wage. So even workers that are currently being paid market rates or minimum wages and everything’s in compliance with regulation, they’re still not actually taking home enough pay to afford a decent standard of living for themselves and their families.

Kimberley Lewis:

I actually read the report with a lot of interest, very good, and we actually are speaking with Shift later on in this podcast series so really, really thrilled to have so many different perspectives on this issue and people who have thought about it so deeply as you have. One of the questions I have though is you mentioned that you are looking at the issue within the supply chain. Obviously the supply chain can go very, very, very far. Can you just tell me a bit about how far down the supply chain your work focus is?

Annabel Beales:

Yeah, no problems. So living wages in supply chains and value chains, it’s really a nacent practice for most companies. And so generally companies are starting with the suppliers that they work with most regularly that they have the longest relationships with. And so eventually, hopefully, living wages applies all the way down a supply chain.

But at the moment I think most companies are focusing on those suppliers that are closest to them, that they have most relationship and access to and transparency with, who they can really partner with and build up progress that way and then hopefully it will filter down through the supply chain a bit further.

Kimberley Lewis:

Okay, thanks. So what can we do to apply the context of living wage in supply chains? How do we do it and what are some of the challenges in doing so?

Annabel Beales:

So the report that we did, we spoke to over 30 different people working within multinationals and also working in the broader ecosystem around living wages and there was some very clear benefits to looking at living wages within the supply chain that emerged from that, particularly in terms of strengthening value chain stability and improving supplier performance. But also in terms of how living wages can act as a catalyst for progress on many other social impacts and human rights concerns.

People spoke about improving the workers’ sick leave and attendance, reducing labour disputes, tackling excessive overtime which can often be a big problem in factories in particular. And also linking it to things like women’s empowerment, which is also a big focus for many companies now and closing gender and race pay gaps. So it’s really one way into tackling a whole range of issues that companies are currently working on within their supply chain.

And we’d like to see companies viewing action on living wages as an investment in their business as a whole, rather than purely as a increased cost to them.

In terms of the challenges, the first one really is defining what living wage actually is in different markets. Most countries don’t have a single living wage, they vary across different regions, but there are now many different benchmarks that can help with that. So things like the Anker Methodology and reference values, the IDH benchmarks Finder, Global Living Wage Coalition database, many others. So there’s a lot of resources out there now for companies to help tie down what those living wage benchmarks should be within different regions that they work in.

And also working with their employees and unions to really do it collaboratively, other than just imposing a number from above, can be quite helpful as well.

In terms of other challenges, just the complexities of global supply chains cause a huge number of obstacles to implementing living wages for companies. Things like supply chain transparency, auditing, making sure that the policies are put in place and they’re actually implemented. And many suppliers are facing enormous challenges at the moment, so just finding time and resources to focus on living wages can be a real obstacle. So having particularly multinationals engaging with their suppliers, helping them with resources, helping them with expertise and skills can be really helpful to do it in partnership, rather than passing down a policy and expecting it to happen.

I think it’s a really engaged process that requires partnerships all the way down the supply chain and with NGOs and other actors around as well to help.

Kimberley Lewis:

Yeah, that makes sense. I mean one of the things we’re hearing as well now from the companies we’re engaging are just increased difficulties as a result of having double-digit inflation and that’s obviously going to be increasing in many cases what the living wage is – which then obviously creates an additional layer of complexities. Is that something that you’re hearing as well?

Annabel Beales:

Yes, definitely, and I think it really is a very valid concern. I think there’s different ways that the companies can work towards living wages and I think understanding it as a journey rather than a overnight change is quite helpful. I think doing as much as possible as soon as possible is a good thing, but we are talking about, in some cases, quite large jumps in wages to reach living wage. So working on it incrementally over time in a sustainable way is really crucial as much now as any other point in time.

Kimberley Lewis:

Yeah, absolutely agree that doing it in a sustainable way is a challenge that we’re all facing. So I mean from the investor perspective, really, a lot of what you said is resonating.

I mean, we are absolutely seeing the increasing materiality of supply chain human rights risks, in large part driven by the increasing regulation in this area. But we very much see living wages and wages overall as a core human rights issue. And obviously good purchasing practices and high supply chain labour standards is a key component to reduce the risk of modern slavery in supply chains, which is always a risk, really throughout the world.

But again, the flip side is, particularly in this environment, a cost of goods. Oftentimes poor sourcing practices are driven by aggressive pricing and the cost of higher standards is passed on to consumers. So how do you find a balance in the context of rising costs of living?

Annabel Beales:

Oh, the million dollar question. I think, again, starting incrementally and looking at innovative ways of approaching the issues. So there are different companies that I’ve spoken to who’ve had different approaches to achieving living wages or at least working towards them. So one that springs to mind is Fairphone, that pays a premium per phone sold to workers in its factories, and they have a challenge because within their factories there are lots of other companies that are also using them and so they’ve got some workers in some parts of the factory working on their supplies and others working on other people’s supplies. And the workers themselves have chosen to share that premium amongst all of the workers within the same factory, so there’s different ways.

