Business, People and Planet
Three Developments This Week
In Brief
For further information on each area, click on the hyperlinked text.
My brief summaries of reports are not intended to replace reading the full reports which I encourage you to do if you have time! I repeat, and at times adjust, language from reports in summaries – you can click on the links to the full reports for exact quotes, if you need them.
Week of 18 May 2020
Week of 11 May 2020
Week of 4 May 2020
Week of 27 April 2020
Week of 20 April 2020
Week of 13 April 2020
Week of 6 April 2020
Week of 30 March 2020
Week of 23 March 2020
Week of 16 March 2020
Week of 9 March 2020
Week of 2 March 2020
Week of 24 February 2020
Week of 17 February 2020
Week of 10 February 2020
Week of 3 February 2020
Week of 27 January 2020
Week of 20 January 2020
Week of 13 January 2020
1. Climate risk will re-shape finance, according to the world’s largest asset manager BlackRock
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Business, People and Planet
Three Developments This Week
In Detail
Week of 18 May 2020
1. As countries work on economic aid and recovery packages in response to COVID-19, 150 CEOs and business leaders (representing over 5 million employees and a market capitalisation of over $2.4 trillion) call on governments to prioritize a faster and fairer transition from a grey to a green economy, grounded in bold climate action
Over 150 CEOs and senior leaders (including from Adobe, Carlsberg Group, Coca-Cola European Partners, Colgate-Palmolive, EDF, Electrolux, Firmenich, JLL, H&M, Mars, Nestlé, Orange, Pernod Ricard, Salesforce, Sky, Telefónica, The Co-op, Unilever and Vodafone) have issued a statement for governments. This statement, convened through the Science Based Targets initiative (SBTi), calls on governments to tackle both human health and planetary health.
Some excerpts from the statement:
- “As countries work on economic aid and recovery packages in response to COVID-19, and as they prepare to submit enhanced national climate plans under the Paris Agreement, we are calling on Governments to reimagine a better future grounded in bold climate action.”
- “We are now urging Governments to prioritize a faster and fairer transition from a grey to a green economy by aligning policies and recovery plans with the latest climate science.”
- “To ensure we recover better, we are calling on Governments and policy-makers to match our ambitions in their recovery efforts aligned with reaching net-zero emissions well before 2050.”
To “recover better from COVID-19”, companies commit to continue:
- Implementing ambitious science-based targets to set the world on a 1.5°C trajectory
- Prioritizing green jobs and sustainable growth, protecting nature and people, and delivering on the 2030 Sustainable Development Agenda and the 2015 Paris Agreement
- Working with Governments and scaling up the movement
“Governments have a critical role to play by aligning policies and recovery plans with the latest climate science, but they cannot drive a systemic socio-economic transformation alone. To address the interconnected crises we face, we must work together as an international community to deliver on the Sustainable Development Goals and the Paris Agreement.”
Lila Karbassi, Chief of Programmes at the UN Global Compact and SBTi board member, Business giants call for science-based green economic recovery (Euractiv, 19 May 2020)
2. During this period of market turbulence and economic uncertainty, Blackrock (the world’s largest asset manager) finds that sustainable companies fared better (with 94% of sustainable indices outperforming their parent benchmarks in Q1 2020) and investors have preferred sustainable funds (with a 41% increase year-over-year in Q1)
Blackrock, the world’s largest asset manager ($7.4tn AUM) published a new report for institutional and professional investors, titled Sustainable investing: Resilience amid uncertainty.
Here are some of the findings from their research:
- “Companies with strong profiles on material sustainability issues have potential to outperform those with poor profiles. In particular, we believe companies managed with a focus on sustainability should be better positioned versus their less sustainable peers to weather adverse conditions while still benefiting from positive market environments.”
- “The recent downturn was a key test of this conviction. In the first quarter of 2020, we have observed better risk-adjusted performance across sustainable products globally, with 94% of a globally-representative selection of widely-analyzed sustainable indices outperforming their parent benchmark.”
- “Casual observers initially attributed the strong performance of ESG funds to their relative underweighting to traditional energy companies, whose prices fell further than the overall market during the downturn. However, our own analysis in this paper and third- party research shows that the underperformance of traditional energy explains only a fraction of the outperformance seen in many sustainable funds.”
Blackrock identifies fifteen “descriptors” that focus on different, material sustainability issues, and seeks to understand the relevance of each descriptor to a company’s long-term prospects. Blackrock finds that the following three sustainability descriptors play a particular role in driving company outperformance:
- Job satisfaction of employees;
- The strength of customer relations; and
- The effectiveness of the company’s board
In addition to this outperformance of sustainable companies, Blackrock finds that investors during the recent market turmoil have increasingly preferred sustainable funds, with global sustainable open-ended funds bringing in USD 40.5bn in new assets in the first quarter of 2020 (a 41% increase year-over-year) and U.S. sustainable funds attracting a record USD 7.3 billion for the quarter. This “upend[s] an oft-cited concern pre-COVID crisis that during sharp market downturns, investors will de-prioritize sustainability.”
Source: Blackrock, Sustainable investing: Resilience amid uncertainty (May 2020)
3. An alliance of asset owners and managers finds that addressing risks to people as part of efforts to integrate ESG into investment activities remains widely neglected, and provides guidance on how to thread the UN Guiding Principles throughout ESG practices (Investor Alliance for Human Rights)
The Investor Alliance for Human Rights has released a toolkit for institutional investors, developed with input from asset owners and managers from a range of countries, designed to support investors in addressing risks to people in their own business and across their investment value chains.
The toolkit starts with a call to action which reminds institutional investors why “[t]his is the moment that investors need to get the ‘people part’ of ESG right or risk missing the mark with disastrous consequences for people, sustainable development, and the sustainable finance movement as a whole.” One reason (among others) is new EU rules requiring European investors to disclose the steps they have taken to address the adverse impact of their investment decisions on people and the planet. (EU member states have until May 2021 to implement these rules).
The toolkit highlights a significant limitation. “While a growing group of mainstream investors are integrating ESG criteria into their investment activities, many institutional investors are still far from doing so. Moreover, assessing and addressing risks to people in investments remains widely neglected and underestimated within the investor community, even among those that do integrate current ESG considerations into their policies and practices. Compounding this problem, ESG ratings criteria and relevant frameworks are far from being uniform and aligned with human rights standards. At the same time, ‘human rights’ are too often characterized by institutions as ‘niche’ or only relevant to active investment strategies, rather than understood as an embedded across a wide range of ESG-related concerns and all forms of investment.”
The toolkit specifically discusses the value of the UN Guiding Principles to investors – going beyond the S. “While most evidently relevant to the ‘S’ in ESG, the UN Guiding Principles provide a management system approach, replicated by the OECD, that can assist investors with systematically assessing and addressing a broad range of ESG risks and impacts. This approach allows investors to more appropriately focus on credible processes and outcomes rather than often impractical and inefficient ‘issue-by-issue’ or ‘sector-by-sector’ approaches.” The toolkit describes the benefits to investors of threading the UN Guiding Principles throughout their ESG practices.
The toolkit then sets out a framework to guide investor action on human rights at (1) the institutional level and (2) the investment level. Of particular note, the toolkit provides:
- A table providing real-life examples of investor leverage, ranging from company dialogues, shareholder resolutions and proxy voting, peer-to-peer initiatives, multi-stakeholder engagements, regulatory and civil society engagement
- A checklist for investor human rights policy commitments and for investor human rights governance
- A set of questions that asset owners should request of asset managers to ascertain the extent to which assets are managed in line with the UN Guiding Principles
- Guidance to support investors in prioritizing opportunities for engagement and key human rights questions investors can ask of companies to exercise their leverage
- Template human rights resolutions to use in influencing portfolio companies
Source: Investor Alliance for Human Rights, Investor Toolkit on Human Rights (May 2020)
“Addressing human rights risks is an important component of financially responsible and sustainable investment strategies. By assessing human rights risks during investment-decision making and engaging portfolio companies to promote the adoption of human rights policies and due diligence, we are better able to avoid the financial and reputational risks associated with unmanaged human rights harms in investment portfolios.”
Lauren Compere, Managing Director and Director of Shareowner Engagement at Boston Common Asset Management, Investor Toolkit on Human Rights Press Release
Week of 11 May 2020
1. A large number of the world’s largest asset managers are not taking meaningful steps to tackle human rights, do not have commitments to influence corporate behaviour on salient human rights impacts, and have a weak, non-existent or reactive approach to human rights engagement (according to ShareAction)
UK-based responsible investment charity ShareAction has assessed the performance of 75 of the world’s largest asset managers on human rights. In its recently released report “Point of No Returns: Part II – Human Rights. An assessment of asset managers’ approaches to human and labour rights”, ShareAction finds that the asset management industry’s money is “overwhelmingly being used in a way that at best neglects human and labour rights abuses and at worst contributes to them.”
As a backdrop, ShareAction finds that the asset management industry holds a “huge amount of influence over corporate behaviour.” The three biggest asset management firms in the world, BlackRock, Vanguard, and State Street, together constitute the largest shareholders in 88 per cent of the S&P 500 firms. The 75 asset managers in this assessment manage more money than the GDP of the US, China and the European Union combined.
