Could investors help brands snap up a bargain on living wages?

Brands are missing out on business and social value by overlooking living wages, but investors can hold them to account. With the "Black Friday" behind us and the Christmas shopping season in full swing, a recent report opens questions: should brands too be scrambling to secure the smart deals that living wages could offer within their supply chains? And are investors the key to securing action on this opportunity?

As brands and retailers begin to compete for consumer spending in the holiday shopping season, some investors are posing tougher questions about value that these companies could be missing out on further back behind the scenes. Where? It could be surprising: living wages in their value chains.

For a while now, it has become increasingly clear that many workers around the world don't get paid a living wage for their efforts. Often hidden though, is how the numbers stack up: studies suggest that a lack of living wages is a loss for everyone involved: the workers, their families, society in general, brand owners – and their investors.

Work by the Platform For Living Wages Financials (PLWF) a coalition of financial institutions that works closely with investee companies to address living wages in global supply chains, shows an ongoing gap in action by brands on living wages. That gap remains, despite the business case in favour of this transformation.

The PLWF currently engages with 33 publicly listed garment and footwear brands, 12 food producing companies and 9 food retail companies - and aims to reach even more companies within these sectors. The coalition's recent report examines progress on living wages in the supply chains of several brands in the clothing, agriculture and food sectors. Only a quarter of the thirty-two companies studied received a higher score in 2021 compared to last year, said PLWF.

A total of five companies, PUMA, H&M, Hugo Boss, Ralph Lauren, and VF Corp progressed to a higher category of development.

"Overall, it is our understanding at Storebrand that implementing living wages adds up to a win-win situation for companies and workers. Studies from governmental institutions, academia and civil society point to the benefits of living wages for the companies that have implemented them." notes Tulia Machado Helland, Senior Legal Advisor ESG at Storebrand Asset Management.

"There is a financial cost to companies that newly adopt living wages – however, that can be offset by cost mitigation strategies, and considered an investment in value creation. A living wage can lead to financial savings from lower staff turn-over and absenteeism, productivity improvements, strengthening recruitment opportunities, increasing workers' morale and loyalty. Implementing living wages can also add reputational value – a brand asset. This also applies to corporate supply chains where, for example low, sub-living-wage income levels for farmers can represent a serious threat to both the quantity and quality of the agricultural inputs. In addition, paying living wages aligns companies with their commitment to respect human rights as reflected in the UN Guiding Principles for Business and Human Rights, OECD Guidelines and ILO Conventions."

Why then, have brands been slow to pick up on the benefits of living wages? This lag in action, the PLWF report concludes, is caused by the combination of several factors. Among these are: the lack of a fully actionable sustainability strategy at corporate level within brands, a lack of alignment on living wage calculations, and a gap in civil sector collaboration to secure government policies that make living wages stick.

Investors also have a key role to play in breaking this deadlock. This partly because it is critical for the leadership and management of a company to understand the rationale for, and importance of, a living wage. Once the leadership "gets" it, then the training, creation of an implementation infrastructure, and reporting on relevant KPIs, are all much easier tasks for those at the operational level.

"Investors can make corporate executives and boards more accountable for driving living wages in their supply chains. By assigning responsibility to least one board member for human rights and living wages in supply chain – or by placing that responsibility with a committee such as the sustainability or procurement committee, which includes oversight over human rights and living wages in supply chains", adds Machado.

"And of course, as a result this can unlock huge amounts of value for all stakeholders. That's why it's important that this group of committed responsible investors is collaborating to make a global impact on the issue."

So, there's hope on the horizon. In the meantime, it's shopping season – and worth reflecting one of the most telling comments published in the report, by Arthur van Mansvelt, Co-founder PLWF & Senior engagement specialist at Achmea Investment Management, on the scale and scope of the systemic challenge ahead.

“What fascinates me personally is that it is still considered normal behaviour to buy cheap stuff at the expense of others, even though we know better. I find this ethically both very interesting and very challenging." says van Mansvelt.

"Right now, chains of production often have two perverse features. First, employees at the end of the chain are anonymous, so we don’t see who is ‘paying the price’ so to say. Second, prices are simply too low, so a lot of food and clothing is thrown away. So, if we start paying the real ‘fair’ price for products, this could decrease social injustice and environmental damage.”

Learn more in the PLWF's recent report for more details, cases and emerging best practices: The importance of long-term investor engagement on living wage – Platform Living Wage Financials