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Investors are backing better disclosure from companies on how they manage their direct workforce and supply chain workers. ShareAction’s Felix Nagrawala explains why and what this could mean for workers and companies.
Poor quality and precarious jobs remain prevalent in developing countries around the world. With global and complex supply chains, multinational companies can play a key role in bringing about an improvement in labour standards for workers. One of the major obstacles, however, is the lack of information companies collect and disclose on their own supply chains.
Progressive companies have shown the way by disclosing more detailed information on labour standards in their direct operations and their supply chains. The Workforce Disclosure Initiative (WDI) aims to spur a race to the top by helping companies communicate more comprehensive workforce data to investors and other stakeholders in a resource-efficient way.
The argument for better disclosure
Bringing about better management of the workforce goes beyond the benefit to the workers themselves. Firms can benefit financially from examining their operations and supply chains and working with suppliers to improve labour conditions.
As a study by the Better Work programme has shown, factories where workers report better working conditions, where compliance is higher and where supervisors are well-equipped for their jobs are more productive and more profitable.
Investors are waking up to the benefits of better workforce disclosure amid the burgeoning evidence on the materiality of how workers are treated. One study found that companies listed in the ‘100 Best Companies to Work for in America’ generated between 2.3% and 3.8% higher stock returns per year than comparable companies from 1984 through 2011.
Moreover, supply chain labour standards have started being factored into investment decisions. Portfolio managers and analysts at Union Investment found a positive correlation between revenue per square foot and social factors such as employee satisfaction. To this effect, they increased the market estimates of revenue growth of an apparel company by 100 basis points as they saw improving labour standards at the company and at its suppliers.
At the same time, by prompting greater transparency in supply chains, better workforce disclosure can help to mitigate risks associated with labour management malpractice. Companies that do not take adequate steps to address risks can face damage to their reputation, which can negatively affect the firm’s value. For example, PureCircle’s share price dropped by 10% after allegations that the low-calorie sweetener it produces were made using forced labour.
The Workforce Disclosure Initiative
The growing appetite for better workforce disclosure is reflected in the investor support for the WDI in its pilot year.
The WDI is backed by a coalition of 79 investor signatories with a combined assets under management of $7.9 trillion USD. Together, they are requesting more comprehensive and comparable workforce data from large listed companies across sectors.
Information is requested on the structure, complexity and scale of their operations and supply chain, and on the governance of their workforce. They are further asked to provide quantitative and qualitative information on the management of their direct operations and supply chain workforces across four key topic areas:
- Workforce Composition: headcount, gender composition, contract types, wage levels, pay ratios, and the gender pay gap
- Workforce Stability: turnover, supplier turnover, and recruitment practices
- Workforce Development: training, progression, and capacity building
- Workforce Engagement: occupational health and safety, mental health, grievance mechanisms, discrimination and harassment, whistleblowing, freedom of association and/or collective bargaining, and engagement surveys
In collecting this information, the WDI has the potential to prompt companies to collect data across different parts of their organisation and gain a more in-depth understanding of their supply chains. In doing so, firms can compare themselves to their peers, and investors have comparable data to analyse the risks and opportunities for firm performance that derive from how a company approaches the management of its workforce.
Where next?
The WDI provides a strong first step for investor-led collaboration providing companies with a framework for workforce reporting.
As well as pushing companies to generate more detailed and comparable workforce data on an annual basis, the WDI will coordinate investor engagement with companies on specific workforce issues. In doing this, it hopes to deliver a triple win: better performance for companies; better returns for investors; and most importantly, delivering on Sustainable Development Goal 8 - providing decent work for all.
Investor engagement is just one part of a much larger movement promoting ethical trade to improve the lives of workers across the world. But, with a global economy dominated by companies listed on international stock exchanges, the fact that investors are casting an eye on workforce issues can only be positive news.