Here are some of the key findings from the report:
- Three-quarters of the world’s largest asset managers make reference to human rights issues in their environmental, social and governance policies. However, few are taking meaningful steps to tackle these issues through their votes at annual meetings, exclusions, discussions with companies or adherence to international frameworks
- A large number of asset managers’ policies do not have commitments to influence corporate behaviour on salient human rights impacts (the most severe impacts a business has the potential to cause) in line with international frameworks. Only 28 per cent of asset managers surveyed have made a commitment to engage or exclude companies who fail to act in line with United Nations (UN) or International Labour Organisation (ILO) frameworks
- Less than ten per cent (9 per cent) of the world’s largest asset managers have a strong approach to human rights. 61 per cent of the world’s largest asset managers have a weak or non-existent approach to engagement on human rights, while an additional 20 per cent take a reactive approach. Reactive engagement takes place after a human rights abuse has occurred, focusing mostly on the material – i.e the financial risk – to business. (Where asset managers are engaging with the companies they mostly focus on supply chain due diligence, followed by gender, workforce conditions and wages)
- 84 per cent of the world’s largest asset managers have no public policy against purchasing sovereign bonds from countries under international sanction for human rights abuses. Almost half of the world’s largest asset managers (representing a combined US$45 trillion in assets under management) do not have policies to exclude controversial weapons companies from their investments
- US managers such as Fidelity, Vanguard and JPMorgan Asset Management ranked among the worst performers on human rights, while European asset managers such as Robeco, BNP Paribas Asset Management and Legal and General Investment Management received A grades. BlackRock, the world’s largest asset manager, ranked towards the bottom of the list
Source: ShareAction, Point of No Returns – Human Rights (May 2020)
(You can find the ranking of these 75 asset managers based on their approach to responsible investment, governance, human rights, climate change, and biodiversity in Part I of the series.)
“The world’s largest asset managers are largely failing to hold the companies in their portfolios to account for human and labour rights abuses. As the Covid-19 pandemic shines a brighter light on the reality of labour market inequalities and imbalances in access to basic services, it also marks a critical opportunity for asset managers to step up and play their part in ensuring that human and labour rights are protected.”
Felix Nagrawala, Senior analyst at ShareAction, Fidelity, Vanguard and JPMorgan accused of ignoring human rights (FTfm, 14 May 2020)
2. The ILO calls on developing countries to seize the opportunity provided by COVID-19 to accelerate building universal social protection systems and extending sickness benefit coverage to all, including protecting workers in the informal economy, ensuring the protection of incomes and jobs and promoting decent work
The ILO’s released two briefs this week:
- Social protection responses to the COVID-19 pandemic in developing countries: Strengthening resilience by building universal social protection
- Sickness benefits during sick leave and quarantine: Country responses and policy considerations in the context of COVID-19
Key findings are:
- The COVID-19 crisis has exposed devastating gaps in social protection coverage in developing countries, and recovery will only be sustained and future crises prevented if they can transform their ad hoc crisis response measures into comprehensive social protection systems
- 55 per cent of the world’s population – as many as four billion people – are not covered by social insurance or social assistance. Globally, only 20 per cent of unemployed people are covered by unemployment benefits, and in some regions the coverage is much lower
- Social protection is “an indispensable mechanism for delivering support to individuals during the crisis.” Response measures countries have introduced include removing financial barriers to quality health care, enhancing income security, reaching out to workers in the informal economy, protecting incomes and jobs, and improving the delivery of social protection, employment and other interventions
- When it comes to sickness benefit coverage, the COVID-19 health crisis has exposed two main adverse effects of gaps in this coverage: (1) protection gaps can force people to go to work when they are sick or should self-quarantine, increasing the risk of infecting others, and (2) the related loss of income increases the risk of poverty for workers and their families
- The ILO suggests that governments extend sickness benefit coverage to all, with particular attention given to reaching women and men in non-standard and informal employment, the self-employed, migrants and vulnerable groups. Other recommendations include increasing benefit levels to ensure they provide income security, speeding up benefit delivery, and expanding the scope of benefits to include prevention, diagnosis and treatment measures, as well as time spent in quarantine or on the care of sick dependants
“The COVID-19 crisis is a turning point. It has revealed once again the devastating consequences of systemic shocks for societies and economies in the absence of universal and adequate social protection. Although the virus does not discriminate between rich and poor, its effects are highly uneven. Those who are better off are more likely to have secure employment and savings to draw on and access to social protection and health coverage, and are better able to quarantine themselves while continuing to work remotely. The highly uneven impacts and outcomes of the crisis within and across countries will thus result in increasing inequalities.”
ILO, Social protection responses to the COVID-19 pandemic in developing countries: Strengthening resilience by building universal social protection (ILO, May 2020)
3. Oil and gas companies have made more ambitious goals for decarbonisation recently, but none of them align with a 2°C scenario; now is the time for investors to establish a net zero standard for the oil and gas sector (according to asset-owner led Transition Pathway Initiative)
Transition Pathway Initiative (TPI), a global initiative launched by the UK’s Environment Agency and the Church of England National Investing Bodies in 2017 and led by asset owners, released its latest briefing paper: Carbon Performance of European Integrated Oil and Gas Companies.
Key findings from the briefing paper are:
- Since a critical mass of European companies have evolved their position, now is the time for investors to establish a net zero standard for the oil and gas sector. Less than three years ago, no company had set targets to reduce the carbon intensity of the energy it supplied. Today, all six companies assessed by TPI (BP, Eni, OMV, Repsol, Shell and Total) have set such targets, all of which (except for OMV) have recently updated their long- term climate ambitions
- “Ambitions have risen markedly in the last six months”: BP and Eni include Scope 3 emissions in their ambitions, Repsol and Total have extended their targets to 2050, and Shell now plans to cut its emissions intensity by 65% by 2050
- “However, these new targets are not all equal”: Shell’s new target is the most ambitious and is close to alignment with a 2°C scenario. The second most ambitious is Eni, which commits to reduce intensity by 55% and absolute emissions by 80%. Eni’s plan also includes disclosure on the expected contribution of offsets and represents a comprehensive strategic response. The third most ambitious is Total, with its 2050 ambition to reduce emissions by over 60%
- “Companies need to go further”: Within the European companies, the claims of ‘net zero’ or 1.5°C alignment that have been made are not substantiated by TPI’s analysis. None of them align with a 2°C scenario, using TPI’s intensity metric. In addition, non-European oil and gas companies are lagging far behind their European peers
- Oil and gas companies will need to support the decarbonisation of other sectors if they are to transition to net zero by 2050. Both Shell and Total recognise this in their recent announcements. For instance, Shell is aiming to reduce the carbon footprint of its products by 65%, and will play a role in identifying and enabling decarbonisation pathways for the sectors it sells to to address the remaining 35%
The paper provides a number of recommendations for investors, including through initiative such as CA100+. These include requesting oil and gas companies for (1) standardised and comparable disclosures, (2) stronger emissions reduction commitments, (3) a broader scope of commitments, (4) greater clarity on how carbon capture and storage (CCS) and/or offsets contribute to overall corporate goals, (5) both intensity and absolute targets, (6) better disclosure of the contribution low-carbon energy sources will make to overall corporate goals, (7) alignment of short-term targets and executive remuneration with long-term climate commitments, (8) how they will support sectoral decarbonisation plans (in particular in aviation and heavy- duty freight transport), (9) Scope 3 emissions targets and (10) stronger governance and management of climate change.
Transition Pathway Initiative, Briefing paper: Carbon Performance of European Integrated Oil and Gas Companies (TPI, May 2020)
Week of 4 May 2020
1. There will be a 20% increase in domestic violence due to the lockdowns; this represents 15 million cases in a 3-month lockdown, with an additional 5 million for every additional month of lockdown (according to the UN Population Fund – UNFPA)
New data from the UN Population Fund (UNFPA) (with partners Avenir Health, Johns Hopkins University and Victoria University) finds that the COVID-19 pandemic and associated lockdowns will result in:
- An additional 15 million cases of intimate partner violence in 2020. This is based on an average lockdown duration of 3 months and represents a projected 20% violence increase. An additional 15 million cases of domestic violence will occur for every additional three months of lockdown (31 million cases for a 6-month lockdown, 45 million for a 9-month lockdown, 61 million for a 12-month lockdown). The primary cause is the lockdown and the associated stay-at-home orders. Other factors include mounting household tensions and economic stresses.
- An additional 2 million girls will be subject to female genital mutilation over the next ten years (as compared to if prevention programmes had continued on a pre-COVID-19 basis). This represents a 33 per cent reduction in the progress toward ending this practice as compared to if COVID-19 had not occurred.
- An additional 13 million children will find themselves in marriages due to the economic consequences of COVID-19 and the disruption of efforts to end child marriages. Poverty is a key driver of child marriage, and therefore the economic downturn is expected to increase child marriage in low-income countries by 5.6 million. The additional 7.4 million of child marriages is due to the significant limitations placed on interventions intended to avert child marriage.
- An additional 7 million unintended pregnancies will occur (assuming a 6-month lockdown and ongoing service disruptions to contraceptives and health facilities). The report gives a range of estimates, ranging from 325,000 to 15 million unintended pregnancies, depending on the level of health service disruptions and the number of months of lockdown.
“It’s a calamity. Totally calamitous. It is so clear that Covid-19 is compounding the no longer subterranean disparities that affect millions of women and girls.”
Natalia Kanem, Executive Director, UNFPA, ‘Calamitous’: domestic violence set to soar by 20% during global lockdown (The Guardian, 28 April 2020)
2. A growing number of influential companies call on their governments to place climate considerations at the heart of all economic recovery plans (18 companies in the UK, 90 in France, 68 in Germany, 37 at the EU level)
As debate about whether the climate should be at the heart of post-pandemic economic recovery intensifies and the Petersberg Climate Dialogue concludes, a growing number of influential companies take position calling for environmental considerations to be placed front and centre of all governmental recovery plans.
In an open letter sent to UK Prime Minister Boris Johnson, 18 businesses, over two dozen environmental groups, and a number of public figures urge the UK government to build a more resilient green economy in the wake of the coronavirus crisis.
- Company signatories include Iceland, Ben & Jerry’s, The Body Shop, Triodos Bank, Barratt Homes, and Good Energy.
- The companies urge the Johnson administration to prioritise investment in “climate-safe” infrastructure and technology, and skills for sustainable jobs. Companies from “polluting industries” that do not have a proper climate plan should be excluded. The government should seek to restore ecosystems on land and in oceans, and support sustainable food, farming and fishing. The government should pass environmental laws which include targets to restore ecosystems, and seek to bring global leaders together to plan for a sustainable economic recovery.
In an open letter to Le Monde, over 90 French and international companies call on the French government to “place the environment at the heart of the economic recovery.”
- Company signatories include BNP Paribas, LVMH, AXA, Suez, Danone, Saint-Gobain, Société Générale, Schneider, Alstom, Total, EDF, BASF, Generali, Siemens, Bayer, GE, Deloitte and Arcelor-Mittal.
