Use shareholder rights to improve your returns

Hermes Investment Management, Living Wage

A large European clothing retailer we are engaging with has a long history in sustainability and workers’ rights, starting with a 1997 Code of Conduct, which specified the conditions factories needed to comply with to produce for the retailer. After experiencing strikes in Cambodia, the retailer recognised problems with the minimum wage rules. The company began collaborating with the governments in its supplier countries of Bangladesh, Cambodia, China, India and Turkey to advocate annual wage revision and enforce labour legislation protecting the freedom of association.

The company has also embarked on a ‘fair living wage’ project, starting with its strategic garment suppliers – around 750 factory units producing around 60% of its products – who are in countries paying less than the living wage. Its goal is for all of its strategic suppliers to pay fair living wages by 2018, affecting around 850,000 textile workers. Starting from this year, the company will develop its pricing method to reflect the true cost of labour. By doing this, it aims to pay a price which enables its suppliers to pay their textile workers a fair living wage and reduce overtime. It also plans to improve its purchasing plans to reduce its suppliers’ production peaks and enable them to better prepare the right capacity in their factories. The living wage roadmap and targets will be reflected in its updated Code of Conduct. In addition, the company will provide textile workers at its supplier factories with access to education and skill enhancement and transparently report its efforts.

What is clear from this example is the importance of the ‘tone from the top’. This determines the company culture and shows a desire to create a sustainable business model aligned with the thinking of long-term investors.