A LIVING WAGE/ INCOME. Indicators for an active role of pension funds

Transcription

1 A LIVING WAGE/ INCOME Indicators for an active role of pension funds August 2018

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3 INDEX PREFACE 4 INTRODUCTION 6 RESULTS OF THE VBDO INVESTIGATION 7 1. Internationally, there is no clear, generally accepted definition of living wage 7 2. There are no/few national/international standards and guidelines 7 3. Insufficient data are available to act in relation to living wage 7 4. The introduction of a living wage has a negative impact on shares 8 Conclusions and recommendations 8 THE FNV AND A LIVING WAGE 11 What can pension funds do? 13 Part 1: Questions aimed at gaining insight into the local situation, and into the possibilities for social dialogue and collective bargaining 14 Part 2: An analysis of income at the national, regional, sectoral, or company levels. 15 Part 3: Complaints procedure 16 Foto: Roderick Polak 3

4 PREFACE A large number of trade union officials represent the FNV in the Dutch industry-wide pension funds, which operate in both the public and the private sectors. These FNV pension fund trustees act on behalf of employees, former participants ( sleepers ), and retired employees. As a result, we play an important role in the implementation of pension schemes in the Netherlands, and our trustees exert considerable influence on the policy of the funds in which they are active. To the FNV and the International Trade Union Confederation (ITUC), the main principle is that the investment of pensions is conducted in a fair and socially responsible fashion. In this respect, we feel that more attention should be devoted to the social aspects of the investment policy, which relates mainly to labour and human rights, which are still inadequately included in the investment policies of pension funds. At the request of the FNV, in 2017 the Dutch Association of Investors for Sustainable Development (Vereniging van Beleggers voor Duurzame Ontwikkeling, abbreviated to VBDO) investigated to what extent pension funds incorporate a living wage/income - as part of decent work - into their investment policy, and examined how the companies in which they invest handle this. This investigation was carried out because we have observed that the notion of a living income as a human right is coming under steadily growing pressure as a result of increasing globalisation. Owing to long, complex production chains, within which the outsourcing of labour is the norm, the rights of employees are no longer guaranteed. The investigation has shown that most pension funds have not incorporated a living wage/income as a key focal point into their investment policy, but include it indirectly by subscribing to the guidelines of the Organisation for Economic Co-operation and Development (OESO) as the basis for their policy. For the FNV, the outcome of the VBDO investigation provided the reason for determining how we can help our pension fund trustees in getting the topic of living wage/income on the agenda. After all, a living wage/income is a human right that should not simply be ignored. 4

5 For this purpose, we have developed a series of indicators that aim at obtaining information on two levels, and at gaining insight into local situations. The first level involves a study into whether social dialogue is possible, and into whether employees are allowed to organise freely. The second level entails an analysis of income at the national, regional, sectoral, or company levels. Furthermore, a number of indicators have been added to investigate whether employees also have a possibility of filing a complaint. We assume that the indicators, which were developed in cooperation with Mondiaal FNV, will offer possibilities for taking new steps to ensure that the topic of living wage/income in the pension fund investment policy will be placed on the agenda. It will mainly be asset managers who can use these indicators for the implementation of the pension fund policy. We wish our pension fund trustees every success in getting this topic on the agenda. Coen van der Veer Treasurer of the FNV & Chair of the Committee on Workers Capital FNV Tuur Elzinga Vice chair of the FNV 5

6 INTRODUCTION The FNV and the International Trade Union Confederation (ITUC) consider a living wage/income a key focal area as part of the decent work agenda. At the request of the FNV, the Dutch Association of Investors for Sustainable Development (Vereniging van Beleggers voor Duurzame Ontwikkeling, abbreviated to VBDO) investigated how pension funds in the Netherlands incorporate a living wage/ income into their investment policy, and how they question the companies in which they invest in this respect. A living wage is a human right that is coming under pressure more and more often, and it is incorporated in Article 25 of the Universal Declaration of Human Rights. UNIVERSAL DECLARATION OF HUMAN RIGHTS Article Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control. 2. Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection. Ongoing globalisation is bringing increasingly more pressure to bear on labour and human rights. Production chains are long and complex, and parts of production are outsourced increasingly often, whereby the labour rights of workers are not guaranteed and are under pressure. Furthermore, employees who are involved in these outsourced work situations often have no living income. Therefore, a great deal of responsibility rests with the outsourcing companies to address this issue. In particular, institutional investors such as pension funds could make them aware of their responsibility. This brochure discusses the results of the VBDO investigation, highlights the FNV s view relating to living wage/income, and provides tools for pension fund trustees to open up this topic for discussion, and to incorporate it into the pension fund s responsible investment policy. 6