- The companies urge the government to “channel a large proportion of the financial resources earmarked for economic recovery into the areas already identified as supporting ecological transition.”
- The letter was initiated by Jean-Laurent Bonnafé, CEO of BNP Paribas, and coordinated by think tank Entreprises pour l’Environnement.
A similar letter has been signed by 68 German companies (coordinated by Foundation 2C) calling for coronavirus-related state aid to be tied to climate action. Signatories include ThyssenKrupp, Salzgitter, Bayer, Covestro, E.ON, HeidelbergCement, Puma, Allianz and Deutsche Telekom.
Companies have also been vocal in stating that the European Green Deal should be placed at the heart of EU’s post-pandemic recovery plan. 37 CEOs (including from The Coca-Cola Company, L’Oréal, Lego, Ikea, H&M, Unilever and Danone) and 28 business associations joined an informal alliance launched in the European Parliament on 14 April. This Green Recovery Alliance, which brings together Members of the European Parliament (MEPs), the private sector and civi society, calls for “the establishment of Green Recovery Investment Packages acting as accelerators of the transition towards climate neutrality and healthy ecosystems.”
“The economic recovery from this global health crisis must put the restoration of nature at its heart – because that is the only way we can continue to power our human endeavour sustainably. If nature is protected, we are protected. This letter asks the UK government to seize the opportunity to create something better out of this moment in history and establish a new normal: a climate-safe, nature-rich, healthy world for all.”
Richard Walker, Managing Director, Iceland Foods, Green recovery: UK business leaders urge PM to build a ‘resilient economy’ ahead of nationwide address (Business Green, 8 May 2020)
“To address the crisis beyond the short term, we will need to deploy collective intelligence in the post-pandemic world, envision far-reaching changes to our methods of production, business models, consumer behaviour and lifestyles, and rethink our relationship with nature. Let us use the present challenge we are facing together as an opportunity for us all to put the environment at the core of a collective rebound.”
Tribune collectif, Mettons l’environnement au cœur de la reprise économique (Le Monde, 4 May 2020)
“Many companies from all sectors of the economy have already begun to make their business models climate-friendly, based on scientific evidence. These investments must not be jeopardized. The German government should work with all Member States of the European Union to assure that the there is no turning back from European climate policy.”
Sabine Nallinger, Managing Director, Foundation 2C, Major corporates urge EU to put net zero at heart of Covid-19 recovery plans (Business Green, 28 April 2020)
“After the crisis, the time will come to rebuild. This moment of recovery will be an opportunity to rethink our society and develop a new model of prosperity. … Projects such as the European Green Deal … have a huge potential to build back our economy and contribute to creating a new prosperity model. We therefore consider that we need to prepare Europe for the future, and design recovery plans, both at the local, national and at the EU level, enshrining the fight against climate change as the core of the economic strategy.”
180 Signatories, Call for mobilisation – Green recovery: Reboot & reboost our economies for a sustainable future (Green Recovery Alliance, 14 April 2020)
3. A cross-sectoral group of companies (in the European Corporate Leaders Group) call on the EU to fully commit to a Green Deal and make the case that climate policies will help Europe increase employment as it faces the megatrends of (1) technological change, (2) globalisation, (3) demographic change, and (4) resource scarcity
The European Corporate Leaders Group (CLG Europe), a cross-sectoral group of European businesses working toward a climate neutral economy and convened by the Cambridge Institute for Sustainability Leadership (CISL), has released a report which makes the case for the EU to place the Green Deal at the heart of its coronavirus recovery strategy. CLG Europe includes companies Unilever, Coca-Cola European Partners, EDF, DSM, ACCIONA, Iberdrola, and Sky.
The group calls on the EU to fully commit to a European Green Deal that delivers a clear and managed transition to net zero emissions by 2050. It is calls for member states to implement “green and equitable” Covid-19 recovery plans and urgently draw up a strategy to equip the continent’s workforce with the skills needed for a greener future.
A few highlights from the report:
- Alongside the transition to a climate neutral economy, Europe will be impacted by other transformative forces – known as megatrends. These four mega-trends are (1) technological change, (2) globalisation, (3) demographic change, and (4) resource scarcity.
- Modelling the economic and environmental impact of the megatrends suggests that many of the megatrends – and in particular technological and demographic change – are likely to have far bigger impacts on the economy and the labour force than the low carbon transition.
- Where Europe has an aligned and effective policy framework (referred to as the best-case scenario), Europe could maintain employment levels in the face of the combined impact of the megatrends. Without this strong policy response, Europe could see job losses of up to nearly 10 per cent by 2030 and 30 per cent by 2050.
- The modelling finds that well designed and implemented climate policies can help improve how Europe manages these megatrends: when the best-case scenario is combined with 1.5 degree compatible decarbonisation policies, it improves employment projections, leading to a scenario of around 1 per cent growth in employment.
- Decarbonisation policies can help build a European labour market that is more resilient to economic change and sustainable, as long as these policies are sufficiently tailored to manage negative impacts. In particular, financial support and inclusive policies will be essential to ensure that the negative impacts of low carbon transition do not disproportionately disadvantage specific communities, or exacerbate the negative impacts of the other megatrends.
- The group provides five recommendations for policymakers: (1) commit to the European Green Deal and a clear and managed transition to a climate neutral economy, (2) develop a comprehensive vision to scale up skills and adaptability, (3) establish an inclusive economy through a just transition framework, (4) define a shared European agenda for the future of work and (5) implement green and equitable Covid-19 recovery plans, while urgently addressing which skills will be needed for the future.
“This report shows that in a changing world, a well-designed transition to a net zero economy can help the jobs market cope with the damaging effects from megatrends like technology development and globalisation that threaten to destroy jobs. This should inform governments on the design and implementation of their stimulus and recovery plans to address the economic impacts of Covid-19.”
Eliot Whittington, Director of CLG Europe, New report from CLG Europe shows that net zero transition can reduce megatrend shocks and deliver sustainable European jobs (CISL, 28 April 2020)
Week of 27 April 2020
1. The equivalent of 305 million full-time jobs will be lost this quarter, as we face a 10.5 per cent decline in global working hours; 1.6 billion informal economy workers (out of 2 billion) are in immediate danger of having their livelihoods destroyed – this represents half of the total global working population of 3.3 billion (according to the ILO)
On Wednesday, the International Labour Organisation (ILO) released its third edition of COVID-19 and the world of work, finding that:
- Global working hours declined by 4.5 per cent in the first quarter (when compared to the last quarter of 2019), which represents approximately 130 million full-time jobs. The ILO estimates that global working hours will decline by 10.5 per cent in the second quarter, which represents approximately 305 million full-time jobs (when compared with the last quarter of 2019). This estimated loss in working hours is “a significant deterioration” when compared to ILO’s previous estimate (which was 195 million), mainly because of the prolongation and extension of containment measures.
- Around 436 million companies and own-account workers (i.e. who are self-employed) are facing high risks of serious disruption worldwide. Of these, over half (232 million) are in wholesale and retail. Small companies and own-account workers account for over 70 per cent of employment globally in retail trade, and 60 per cent in the accommodation and food services sector. The ILO highlights that small enterprises around the world, and in low-income and middle-income countries in particular, play a major role as providers of jobs. At the same time, they will be particularly severely hit since they often lack access to credit, have few assets and benefit less from fiscal measures.
- Of the total global working population of 3.3 billion, about 2 billion work in the ‘informal economy’. “Income losses for informal economy workers are likely to be massive.” Of these 2 billion people, almost 1.6 billion are significantly impacted by lockdown measures and/or working in the hardest-hit sectors. The global decline of earnings for these informal workers is 60 per cent in the first month of crisis (with Africa and Latin America being the hardest hit regions). It is anticipated that the rate of relative poverty for informal workers will increase by 34 percentage points globally (with an increase in 56 percentage point in lower-middle-income economies). (Relative poverty is defined as the proportion of workers with monthly earnings that fall below 50 per cent of the median earnings in the population).
- The ILO calls for urgent policy measures, stating that “[s]upport to businesses and jobs need to target the most vulnerable in order to mitigate the economic and social consequences of the confinement period.” The ILO calls for immediate support in the areas of (1) stimulating the economy and employment, (2) supporting enterprises, jobs and incomes, (3) protecting workers in the workplace and (4) relying on social dialogue for solutions.
Source: International Labour Organisation, ILO Monitor: COVID-19 and the world of work (Third edition, 29 April 2020)
“We all have to think of the human suffering, the human need that stands behind that extraordinary figure.” (referencing the 1.6 billion workers in the informal economy that are in “immediate danger of having their livelihoods destroyed”)
Guy Ryder, Director-General, ILO, Global crash fears as virus hammers US economy (AFP, 29 April 2020)
2. EU-wide mandatory cross-sectoral human rights and environmental due diligence legislation will form part of the EU’s COVID-19 recovery package; this will feed into the European Green Deal with consultations starting now to feed into a legislative proposal debated at the EU in 2021 (according to the EU Commissioner for Justice)
EU Commissioner for Justice, Didier Reynders, announced on Wednesday that the European Commission will introduce a legislative initiative in 2021 on an EU-wide mandatory human rights and environmental due diligence legislation. His comments were made at a webinar hosted by the European Parliament’s Responsible Business Conduct Working Group, during which he also provided further information on the proposal:
- The Commissioner for Justice highlighted that the COVID-19 crisis had underscored “how important it is for the businesses themselves to properly integrate the interests of the society in which they operate, of the workers and those depending on the companies for their sheer survival and sustainability. Businesses which have better risk mitigation processes across their supply chains cause less harm to people and weather the crisis better. Good environmental, social and governance practices pay off, even in the short-term, not only in the long-term.”
- The legislation will be part of the EU’s COVID-19 recovery package, and will feed into the European Green Deal. “The European Green Deal highlights the role of corporate governance in this transformation. … We need to adopt new rules now. … Our work in the area of corporate governance has three main objectives: 1) to foster longer time horizons in corporate decision-making; 2) to incentivise sustainable business models; 3) to increase corporate accountability for human and environmental harm.” This will be an autonomous legislative path from the review of the EU Non-Financial Reporting Directive.