Another, for example, would be a company I spoke to who have agreed with their suppliers to have a target for living wages and they’re paying a living wages premium to the factories for a few years, this helps them adapt their business model and provides cost savings in other areas just to smooth out that jump in wages in a more gradual fashion.

So I think it’s about thinking outside of the box, thinking what can we do to increase it incrementally rather than just looking at the issue.

Kimberley Lewis:

Well, along those lines, how do you make sure this actually reaches the workers, particularly when a factory might be supplying multiple customers who all have different approaches to a living wage?

Annabel Beales:

Yeah, great question. So I think a lot of it is engagement with workers, engagement with unions, things like that, and asking workers to collaborate with you on the mechanism.

I think some of it is to do with transparency and even there are things that companies can do towards living wages to set the groundwork, such as ensuring digital payments of wages and making sure that you’ve got that infrastructure and transparency in place before you can even start looking at increasing wages specifically.

So I think, again, taking it incrementally and keeping the line of communication open. I think so much of this revolves around trust, trust in the supplier, the supplier trusting the multinational to have their best interest at heart and have a long term commitment to them. And again, that comes back to procurement practices in terms of the kind of contract that you’re signing and really making sure that it’s a joint program of work together rather than that policy that’s imposed from above.

Kimberley Lewis:

Shifting gears a bit, when we hear of this issue, Unilever is a company that you hear a lot about as being a leader in its commitment to living wages. Can you tell me a little bit more, tell our listeners a little bit more, about what Unilever has done, why is that considered a leadership stance, and how is it going for them?

I know you partner with them, so I’d love to get your perspective on what they’re doing apart from other companies.

Annabel Beales:

Yeah, well I think one of the main things that they’ve done is make a public long term commitment to pay suppliers living wages by 2030.

And there are some other companies that have done this, L’Oreal is one that brings to mind. I think Unilever, in going public with their commitment, I think that’s a key way that companies can show leadership on this issue because I think there are a lot of companies are working on it until they’ve made a certain degree of progress aren’t necessarily talking about it openly, which I completely understand.

I think there is a reputational issue in committing to something and then not having a plan behind you to deliver it. So I think it’s about timing and I think Unilever have been ahead there in terms of their ability to make that long commitment. And in terms of those time horizons, one of the things I’ve really heard is that you need to give suppliers a chance to come with you, get on board, build that progress, but also keep it short enough that the momentum is being maintained.

So I think that a five, 10-year commitment, which is what Unilever is doing and some others as well is quite good for that kind of transition towards living wages. And Unilever, they’ve supported the report that we did and they’re keen to get other members of their sector and different sectors also involved in the living wages conversation because what is clear is that to make the most amount of progress, you need to have a critical mass of companies paying living wages.

It’s very hard for one company to step out on their own in this area because of issues like this. Whereas if companies move together, there are potential gains from doing that, and also it has a greater impact on people and supply chains all over the world.

Kimberley Lewis:

It also though occurs to me that a company like Unilever, a very, very large multinational company, might have the resources and the capabilities of making bold long term commitments. For those companies that are earlier on this journey and might not be in a position to make big, bold, long term commitments at this point, are there any examples of innovative smaller steps that you’ve seen companies take on this journey?

Annabel Beales:

Yeah, definitely. I mean, one example that springs to mind is Tesco, a supermarket in the UK, starting just with banana suppliers. And they started in 2022 in January and they were aiming to only source from suppliers paying living wages by 2024, and they’re working with their suppliers to help them progress towards living wages in that time.

So I think things like using a specific product, I’ve spoken to of other companies that are working on pilot projects with particular preferred suppliers, some companies are choosing the suppliers that they have the biggest relationships with, that they buy the most from, they’re starting with them to make the biggest impact, and then moving out to other suppliers in their supply chain that perhaps provide them with slightly less produce or product.

So I think there’s lots of different ways that companies can get started. It’s just key to start somewhere and build out from there with the learning that you’ve had from that experience.

Kimberley Lewis:

Yeah. Well, thank you very much for taking us through this and really appreciate your insights. I just want to reinforce I think what we are seeing, companies struggle with this but also make really substantial commitments and significant strides forward.

So we’re very optimistic, but we appreciate that there is no low hanging fruit or easy solution and we just need to continue to make incremental change towards ultimately getting to best practice. But we’re thrilled to see so many companies recognizing this issue and taking steps forward. So Annabel, thanks so much for joining us and look forward to continuing to partner with you on this issue.

Annabel Beales:

Absolutely. Thanks so much for having me. It’s really great to be talking about living wages and I think it’s just a conversation that needs to keep going. There’s so many different organisations that sit out there working on this now. There’s so many different companies beginning or making progress and I think just continuing to share the expertise that people are learning from what they’ve been doing will really make the difference.

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