7 RESULTS OF THE VBDO INVESTIGATION The VBDO investigation shows that most Dutch pension funds do not use living wage/income directly as a key focal area in their socially responsible investment policy. However, many funds do this indirectly by endorsing OESO s (Organisation for Economic Co-operation and Development) Guidelines, among others. The reason no living wage/income is incorporated is because a number of challenges need to be tackled, which include: 1. Internationally, there is no clear, generally accepted definition of living wage In actual fact, several definitions of a living wage/income are applied, which, however, all include the same, major elements. It is generally accepted that the remuneration paid to an employee for a standard working week in a specific region should be sufficient to maintain a decent standard of living for the employee himself/herself and for his/her dependents. Major elements that are part of this standard include food, water, housing, education, health care, transport, clothing, and other essential needs. As there is a general consensus on the elements of a living wage/income, this challenge does not need to be an obstruction for policy making. 2. There are no/few national/international standards and guidelines A living wage/income is context dependent, and varies not only per country but also per region. Therefore, transparency and clear regulations are needed that include the local context for determining the living wage/income. The development in the standardisation of methods, however, offers sufficient scope for institutional investors to enter into dialogue with companies, and to request transparency. 3. Insufficient data are available to act in relation to living wage This may be a sensitive point, because sufficient data and high-quality information are essential for including Environment, Social and Governance (ESG) 7

8 Foto: Catrien Ariëns factors in the investment process. This means that extra motivation will be needed to question companies about better reporting and more transparency relating to this subject during the engagement process. Furthermore, talks with non-governmental organisations (NGOs) and trade unions are a great source of knowledge and information in order to gain insight into local situations. 4. The introduction of a living wage has a negative impact on shares Research has shown a positive correlation between ESG and companies financial performance. Companies that scored well on material sustainability themes perform better than those with a low score. Moreover, research also shows that the introduction of a living wage/income has a positive impact on operating results. However, its introduction may be an obstacle for smaller companies, because they do not want to lose their competitive position. Furthermore, system factors may also play a role in this respect, and offset the positive effects of a living wage/income. It will therefore be required to include the players and industries involved when introducing cooperation between sectors in the field of a living wage/income. CONCLUSIONS AND RECOMMENDATIONS Based on the investigation, the VBDO has drawn the conclusion that significant progress can still be made to render living wage/income part of the decent work 8

9 agenda. There will be challenges, but the fine examples we have indicate that sufficient information is available for pension funds to incorporate a living wage/ income into their responsible investment policy. Far more important will be that pension funds use the knowledge and information at hand to cooperate in keeping with the engagement of companies in which they invest. Furthermore, cooperation with asset managers, research institutions that collect data, trade unions, and NGOs is also important to enforce more guidelines and criteria for a living wage/ income, in order to ensure that millions of employees all over the world gain access to a better quality of life. To realise this, it is important that a pension fund establishes a policy on living wage/income, and on which investment strategies match it. Furthermore, it is important for the pension fund to show its participants clearly and unambiguously what their policy is, and to report on this. The figure below shows how policy can be developed and implemented. DEFINE A POLICY BASED ON: International regulations Corporate mission and vision Stakeholder consulation Mapping the portfolio and materialty REPORTING AND TRANPARENCY IMPLEMENTATION Engagement ESG Integration Voting Exclusion COLLABORATION 9

10 Foto: Roderick Polak 10

11 THE FNV AND A LIVING WAGE A living income is under increasingly more pressure owing to the globalisation of labour and the related long production chains. We note that employers use various strategies to keep production costs as low as possible. For example, they hire cheap labour or relocate their production to low-wage countries such as India, Bangladesh, Uganda, and Peru. This problem is particularly acute if the process of outsourcing is based on the exploitation of people. Moreover, these countries already have a statutory minimum wage that is too low to live on, because the authorities deliberately keep wages low to lure multinationals to their country, and because they are curbing the trade unions. Trade unions are fighting against this race to the bottom by shaking a fist at the international level as well, and they are doing this by strengthening local unions, and by making a living wage an international demand as part of the decent work agenda. To the FNV and the ITUC, a living wage is one that, with a normal full-time job, yields enough money to support yourself and your family. It is a principle that has been around for nearly a century. In 1919, the International Labour Organization (ILO) determined that workers should be able with their job to ensure a fair standard of living for themselves and their families. In 1948, this was ratified once more in the Universal Declaration of Human Rights. The International Labour Organization defines living wage as follows: The level of wages sufficient to meet the basic living needs of an average-sized family in a particular economy. The three elements - basic living needs, an average-sized family, and a particular economy - are important in this respect. Basic living needs We can have endless discussions about what basic living needs entails. However, there is some common understanding that one should at least be able to afford food, rent, health care, education, clothing, and transport and, at the same time, 11

12 be able to save money to cover unexpected adverse events. Average-sized family A living wage should be sufficient to support your family. However, the question that almost immediately arises is: what is the size of that family? Supporting four to six children requires more than a minimum wage. Generally speaking, a family is regarded to consist of two adults and two children, to whose needs the living wage should be aligned. A particular economy The level of this living wage depends on the location and thus on the local circumstances. In Bangladesh, a living wage will be lower than in the Netherlands. That is because not only the cost of living may vary considerably but also because people consider the concept of basic living needs differently. In each economy, the level of the living wage needs to be calculated, but different levels may even apply within certain countries. In cities, for example, the groceries bought each day are usually much more expensive than in rural areas, and housing costs in the city are usually higher than those outside the city. Foto: Catrien Ariëns 12