- The Commissioner references “corporate due diligence” as “a process aiming to identify, prevent and mitigate adverse human rights and environmental impacts in a company’s own operations and in its value chain.” He states that “this was developed in the UN Guiding Principles on Business and Human Rights and expanded in the OECD responsible business framework for multinationals.”
- This will be about “mandatory requirements” for EU companies covering the entire supply chain. The proposal will be cross-sectoral in nature to avoid market fragmentation. The proposal will cover various sizes of companies, including SMEs (although the treatment of SMEs will vary).
- The law will provide for sanctions (since “a regulation without sanctions is not a regulation”) which could entail a possible network of national supervisory authorities coordinated at the EU level. Civil liability will be provided for to capture remedy, which will seek to build on existing EU mechanisms (e.g. the proposed representative actions related to protection of the collective interests of consumers).
- This announcement builds on a European Commission-commissioned study where 70% of business survey respondents agreed that EU-level rules on human rights and environmental due diligence may provide benefits for business. It also builds on investor and civil society calls for such a legislative initiative.
- A public consultation will be announced shortly to feed into the legislative proposal which will seek to involve all relevant stakeholders. The announcement was welcomed by the German government (represented by Carsten Stender of the German Federal Ministry of Labour and Social Affairs) which will hold the next six-month EU presidency starting in July.
“The COVID-19 crisis painfully exposed the vulnerabilities of our economy and of unregulated global supply chains. Many argue that we should rethink our supply chains and dependency on third countries for some key products. … We need to make sure that responsible business conduct and sustainable supply chains become the norm, a strategic orientation for businesses.”
Didier Reynders, EU Commissioner for Justice, Speech by Commissioner Reynders on 29th April 2020 in the webinar on due diligence hosted by the RBC Working Group (29 April 2020)
“We should not rebuild the old economy, but a new one that is greener, more sustainable and more resilient. The long-awaited commitment from the Commissioner opens up an opportunity for all to start defining how such ground-breaking legislation should look like.”
Heidi Hautala, Member of the European Parliament (MEP), Spokesperson for the Green group on International Trade in the European Parliament, New human rights laws in 2021, promises EU justice chief (Euractiv, 30 April 2020)
3. While companies are starting to integrate workforce related issues into financial incentive structures, they are also (i) confusing living wage with minimum wage, (ii) reluctant to provide data on contingent workforce and social dialogue mechanisms and (iii) less able to provide data on implementation of responsible sourcing commitments (according to the Workforce Disclosure Initiative – WDI)
The Workforce Disclosure Initiative (WDI), coordinated by responsible investment charity ShareAction and backed by 137 investors with over $14 trillion of AUM, asks companies for workforce information and data – both in their direct operations and in their supply chains. Investor members include Amundi, Aberdeen Standard, PKA Denmark, Achmea, Vision Super, Candriam and Nest.
In its third iteration in 2019, the investors asked workforce data from 750 of the largest publicly listed companies from around the world (based on market capitalisation; significance of the company in terms of the sector, local market and scale; exposure of the workforce to risks; and specific interest to the investor group). Of these, 118 companies responded (15 per cent), including companies such as BT, Microsoft, Unilever, Nestle and Glaxo Smith Kline. Of these answers, 40 per cent of the survey was completed. The WDI remarks that the “survey is designed to challenge companies workforce data collection”, to help trigger reflection on the data they could collect on their workforce in the future.
Speaking about transparency: I’m on the WDI Advisory Group with Alison Tate, Bettina Reinboth, Dieter Waizenegger, James Gomme, Janet Williamson, Sumi Dhanarajan and Will Pomroy.
The 2019 report, released this week, highlights six findings:
1. Companies provide data on their workforce governance structures, but share limited information on the internal accountability mechanisms. Of particular note, “[w]hile the numbers are still low, the WDI can see a growing number of companies integrating workforce related issues into their financial incentive structures. This suggests that more companies recognise the centrality of workers to the success of the business, and are prepared to reward performance that is geared toward longer term timelines and generating positive outcomes for all stakeholders.”
2. Companies are reluctant to provide data on staff turnover. The WDI notes that “[l]eading companies should live up to their wider social responsibility by being transparent about potential changes to business models so that workers, unions and investors are well informed of the impact” and can then work with companies “to develop effective mitigation strategies to protect workers and their livelihoods.” This is particularly important since we are “[a]t a time of unprecedented economic and environmental upheaval [in which] dramatic changes to the size and composition of workforces are likely.”
3. The concept of a Living Wage is not universally understood by companies. The answers received suggest that a number of companies confuse living wage with local minimum wages requirements. Furthermore, “[w]ith 40 per cent of companies choosing not to respond when asked if they paid a Living Wage to workers in their direct operations, it can be inferred that companies are reluctant to disclose whether they pay these rates.”
4. Companies are willing to submit more data against workforce metrics for permanent employees than for their contingent workforce (i.e., employment that relies on temporary contracts, non-guaranteed hours, and third-party contractors). While 75% of companies disclosed the percentage of their direct operations workforce engaged on a permanent contract, only 25% of companies were willing to disclose the percentage of workers on non-guaranteed or short hour contracts.
5. Companies do not appear to be collecting detailed data relating to social dialogue mechanisms, undermining their ability to monitor labour relations. “Only five companies gave the rate of collective bargaining coverage for over 40 per cent of their direct operating locations.” The study also finds that although the majority (94 per cent) of companies provided details of their grievance mechanisms, less than half (48 per cent) revealed the number of grievances raised by direct operations workers.
6. Companies generally have in place policy-level commitments on responsible sourcing and supply chain workers’ rights but are less able to provide data on how these commitments are implemented. The study finds that “[o]nly 15 companies suggest they critically reflect on the limitations of supplier audits, or disclosed whether non-conformance issues are evaluated as part of a wider internal assessment, to identify drivers of supplier non-conformance within the company’s own sourcing practices.”
Source: Workforce Disclosure Initiative, Workforce Disclosure in 2019: Trends and Insights (April 2020)
“The Covid crisis has really exposed which companies do well by their workers and which are failing to safeguard them in times of need. Investors should be asking tough questions. It is essential that companies have good oversight of their workers, especially the most vulnerable. Meaningful transparency on workers can help protect them when crisis strikes. Our findings show that this data collection and reporting is not a priority for many of the world’s biggest companies. This needs to change.”
Simon Rawson, Director of Corporate Engagement, ShareAction, Companies show lack of transparency on vulnerable workers amid Covid-19 crisis (WDI, 30 April 2020)
Week of 20 April 2020
1. Impacts of COVID-19 on both the food supply side (transport and processing disruption) and the food access side (purchasing power) could double the number of people suffering from acute hunger – from 135 million in 2019, to 265 million in 2020 (according to the UN World Food Programme)
The United Nations World Food Programme (WFP) announced on 23 April that the COVID-19 pandemic could double the number of people who are suffering from acute hunger — from 135 million in 2019, to 265 million in 2020. This is an additional 130 million people.
The WFP’s announcement comes alongside the release of research (the 2020 Global Report on Food Crises) into the status of hunger in 2019, produced with 15 other humanitarian and development partners. This report highlights that in 2019:
- The majority of people suffering acute food insecurity were in countries affected by conflict (77 million), climate change (34 million) and economic crises (24 million people).
- The ten countries with the worst food crises were Yemen, the Democratic Republic of the Congo, Afghanistan, Venezuela (Bolivarian Republic of), Ethiopia, South Sudan, Syria, the Sudan, Nigeria and Haiti. More than half of the affected population were in Africa.
When it comes to the impact of COVID-19 on hunger, the report notes that:
- The pandemic may well devastate livelihoods and food security, especially in fragile contexts and particularly for the most vulnerable people working in the informal agricultural and nonagricultural sectors. A global recession will majorly disrupt food supply chains.
- The 55 countries that are home to the 135 million acutely food-insecure people are the most vulnerable to the consequences of the pandemic as they have very limited or no capacity to cope with either the health or socioeconomic aspects of the shock.
- Under-nourished people tend to have weaker immune systems and therefore are at greater risk of developing severe COVID-19 symptoms.
- On the food supply side, movement restrictions necessary to contain the spread of the virus will disrupt the transport and processing of food.
- On the food access side, rising unemployment and under-employment is likely to severely reduce people’s purchasing power – in particular daily wage earners in the informal economies, service sector employees and migrant workers, as well as families of migrant workers reliant on remittances.
The report authors recommend rapid collective action to pre-empt the impact of COVID-19 on food security and food systems.
“The scenario in poor countries is too gruesome to comprehend. … We need to get ready for the second and the third wave of this disease. People are losing their livelihoods and their incomes and, at the same time, supply chains are disrupted. This translates into a double whammy which has both the breadth and the depth of hunger increasing around the world.”
Arif Husain, Chief Economist, UN World Food Programme in Paul Anthem, Risk of hunger pandemic as COVID-19 set to almost double acute hunger by end of 2020 (16 April 2020, World Food Programme Insight)
2. 103 investors (representing US$5tn AUM) called this week on all governments to develop, implement, and enforce mandatory human rights due diligence requirements for companies; they argue that this would be good for business, create uniformity and efficiency, and support investors in fulfilling their own responsibility to respect human rights
103 investors, representing US$5 trillion in assets under management, called this week “on all governments to develop, implement, and enforce mandatory human rights due diligence requirements for companies headquartered or operating within their own jurisdictions or, where appropriate, to further strengthen these regulatory regimes where they already exist.”
The statement, coordinated by the Investor Alliance for Human Rights, has been sent to government representatives in the European Union, the United States and Canada. Signatories include Legal & General Investment Management, Federated Hermes International, Aberdeen Standard Investments, Aviva Investors, BMO Global Asset Management, Robeco, and Achmea Investment Management.
