Published on May 22, 2024
Investors are more than ever concerned about human rights violations in companies’ supply chains. According to the ILO, it was estimated in 2021 that 27.6 million people were in a forced labour situation—an increase of 2.7 million individuals since 2016. Approximately 63% of these cases were imposed by private-sector players.
Under the UN Guiding Principles on Business and Human Rights, companies have the responsibility to ensure human rights are respected during their activities, and they must exercise due diligence. And yet, more than a decade after this text’s adoption, nearly half of all companies analyzed in the most recent Corporate Human Rights Benchmark failed to demonstrate any proof of having identified or mitigated the issues related to human rights in their supply chains. To make these practices mandatory, new mandatory human rights and environmental due diligence laws (mHRDD) have emerged, such as the Corporate Sustainability Due Diligence Directive (CSDDD) in Europe. We have also seen the emergence of other types of regulations promoting human rights. In Canada, the new modern slavery legislation imposes on certain companies the obligation to disclose information regarding risks and measures taken to prevent and mitigate forced labour in their supply chain, but without actually requiring companies to implement these measures. In the United States, the Uyghur Forced Labor Prevention Act establishes a rebuttable presumption, according to which, products manufactured in the Uyghur autonomous region of Xinjiang, or by specific identified entities, are banned from import.
In order to adapt their practices, we have been asking companies with which we conduct dialogues to implement various measures based on the UN Guiding Principles on Business and Human Rights.
First, we encourage organizations to put in place a human rights policy, then we ask them to periodically assess their supply chain risks. Today, it is not enough to simply adopt an approach based entirely on social audits, which have been criticized due to their incomplete and often biased nature. Instead, companies need to map their entire supply chain and identify the greatest risks by considering a variety of criteria, including geography or commodity type. This process must also involve a dialogue with workers. Next, we ask companies to disclose information on measures implemented to prevent and mitigate the identified risks, and to monitor the efficiency thereof. For example, this can be achieved by implementing a grievance mechanism for workers, whether at direct or indirect suppliers, to report potential human rights violations. We also expect companies to communicate these actions to stakeholders. Lastly, in the event of a proven violation, we ask companies to implement remedial measures. We suggest to companies that they follow the recommendations provided by the Office of the High Commissioner for Human Rights (OHCHR) in a new interpretive guide on the effectiveness of the various types of remediation mechanisms.
Most companies with which we hold dialogues have codes of conduct in place to frame human rights management in their supply chain. Some of them have also established processes, such as periodic audits of their direct suppliers. Yet few companies have clearly communicated anything about their risk assessment or the measures taken to prevent, mitigate and remediate human rights violations. Furthermore, almost none of them disclose the indicators by which one could monitor the effectiveness of these measures.
Necessity of a living wage
In line with the Global Living Wage Coalition, a living wage is defined as: “The remuneration received for a standard workweek by a worker in a particular place sufficient to afford a decent standard of living for the worker and her or his family. Elements of a decent standard of living include food, water, housing, education, health care, transportation, clothing, and other essential needs including provision for unexpected events.” The concept of a living wage is recognized as being part of a person’s fundamental rights and is therefore mentioned in the Universal Declaration of Human Rights, the Preamble to the Constitution of the International Labour Organization, and the UN’s Sustainable Development Goals (SDG).
As highlighted in the University of Cambridge “The Case for Living Wages” report: “Globally, 630 million people are in working poverty, earning under US$3.20 per day in terms of Purchasing Power Parity (PPP)”. The issue of decent salaries is a concern for all countries (high-, medium- or low-income) across the world. For example, while the U.S. federal minimum wage has remained just slightly above $7/hour since 2009, inflation has reduced the value of wages. This minimum wage along with those set by individual states (e.g., $16/hr in New York City and slightly less than $14/hr in Vermont) are far from ensuring a decent wage for workers, which was estimated at $25/ hr in 2023 for the U.S. as a whole ($33/hr for New York City and $23/hr for Vermont). Turning to Bangladesh, the recent rise in minimum wage for textile industry workers, to $113 per month, is still a long way from the living wage of $235 estimated by the Global Living Wage Coalition.
Ensuring a living wage remains one of the most effective ways to help individuals escape poverty, reduce inequities, and make progress toward achieving SDGs. In addition, providing a living wage to employees brings many benefits to companies, including increased employee satisfaction and well-being, and lower staff turnover.
No companies in our plan seem particularly interested in implementing a living wage, be it for their direct employees or those in their supply chain. However, some companies, like Dollar Tree, have initiated a reflection process when it comes to compensation. In fact, Dollar Tree gathers compensation-related data to assess the company’s practices and opportunities for improvement of working conditions and compensation.
Regarding a living wage, we are therefore asking companies to adopt the following practices:
- Disclose information on employee salaries— average wage, CEO-to-worker pay ratio, and employee benefits.
- Adhere to living wage targets set by the Forward Faster initiative.
- Adopt a living wage policy that covers direct employees and suppliers.
- Analyze the gap between employee wages and the living wage threshold, as well as the gap between CEO salary and median worker wage; follow up by implementing measures to reduce these gaps.
- Conduct a cost-benefit analysis of pay increases and publicly disclose results.
Charlotte Douillard, Shareholder engagement advisor