13 In the Netherlands, the International Corporate Social Responsibility committee (Internationaal Maatschappelijk Verantwoord Ondernemen, abbreviated to IMVO) of the Social and Economic Council of the Netherlands (SER) issued in 2015 a definition of a living wage, which included all the components specified by the ILO. SER LIVING WAGE - IMVO COMMITTEE BROCHURE FROM 2015 An extensive definition of living wage has been issued by Social Accountability International: a level of wages sufficient to meet the basic living needs of an average-sized family in a particular economy. This means that a worker can at least afford food, rent, health care, education, clothing, and transport, and, at the same, will be able to save money. The living wage may vary per country, region, and sometimes even per city/town. To the FNV, a living wage/income is the income brought about in close cooperation with and through negotiations with local authorities and trade unions: namely, a social dialogue. In this respect, the right to organise and the right to collective bargaining - two of ILO s fundamental labour rights - are essential to convey this concept to the companies. In this fight for a living wage in developing countries, the FNV can offer support by strengthening local trade unions and civil-society organisations so that employees from the bottom up can take part. Furthermore, based on its involvement in the investment of employees pensions, the FNV will be able to apply pressure from the top down on the production chain. For this purpose, we have created tools that can be read about in the next section. WHAT CAN PENSION FUNDS DO? Trustees of pension funds can incorporate into their responsible investment policy a living wage/income as a key focal point within the labour rights of employees. In order to do this adequately, information about and insight into the local situation is of vital importance, and this involves information at two levels. The first level is general information to assess whether social dialogue is possible, and whether employees are able to organise freely. The second level entails an analysis of income at the national, regional, sectoral, or company levels. In addition, the possibility of establishing a complaints procedure is important, with regard to 13

14 which a number of questions have been included as well. For the pension fund it is important to indicate this clearly to the asset manager, and for this purpose the phased plan can be used that was developed in To help pension fund trustees with this, we have formulated questions on the basis of experiences with the IMVO Sustainable Garment and Textile Sector agreement (convenant duurzame kleding en textiel). Part 1: Questions aimed at gaining insight into the local situation, and into the possibilities for social dialogue and collective bargaining 1. Is there a suitable climate to arrive at social dialogue on a living wage/income at the company, sectoral or regional level? 2. Are the employees/employee representatives actively involved in the process? 3. Is it possible to discuss this with people who are involved in the process? 4. Have contacts been established with local trade unions? No: What other structure is in place within the company, sector, or region? Yes: Are these local trade unions affiliated with an international Global Union Federation (GUF)? Which GUFs are involved? 5. Can employees talk freely with each other without any management being present? 6. Has a collective agreement on terms and conditions of employment been concluded for the employees? No: Initiate an engagement process with the company to arrive at the right to organise and to collective bargaining. Yes: What percentage of the employees are covered by this collective labour agreement? 7. Are local, regional, or national authorities involved in a process to arrive at a living wage/income? Yes: Indicate which authorities it involves. 14

15 Foto: Ronald de Hommel 8. Are any non-governmental organisations (NGOs) active in the region? Which NGOs, and what have they achieved? 9. Are other potential partners active in the region? Yes: Which ones, and what have they achieved? Part 2: An analysis of income at the national, regional, sectoral, or company levels. 1. Is a national or regional minimum wage/income in place? No: Initiate an engagement process with the company to actively cooperate in bringing about a minimum wage/income. Yes: a. Which organisations are party to determining the national or regional minimum wage/income? b. What is the level of the minimum wage/income? c. Is it also a minimum living income that can be earned while working normal hours? 15

16 d. Do parties involved in the social dialogue and employee representatives agree with this? No Initiate an engagement process with the company to arrive at an agreement on a minimum wage/income. Yes How did it come about? Who was the driving force behind it? Could this be used as a best practice for other investors/asset managers/pension fund trustees? Part 3: Complaints procedure 1. Within the company, is there a possibility for employees to file a complaint in the event of deviation from the agreements? 2. Have trade unions or labour NGOs been involved in drafting the complaints procedure? 3. Is the complaints procedure in line with international agreements and values? How is this shown? 4. Are complaints handled by an independent committee? 5. Is any documentation available relating to which complaints were filed, and to how they were handled? 6. What are the results and adaptions of these complaints? 7. Have local or national authorities been informed about a possible procedure, and what influence can they exert? 8. Are employees able to file complaints safely without getting into trouble for this? How is this shown? 16

17 COLOPHON Edition FNV Pers commissioned by FNV Text Thérèse Schets and René Kouwenhoven Design and DTP Studio FNV Photography Jeroen van Loon (cover), Catrien Ariëns, Frans Dekker, Roderick Polak, Ronald de Hommel Order

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