The investors provide three reasons for why they call on governments to require companies to undertake robust human rights due diligence. Mandatory human rights due diligence is:
- Materially good for business, investors, and the economy. The statement makes the business case for mandatory human rights due diligence. It then lists the instances where institutional investors and business associations have explicitly supported mandatory human rights due diligence developments (in Switzerland, the Netherlands, Australia and the U.S.)
- Essential in creating uniformity and efficiency as an increasing number of governments are already taking this step. The statement lists the governments that have already created this legislation, noting that the “tide of government action on human rights has strongly turned toward this type of regulation.” In parallel, the investors report that recent findings (e.g. from the Corporate Human Rights Benchmark) show that free-rider companies are failing to conduct adequate human rights due diligence. “As such, companies and investors alike require policy coherence and a leveling of the playing field, where consistent expectations across sectors and geographies allow for more efficient and predictable risk management throughout complex value chains and investment portfolios.”
- A necessary component for investors to fulfill their own responsibility to respect human rights. The statement concludes that the investor responsibility to respect human rights is becoming increasingly recognized by investors and national governments, and enshrined in international and regional standards, and that “[f]inancial reporting and voluntary risk assessment processes fail to warn investors of” risks “of funding companies or projects linked to human rights abuses.”
“Grave human rights abuses linked to business activities unfortunately persist each day, and government leadership on mandatory human rights due diligence is necessary to address the resulting risks to people and the convergent risks to business, investors, and national economies. Investors are ready to embrace our responsibility to respect human rights and do our part to meaningfully and urgently address these risks. We now need governments to compel companies to do the same.”
Statement of 103 investors coordinated by the Investor Alliance for Human Rights, The Investor Case for Mandatory Human Rights Due Diligence (21 April 2020)
“Human rights due diligence enables investors to adequately identify and assess salient human right risks across our investment portfolios. Importantly, it can help companies mitigate risks to employees, communities, and other stakeholders, manage potential financial and legal risks, and, ultimately, enhance shared value creation. It simply makes for better-run companies. And from a global perspective, mandatory human rights due diligence brings opportunities to improve economic productivity, reduce inequalities, and improve livelihoods – all integral to achieving the UN Sustainable Development Goals.”
Alice Evans, Co-Head and Managing Director, Responsible Investment at BMO Global Asset Management, Investors with US$5 trillion call on governments to institute mandatory human rights due diligence measures for companies (21 April 2020)
3. As annual meeting season kicks off in this time of COVID-19, the climate crisis remains a priority for investors; Royal Dutch Shell and Barclays make new commitments, and a recent study describes the full array of engagement strategies – including naming laggards, drafting open letters, coordinating collective engagement and urging policy action – that asset managers are adopting to amplify their influence (Morningstar)
Asset managers have made clear that the climate crisis remains a priority for investors in this time of COVID-19:
- Blackrock, the world’s largest asset manager ($7.4tn AUM) has stated that its decision to prioritise climate change in 2020 is unaffected by COVID-19. The asset manager will continue to vote against the re-election of senior non-executive directors where company disclosure in not in line with the Task Force on Climate-related Financial Disclosures, or where relevant sustainability risks are not integrated into business strategy.
- Eight investment groups, including BNP Paribas Asset Management, DWS and Comgest Asset Management, have stated that tackling climate change must continue to be a priority for public companies in this COVID-19 era. Net zero targets for 2050 should not be abandoned in 2020.
- Chris Cummings, the CEO of Investment Association, the trade body for UK investment managers, has stated that climate change will top the agenda for investors during this year’s voting season, observing that “climate change will result in a significant loss of value for companies if risks are not properly managed.”
Companies have continued to make climate announcements during COVID-19:
- Royal Dutch Shell has became the largest global energy company to introduce a net-zero emissions target – with a commitment to cut emissions from its own operations, including the production of oil and gas, to net zero by 2050 and to reduce the carbon footprint of the products it sells by 65 per cent by 2050.
- Barclays, who according to the Rainforest Action Network has provided more than £100bn to the fossil fuel industry since the signing of the 2015 Paris agreement, has agreed to target net zero carbon emissions by 2050. This announcement follows an investor resolution coordinated by ShareAction calling on Barclays to phase out financing energy companies that are not aligned with the Paris agreement. The Barclays’ board is declining to support the investor resolution, but instead is placing a 2050 carbon emissions ‘ambition’ to a vote at its upcoming annual meeting.
A new report by financial research firm Morningstar, The Power of Dialogue, assesses 20 large asset managers’ approach to engaging on climate risk. Morningstar finds that:
- Two stewardship mindsets can be identified. For some asset managers, climate engagement is viewed narrowly as portfolio risk management (Dimensional, Invesco, TIAA / Nuveen, and T Rowe Price), while for others, climate-focused engagement is viewed as capital market stewardship (Aviva, BNP Paribas, Calvert (Eaton Vance), LGIM, Robeco, and UBS).
- Climate engagement disclosure tends to focus on activities, but not on outcomes or impact. Asset managers do not frame engagement disclosures within a theory of change, making it difficult to judge effectiveness. Further, when narrative reporting is included, the company engaged is rarely identified and the examples are only successes – they do not reflect on where engagement has failed or stalled.
- The report describes which asset managers are adopting engagement strategies – beyond individual meetings – that amplify their influence. These strategies include naming climate engagement laggards, sending an open letter to company CEOs, using shareholder resolutions as an active ownership strategy, engaging in collective investor engagements (for instance with Climate Action 100+), and using the investor collective voice to urge policy action (for instance to push governments to take specific actions implementing the Paris agreement).
“The pandemic underscores the urgency of transitioning to a low-carbon economy: pandemic risk itself increases as the planet heats up, according to research from the Intergovernmental Panel on Climate Change and from the Harvard Center for Climate Health and the Global Environment. A warming planet is vulnerable to a range of new risks that threaten global financial stability and that exponentially complicate strategies for dealing with the pandemic crisis.”
Jackie Cook, Director of Sustainability Stewardship Research, Morningstar, Why Fund Managers Must Take Climate Change Seriously (23 April 2020)
Week of 13 April 2020
1. New guidance (by the IHRB) examines companies’ responsibilities for workers and affected communities; provides that business should be guided by the principle of duty of care in responding to emergencies like COVID-19 and outlines the range of measures companies can take – ranging from workplace practices to communication and engagement
The Institute for Human Rights and Business (IHRB) has just released its report: Respecting Human Rights in the Time of the COVID-19 Pandemic.
The report first delves into the human rights impacts of the crisis, including on more vulnerable individuals such as migrant workers, women and the poor. It then delves into the importance of the corporate responsibility to respect human rights in the current context. In particular, the report argues that business should be guided by the principle of duty of care in responding to emergencies like COVID-19.
The report states that companies should have the following as the basis of all policies in emergency situations: be prepared, do no harm and ensure non-discrimination. It then provides detail and examples on the range of measures companies can take in response to the crisis. These fall into the following categories:
- Improving workplace practices (including by monitoring premises, redesigning the workplace and reviewing wider operations);
- Protecting and supporting workers (including by protecting workers who do not have the option of working from home, prioritising essential workers and taking steps to ensure some income support for gig economy workers);
- Dealing with sickness (including by being generous with sick leave and offering psychological support where necessary);
- Communicating clearly (including by being transparent and consistent);
- Engaging unions (including by engaging with unionised workers and vulnerable workers who are not unionised);
- Supporting supply chain responses (including by knowing the supply chain and diversifying suppliers, protecting workers in the supply chain, offering jobs for the newly-unemployed, building capacity of suppliers to make them more resilient, and lobbying host governments to protect workers’ rights);
- Reassuring customers and users (including by maintaining access, not evicting those in need, offering early access to vulnerable customers, targeting false claims and price gouging, and ensuring online accuracy);
- Being creative with strengths (including by retooling a plant, offering resources to address the crisis, or donating medical supplies and essential services);
- Protecting those without full rights (including undocumented people and prisoners); and
- Working with authorities (including by maintaining consistent dialogue, supporting under-resourced regions and preparing for evacuation, if necessary).
The report concludes by reflecting on some of the building blocks that will be necessary as we look to the future.
“Economies will have to become more resilient. Companies and governments now have an opportunity to explore different ways of producing energy, to protect the planet from the climate crisis and undertake structural and policy changes to move away from business-as usual or operations-as-usual.”
Institute for Human Rights and Business, Respecting Human Rights in the Time of the COVID-19 Pandemic: Examining Companies’ Responsibilities for Workers and Affected Communities (April 2020)
2. New guidance (by the IFC) describes how COVID-19 may disproportionately impact vulnerable segments of the workforce and provides tips for companies on how to (i) address safety, (ii) protect jobs and address insecurity and (iii) conduct appropriate retrenchment as a last resort
The International Financial Corporation (IFC) is a global development institution that focuses on building the private sector in developing countries. Although the primary audience is its clients, IFC’s recently released guidance, Interim Advice for IFC Clients on Supporting Workers in the Context of COVID-19, can be helpful for all employers.
First the report describes how COVID-19 may disproportionately impact vulnerable segments of the workforce, including (i) casual, temporary, gig economy, seasonal, or informal workers, (ii) older workers, workers with underlying health issues, and workers with disabilities, (iii) migrant workers and (iv) women and girls.
It then delves into possible actions companies can take in three areas.
When it comes to addressing safety, prevention and response measures are possible in a range of areas including communication, cough hygiene, hand sanitation, social distancing, cleaning and disinfecting, food preparation, air quality control, personal protective equipment and worker accommodation.
When it comes to protecting jobs and addressing insecurity, the report describes the kinds of concerns workers can have before outlining possible approaches to keeping employees in work, possible job protection responses, as well as other support that can be provided to workers.
Source: International Finance Corporation (IFC), Interim Advice for IFC Clients on Supporting Workers in the Context of COVID-19 (April 2020)
When it comes to retrenchment (also known as collective redundancy or mass layoff), the report provides that this should be opted for as a last resort, and carried out in accordance with national law and applicable collective bargaining agreements.
The report concludes with a ‘job protection and employment security checklist’ to support companies in assessing state support and relevant legal requirements, as well as potential worker safety and job protection measures.
3. New guidance (by Business Fights Poverty and Harvard Kennedy School – CRI) provides guidance on the three areas (core business, philanthropy and policy engagement) companies can focus on to mitigate impacts on people’s lives, livelihoods and learning
Business Fights Poverty and the Harvard Kennedy School – Corporate Responsibility Initiative have published a response framework setting out practical guidance on how businesses can support the most vulnerable in their value chains, communities and beyond.
The report delves into three areas where the pandemic’s impacts on people will be most felt: impact on people’s lives (health and safety), impact on livelihoods (jobs and income) and impact on learning (education and skills). The report states that “in each, there will be short-term personal, family and community crises and loss, but also long-term scarring effects that could last generations without public and private support to increase resilience. Across all dimensions, there will be a disproportionate impact on women.”
The report then provides examples of the ways in which companies can play “a vital and urgent role” in each of these three areas. These actions can be grouped into three categories of action:
- Within core business, put people first. “Identify vulnerable stakeholders in the company’s operations, value chain and communities, identify the most salient human rights and economic risks they face and develop plans to address these through enhanced policies, processes, products, services, technologies, financing mechanisms and business models.”
- When it comes to philanthropy, “[e]xplore ways to leverage corporate philanthropy, employee engagement and social investment to support the most vulnerable and ensure that community voices are heard.”
- When it comes to policy engagement, “[e]ngage in policy dialogue, awareness raising and institution strengthening partnerships to support those who are most vulnerable.” Rights-based policy dialogue with government can ensure stimulus packages support employees and independent workers, as well as strengthen health care and education.
The report highlights the longer term opportunity for groups of companies to come together at national and industry levels with government to ask what the future will look like and play a role in getting back on course to economic growth while accelerating the achievement of the SDGs.
Source: Zahid Torres-Rahman and Jane Nelson, Business and COVID-19: Supporting the Most Vulnerable (Business Fights Poverty with the Harvard Kennedy School of Government – Responsible Business Initiative, March 2020)
Week of 6 April 2020
1. An ever growing number of companies are taking measures that seek to (i) tackle the COVID-19 pandemic, (ii) protect their employees and (iii) consider impacts on their value chain workers
A number of resources detail what companies are doing in response to COVID-19. JUST Capital provides a COVID-19 Corporate Response Tracker describing company actions. Market research firm GlobeScan has compiled a list of corporate response to the COVID-19 crisis. The following list provides some illustrative examples:
Contributions to tackle the pandemic:
- Ikea is providing €26m of in-kind donations (beds, bedding, food and toys) to hospitals, medical centres and shelters.
- Google is providing a US$25 million donation of ad credits to the World Health Organization (WHO) and government agencies.
- Facebook is providing unlimited free ad credits to the WHO to promote accurate information about the crisis. The company is removing false claims and conspiracy theories flagged by global health organizations, and blocking people from running ads exploiting the situation (e.g. falsely advertising a cure).
- All of the main newspapers in Argentina agreed to print the same covers (on March 19th) to combat the virus in an action coordinated by the National Association of Newspapers (Adepa). This was followed by newspapers in Brazil, in an action coordinated by the Brazilian National Newspapers Association (ANJ).
- Nike launched a worldwide Campaign called “Play inside, play for the world” encouraging people to stay indoors and remain active.
- Michelin starred chef José Andrés turned 8 restaurants into community kitchens, giving meals away for free or selling them for $7.
- The Listoke Distillery and Gin School in Ireland stopped its gin production to make hand sanitiser.
- The Seattle Foundation launched a COVID-19 Response Fund to address the community needs of COVID-19, with Microsoft making an initial $1 million donation and other contributions from Amazon, Starbucks and Alaska Airlines.
- Novartis created a USD20 million global fund to support impacted communities. This fund provides grants of up to USD 1 million for initiatives that strengthen local and national healthcare infrastructure, establish digital platforms for COVID-19 (for data collection, remote delivery of healthcare and dissemination of public health information) and create or enhance new community health programs specific to the pandemic response.
Employees:
- Lululemon will continue to pay employees for hours they were scheduled to work during shop closures, and is providing them access to a Global Pay Relief plan.
- Lloyds Bank suspended 780 planned job cuts across its bank branches in the UK, amid a surge in demand and uncertainty over how many staff may need to self-isolate.
- Shopify in Canada gave employees $1,000 to buy office supplies while they work from home.
- Retailer Hema in China worked with 30 local restaurants that were closed to hire 2,000 staff to help meet the surging demand for deliveries and groceries.
Downstream business relationships:
- Standard Bank is offering SMEs in South Africa a 90-day loan repayment holiday to limit the financial impact of the crisis.
- Petrochemical company Braskem is making a new expansion of credit lines available to its customers in Brazil, and is providing an additional credit line for all defaulting customers.
- MYBank, the All China Federation of Industry and Commerce and 105 Chinese banks launched the “Non-contact Loan Micro-assistance Plan” to provide financial support to around 10 million micro and-small enterprises resuming work around China.
- US network providers (Comcast, Charter, Verizon, Google, T-Mobile and Sprint) signed a pledge to keep Americans connected to the internet for the next 60 days, even if customers cannot afford to pay.
2. A growing number of companies cut executive pay (over 70 CEOs in the US, close to 40 in the UK); investors urge companies to ‘share the pain’, with a growing focus on those laying off staff as well as sectors beyond airlines (including finance, retail, hospitality and manufacturing)
Current estimates are that executives at over 70 US companies and close to 40 UK companies are taking a full or partial salary cut to support their companies’ cash flow and to signal solidarity with workers that are being let go or furloughed. The number increases every week. The Financial Times (FT) reports that the “rationale for taking a cut increases in proportion to the pain suffered by the workforce or the company’s dependence on state support”.
A growing number of investors are calling for executive pay cuts. Schroders, the UK’s second-largest listed asset manager (£500bn AUM), asked British companies to put employees, customers and suppliers first, and urged the chief executives of businesses struggling with cash flow to “share the pain” and take a pay cut. Hermes EOS places particular focus on companies making lay-offs or cutting staff salaries.
Commentators note that this is the direction of travel. Atta Tarki, Paul Levy, and Jeff Weiss state in the Harvard Business Review that executives that enact cutbacks should “lead by example and do cut backs that impact your own day-to-day as well.” Andrew Hill from the FT predicts that “[w]hen the crisis is over, remuneration will be a lightning rod for public and political discontent”.
The pay cuts started in the airline sectors – with all CEOs from major airlines taking pay cuts – and are now taking place in other sectors, including hospitality and entertainment, manufacturing, retail and finance:
- In hospitality and entertainment, Wyndham Hotels & Resorts’ CEO Geoff Ballotti is forgoing his entire base compensation “until such time as the Compensation Committee determines otherwise in light of the COVID-19 pandemic”, Hyatt CEO Mark Hoplamazian, and board chairman Tom Pritzker are forgoing their salaries through May, and Disney’s CEO Bob Chapek is taking a 50% pay cut, with chairman Bob Iger forgoing his entire salary “until things get better”.
- In manufacturing, Fiat Chrysler CEO Mike Manley is taking a 50% pay cut for three months “to avoid job cuts in the second quarter”, and Chairman John Elkann is taking a 100% pay cut until the end of the year. GE’s CEO Lawrence Culp is taking a 100% pay cut until the end of the year.
- In retail, Columbia Sportswear’s CEO and president Tim Boyle is reducing his salary to $10,000, Gap’s leadership team and Board of Directors will reduce their pay, and Macy’s CEO and Chairman Jeff Gennette will forgo pay from April until the crisis ends.
Although pay cuts have focused primarily on executives’ base salary, recent examples from the finance sector relate to forgoing cash bonuses as well. This is relevant since base salary is about 10% of the executive’s compensation (in the US), with the remaining compensation coming from other types of compensation, such as stock awards and option awards. (To illustrate this, Ed Bastian Delta’s CEO has a base salary of $891,667 which is 6% of his $14.9 million total compensation package).
- Amundi’s CEO Yves Perrier has become the first asset management executive to donate half of his €2m bonus for 2019 to a COVID-19 solidarity fund. This fund was set up by French bank Crédit Agricole, Amundi’s largest shareholder, and the bank’s CEO, Philippe Brassac, and his deputy, Xavier Musca, are doing the same.
- HSBC’s CEO Noel Quinn is waiving his cash bonus of £1.4m and donating a quarter of his £640,000 salary to charities supporting healthcare workers and vulnerable people, while HSBC chairman Mark Tucker is donating his entire 2020 cash bonus of £1.5m. Executives at Standard Chartered and Lloyds are also waiving cash bonuses and making donations.
“If ever there was a time for boards and management to show they understand the society they operate in, this is the time. If this doesn’t translate into pragmatism around executive pay, that would just be extraordinary.”
Freddie Woolfe, Head of responsible investment and stewardship, Merian Global Investors, Investors and politicians demand coronavirus pay cuts (FT, 2 April 2020)
3. The coronavirus lockdowns are shining the spotlight on the overcrowded and squalid conditions migrant workers live in. The longer-term impacts on migrant workers and their families (increase in illicit trafficking, remittance decreases that impact livelihoods etc.) are starting to be seen
Here are a few of the recently reported stories related to migrant workers’ living conditions:
- Qatar: a large number of the estimated 2 million migrant workers from South Asia and East Africa are under lockdown in Doha’s Industrial Area, shining the spotlight on the cramped conditions the workers live in (8 – 10 per room) and the unsanitary conditions.
- Singapore: 20,000 migrant workers from South Asia working in construction under lockdown in their dormitories are reporting overcrowded rooms (up to 12 people per room according to the BBC) and dirty conditions (cockroaches, overflowing toilets, etc.).
- India: an estimated 300,000 migrant workers in the garment sector are reported to be stuck in factory hostels in the southern state of Tamil Nadu where rooms are shared by up to 12 workers.
Other issues that are being reported include concerns related to:
- the mental health of migrant workers (e.g. anxiety, impact of prolonged separation with family – especially where lockdowns are coupled with internet outages).
- migrant workers not receiving adequate medical treatment and being subject to discrimination in their host countries (e.g. Iranian hospitals are refusing to treat Afghan migrants).
- migrant workers getting stuck in locations, in between their place of work and homes (e.g. Nepal’s national human rights commission reports that hundreds of Nepalis are stranded along the Nepal/India border trying to get home to Nepal).
- the livelihoods of families heavily reliant on remittances from migrant workers (with the developing world receiving $529 billion in remittances in 2018, and the Centre for Strategic & International Studies (CSIS) reporting that if “migrant labor abroad is significantly disrupted by the economic shocks [linked to the lockdowns], those sources of income for families across the developing world will be impacted, creating ripple effects throughout their economies”).
- the increase in debt bondage as well as the use of illicit trafficking to continue to circulate amongst countries (with the Centre for Strategic & International Studies (CSIS) reporting that as many as 100 million vulnerable individuals globally could be pushed “into shadowy irregular pathways” of migration).
Week of 30 March 2020
1. As unemployment levels soar without precedent (10 million jobs lost in the US in 2 weeks), a growing number of governments are devising packages to protect workers (including self-employed) from unemployment
Unemployment is soaring. On Thursday, the US Department of Labor announced that 10 million jobs had been lost in two weeks (6.6 million last week and 3.3 million the week before). The New York Times reports that this “speed and scale of the job losses is without precedent”, noting that until last month, the worst week for unemployment filings had been in 1982 with 695,000 jobs lost.
In the UK, close to 1 million people (950,000) applied for universal credit (i.e., signalling unemployment or downward wage adjustment) since the UK lockdown started on March 16. The Financial Times reports that “the coronavirus crisis has wiped out years of employment growth”, with the UK “suffering job losses on a scale and speed unprecedented even in the aftermath of the global financial crisis.”
The International Labor Organisation (ILO) revised its previous prediction of 25 million global jobs lost, stating that “the projection will be much bigger, far higher than the 25 million we estimated.” The Organisation for Economic Cooperation and Development (OECD) also revised prior projections, pointing to “significant short-term declines in GDP for many major economies.”
Source: New York Times, U.S. Jobless Claims Soared to a Stunning 6.6 Million Last Week (April 2, 2020)
Governments are seeking to take action:
- In the United States, a $2 trillion economic relief plan approved last week includes direct stimulus payments of $1,200 to Americans (provided income isn’t over certain thresholds), as well as an expanded program of unemployment benefits, including for the first time for self-employed people and part-time workers. The relief plan includes other components, such as a suspension of retirement account rules and student loan payments. Small businesses can benefit from government-backed bank loans ($370 billion has been allocated), and won’t have to repay portions spent on paying employees.
- In the United Kingdom, the Coronavirus Job Retention Scheme commits the government to paying 80% of the wages of furloughed employees (i.e. that have been asked to stop working but not made redundant), up to a maximum of £2,500 per month for an initial 3 months. UK Chancellor Rishi Sunak subsequently announced similar support for self-employed people (80% of average month’s profits over the last three years, up to £2,500 a month provided profits don’t exceed £50,000). Other support includes loan guarantees, distributing cash grants to small businesses and increasing the value of and eligibility for universal credit and tax credits. (Recent studies by the Institute for Fiscal Studies and the Resolution Foundation highlight the advantages and pitfalls of these commitments.)
- In France, the government has allocated €8.5 billion for two months of state support for temporarily laid-off workers (in an amount higher than current unemployment support), and €300 billion for loan guarantees for business. See this report from the Resolution Foundation for further detail on France, as well as how Denmark, Germany, Ireland and Sweden are seeking to protect employment.
- In India, the government has issued an order stating that workers must not be terminated nor face a reduction of wages, and that workers are entitled to fully paid leave until the effects of this crisis are mitigated. In Cambodia, the government requests that factories pay 40 percent of minimum wages to suspended workers, and will provide an additional 20 percent to workers that have enrolled in soft skills training programs. The Asia Floor Wage Alliance (AFWA) reports on what other governments from garment-producing countries in Asia are putting in place.
- You may also be interested in this survey of 109 trade unions in 86 countries by global trade union ITUC which summarises the policies government are putting in place, and states that the early responses of many governments have been inadequate.
2. Institutional investors (195 representing over $4.7 trillion USD AUM) call on companies to put the welfare of their stakeholders first, including by retaining workers, maintaining payments to suppliers and limiting executive compensation
A group of 195 institutional investors representing over $4.7 trillion USD in assets under management have issued a statement recognising that “the long-term viability of the companies in which we invest is inextricably tied to the welfare of their stakeholders, including their employees, suppliers, customers and the communities in which they operate.” The investors have five asks of companies:
- Make emergency paid leave available to all employees, including temporary, part time, and subcontracted workers
- Put measures in place to prioritise health and safety, such as “rotating shifts; remote work; enhanced protections, trainings or cleaning; adopting the occupational safety and health guidance, and closing locations, if necessary”
- Take every measure to retain workers which “will permit companies to resume operations as quickly as possible once the crisis is resolved”
- Maintain “timely or prompt payments to suppliers” and work “with customers facing financial challenges”
- Adopt “the highest level of ethical financial management and responsibility” which could include suspending share buybacks and limiting executive and senior management compensation
The investor group recognises that some companies may be faring well in this crisis, and invites these companies in particular to go beyond the recommendations, including providing “childcare assistance, hazard
pay, assistance in accessing government support programs, employer-paid health insurance for laid off workers, or deploying resources to address the current needs related to the pandemic.”
A number of articles this week make similar arguments. For instance, Financial Times (FT) reporter Jamie Powell suggests three questions for ESG investors to ask of executives:
- What sacrifices did you make to ensure full salaries for your workforce? “Perhaps investors could even ask management for an audited pandemic executive compensation sheet which details metrics such as reduced workers salaries relative to reductions in c-suite compensation, both on a nominal and percentage basis.”
- What was your expenditure on government lobbying? “[F]or large companies paying retainers to Washington’s, London’s or Brussels finest lobbying firms, ESG investors might also want to know how much these fees increased relative to salary reductions.”
- What did you do to take the burden off small business? “[D]uring the coronavirus, executives have a choice – do we abuse [our] power, or make sure we use it to help businesses smaller than ours? … For instance, they might decide to pay small businesses quicker and bigger companies slower. Similarly, they may relax payment terms for their customers to help them conserve cash.” Investors could ask for “audited table of Days Payable Outstanding (DPO) by supplier size over the crisis, compared with the period prior to the crisis” and, if the company didn’t take efforts to “ensure its stakeholders remained on firm financial ground”, it would need to “justify why not. … After all, if you’re stiffing your small suppliers during the pandemic, what does that say about your wider business culture?”
3. Supplier associations in Bangladesh, Cambodia and India issue urgent pleas asking buyers to pay for goods produced, as millions of workers face unemployment without wages, severance and an adequate safety net; H&M steps up and other companies follow suit
- The Bangladesh Garment Manufacturers and Exporters Association’s (BGMEA) president, Rubana Huq, issued an urgent appeal asking buyers to accept and pay for goods produced by suppliers that are ready to be shipped — or at least compensate factories for sunk costs of in-process manufacturing. Bangladesh’s ready-made garment (RMG) industry is the backbone of the country’s economy, accounting for over 80% of the country’s exports. It is also home to 4.1 million workers, a large number of which are women on low wages (approx. $96 monthly wage) without savings or a safety net.
- The Center for Global Workers’ Rights conducted a survey of 319 garment factory owners in Bangladesh (between March 21 and 25) and found that over half of the factories (58%) had to shut down following order cancellations and lack of payment. Of the suppliers who lost buyer contracts without payment, close to three-quarters (72.4%) said they were unable to provide their workers with income when furloughed, and a higher number (80.4%) were unable to provide severance pay. The survey found that around three-quarters of buyers (72%) refused to pay for raw materials already purchased by the supplier, and the vast majority (91%) refused to pay for the production cost of the supplier.
- In Cambodia, the Garment Manufacturers Association in Cambodia (GMAC) issued a statement asking buyers to fulfill their “existing contractual obligations by taking delivery of goods already produced and goods currently in production and pay under the normal term.” This would allow suppliers to pay their workers. (March 3 figures are that 18,000 workers have been suspended following factory shutdowns).
- In India, the Apparel Export Promotion Council (AEPC) has asked buyers to “shar[e] the responsibility that this sector has to the people engaged in the supply chain”, and offers flexibility such as extending payment terms to help protect workers “who are directly or indirectly dependent on this industry and earning wages between $120 and $200.” Other countries impacted include Vietnam, Sri Lanka and Myanmar.
- A recent report by the Worker Rights Consortium concludes that we will have “millions of workers suspended or terminated with little or no compensation and others forced to go to work in unsafe factories because it is the only way to avoid destitution.” They call on brands to “take a more equitable approach to sharing the financial burden of the crisis, rather than sloughing all costs onto suppliers and, in turn, workers.” They also call for “a collective response by international financial institutions, intergovernmental bodies, and/or governments of wealthier nations to maintain workers’ income during the crisis.”
- I wrote about it this week with John Sherman. We highlight H&M’s decision to take delivery of already produced garments in Bangladesh, as well as goods in production, and to pay for goods under previously agreed prices and payment terms. A number of brands have since announced that they too would pay for goods already produced, including Inditex, Marks & Spencer, KIABI, PVH and Target.
“After the pandemic, the short term need to maintain positive cash flow will not excuse a company’s decision to ignore human rights harm to supply chain workers. The decision to exercise a force majeure clause to cancel supplier payments for past orders is not a simple on-off switch, to be toggled reflexively. Just because a company can exercise force majeure doesn’t mean that it should. Its future social license to operate may be at stake.”
Anna Triponel and John Sherman, Moral bankruptcy during times of crisis: H&M just thought twice before triggering force majeure clauses with suppliers, and here’s why you should too (Harvard Kennedy School – Corporate Responsibility Initiative and the Business & Human Rights Resource Centre, 1 April 2020)
Week of 23 March 2020
1. A growing number of companies are providing products and services to fight the COVID-19 pandemic, ranging from repurposing production lines to manufacture face masks, hand gel and medical equipment, to providing computing resources, open data and product donations
Here are some illustrative examples:
- IBM, Amazon Web Services, Google Cloud, Microsoft and Hewlett Packard Enterprise have volunteered free compute time and resources on their machines to the COVID-19 High Performance Computing Consortium, a public-private initiative (spearheaded by The White House Office of Science and Technology Policy, the US Department of Energy and IBM) to provide COVID-19 researchers worldwide with access to the most powerful high performance computing resources to increase the pace of scientific discovery
- Microsoft and Adaptive Biotechnologies announced they will leverage their existing partnership (focused on mapping population-wide adaptive immune responses to diseases) at scale to study COVID-19 and make the resulting data freely available via an open data access portal to any researcher, public health official or organisation around the world
- HP has mobilised its 3D printing team and its Digital Manufacturing Partner Network to design and produce essential parts for medical responders and hospitals (e.g. ventilator valves, breathing filters, face mask clasps, plastic door handle adaptors to prevent spread of the virus). The company is making its HP proprietary design files for these parts available so they can be produced anywhere in the world. HP is also donating HP BioPrinters to NGOs, government agencies and pharmaceutical companies to accelerate drug and vaccine research
- Maersk has offered its transportation services to send emergency supplies around the world, which includes maintaining and creating new shipping routes that are not commercially viable. (In parallel, global union The International Transport Workers’ Federation (ITF) has requested that Maersk put in place certain procedures to protect the crew on ships from infection, and to support them if they become ill)
- Unilever is donating €100 million-worth of soap, sanitiser, bleach and food – half of which will be provided to the COVID Action Platform of the World Economic Forum (an initiative supporting global health organisations and agencies with their response to the emergency), while the other half will be in the form of product donations, partnerships and hand-washing education programmes at national and local levels, including in the US, India, China, UK, Netherlands and Italy
- Ford Motor Company is working with GE to increase GE’s capability to deliver ventilators, and with 3M to increase the production of air purifying respirators. In-house, Ford is 3D printing face shields and N95 masks
- Nine American apparel companies (including Fruit of the Loom, Hanesbrands, Beverly Knits, American Giant and AST Sportswear) joined a coalition organised by yarn spinner Parkdale to repurpose their factories and production lines to produce face masks. They are seeking to dispatch their first shipments this week and aim to produce 5m-10m masks a week by mid-April
- Kering SA announced that it would start producing surgical masks for French hospitals at the production sites of its Balenciaga and Saint Laurent brands in France
- LVMH announced that it will start to use all the production facilities of its perfumes and cosmetics brands (including Parfums Christian Dior, Guerlain and Parfums Givenchy) in France to produce hand washing hydroalcoholic gel to be provided for free to French health authorities. LVMH also secured the delivery of 40 million face masks from China which it will dispatch to French health services over the next month
- Inditex (Zara) stated that it would convert a portion of its textile manufacturing capacity in Spain to produce hospital gowns for Spanish hospitals. The company also said it would make its logistics and supplier network abroad (e.g. in China) available to Spain to provide the government with medical and textile materials (e.g. protective masks, gloves, goggles and caps)
- H&M stated that it would use its supply network to source protective gear for health workers (protective masks, gowns and gloves) in hospitals, with the first supplies being donated for free. The protective gear will be delivered to hospitals of greatest need, as determined by the EU
- Firmenich adapted the production of its Geneva manufacturing sites to produce 20 tons of disinfectant solution, which it donated to the Geneva University Hospital and medical and emergency services in Switzerland
- Ipsos has partnered with The Africa Centre for Disease Control (CDC) and Resolve to Save Lives to reduce the spread of COVID-19 in Africa. Ipsos will provide data (on the impact of COVID-19, behaviours surrounding it, and control measures put in place in African countries), which Africa CDC and Resolve will use to develop Africa-specific guidelines to be disseminated throughout the continent
(See also ICC-WHO Joint Statement: An unprecedented private sector call to action to tackle COVID-19 and the WEF’s COVID Action Platform)
“It’s incumbent on business leaders everywhere to commit to supporting employees at every level of their organization in the unpredictable weeks and months ahead. … But this is a moment that calls on us to do more than care for our own employees, partners, and communities. Each of us has a role to play in combating this pandemic and supporting our society’s response to it. We must do all we can to help healthcare workers around the world who are selflessly fighting to save lives.”
Enrique Lores, President & CEO, HP Inc., HP’s CEO: Help now, plan for the future (March 24, 2020)
2. A growing number of companies are offering support to enable the survival of their economically fragile business partners, including by providing early payments, reducing payment terms and extending credit to small suppliers, and suspending payments owed by business partners until business resumes
Here are some illustrative examples:
- Morrisons announced it would pay all its smaller suppliers as soon as invoices are received to support their cashflow during the pandemic. The company has around 3,000 small suppliers (including 1,750 farmers) who were previously on 14 day payment terms. The company has also temporarily re-classified who would be defined as a smaller supplier (from those with turnover of £100,000 to those with £1m in business) so that an additional 1,000 suppliers can benefit from this cashflow support
- Unilever announced cash flow relief (amounting to €500 million) to support livelihoods across its extended value chain. The company will proceed with early payment for its most vulnerable small and medium-sized suppliers to help them with financial liquidity, and will extend credit to selected small-scale retail customers whose business relies on Unilever, to help them manage and protect jobs
- BHP announced it would made immediate payments of outstanding invoices and reduce payment terms from 30 to 7 days for small, local and indigenous businesses in Australia. This amounts to $100 million being provided more quickly to 1,100 small Australian businesses
- The UK’s Cabinet Office (the department that supports the UK Prime Minister and ensures the effective running of government) has provided instructions to all public authorities (councils, schools, government departments and hospitals) that they should continue to pay their suppliers – even if services have been scaled back or are temporarily suspended. To receive the payment, suppliers have to continue to pay their employees and subcontractors. The Cabinet Office also requests that public authorities “put in place the most appropriate payment measures to support supplier cash flow; this might include a range of approaches such as forward ordering, payment in advance/prepayment, interim payments and payment on order (not receipt)”
- L’Oréal announced its solidarity with very small enterprises (VSEs) and small and medium-sized enterprises (SMEs) in its distribution network (i.e. those companies buying its products) by freezing the payments they owe until their businesses resume. Companies impacted include hair salons and small perfume shops. L’Oréal also committed to shorten the payment times with systematic immediate payments for their most exposed suppliers
- Breweries Palm, Haacht and AB InBev have suspended rents payable on the premises they own and rent to bar and restaurant managers to help their cash flow in light of premise closures
“The current outbreak of COVID-19 is unprecedented and will have a significant impact on businesses of all sizes. Many suppliers to public bodies will struggle to meet their contractual obligations and this will put their financial viability, ability to retain staff and their supply chains at risk. Contracting authorities should act now to support suppliers at risk so they are better able to cope with the current crises and to resume normal service delivery and fulfil their contractual obligations when the outbreak is over.”
UK’s Cabinet Office, Procurement Policy Note – Supplier relief due to COVID-19: Action Note PPN 02/20 (March 2020)
3. The spotlight is growing on how companies previously managed their finances (e.g. share buyback programmes) and are now responding (e.g. drawing down credit lines and executive pay) to the financial pressures of COVID-19
Klaus Schwab, Executive Chairman of the World Economic Forum, highlights that those companies that maintained a short-term profit orientation and failed to embrace stakeholder capitalism are those that are suffering the most in this crisis.
Klaus notes that companies that “used their rising profits in past years for major share buyback programmes” (which “boosted short-term profits and increased executive bonuses”) are now “faced with the lack of strategic reserves or investments” and are “the first to suffer” from this crisis (e.g. US airlines). Schwab contrasts this with other companies such as Microsoft “who used profits to invest in digital transformation, talent, research and development, and their customer relations” and who have an ability to react in this crisis.
Klaus also remarks on companies’ attitudes to executive pay in this time of crisis. He contrasts easyJet (which just announced a £174m dividend payout) with Marriott (whose CEO Arne Sorenson announced he and his chairman would not get paid in 2020, and that his executive team’s remuneration would be halved) and Kenya Airways (whose CEO Allan Kilavuka announced he would take an 80% pay cut, while board members and senior executives would take a 75% pay cut).
Paul Polman, former Unilever CEO, states that the pandemic “is, in fact going to be an acid test for [the concept] of stakeholder capitalism.” He criticises “companies like Boeing and Kraft Heinz for ploughing money into share buy-backs and raised dividends to prop up their share prices to the extent they can’t afford to support workers when hit by a ‘black swan’ event such as the coronavirus.” Polman underscores that “investors should be rewarding long-term behaviour that protects communities and workers as well as the environment.”
Ellen Carr from Weaver Barksdale cautions companies against drawing down from their credit lines – their revolving credit facilities – highlighting that if all companies max out their revolvers, “banks won’t have enough capital to keep the system afloat.” Carr recommends instead a review of executive compensation. The Financial Times finds this week that over 130 companies in Europe and the Americas have drawn $124.1bn from their lenders over the past three weeks, with the actual amount likely to be considerably higher.
“[B]eing a stakeholder company in these times isn’t just about short-term signalling. Companies that embraced the stakeholder model can simply afford better to help during this crisis, as their business model is more robust, and their alliances with other stakeholders in society, such as government and the public at large, are stronger.”
Klaus Schwab, Executive Chairman of the World Economic Forum, Covid-19 is a litmus test for stakeholder capitalism (FT, 25 March 2020)
Week of 16 March 2020
1. The ILO predicts a substantial rise in global unemployment (loss of between 5.3 million and 24.7 million jobs) and underemployment (downward adjustments to wages and working hours); calls on governments to adopt policies to mitigate the impacts of COVID-19 on the world of work
Companies around the globe are putting emergency measures in place to face the economic downturn linked to the COVID-19 pandemic. These include managing costs by laying off workers, placing staff on unpaid leave and reducing working weeks. For instance, this week hotel company Marriott announced it would put “tens of thousands” of its 130,000 staff on unpaid leave, and airline company Virgin Atlantic has asked its 8,500 staff to take eight weeks of unpaid leave over the next three months, with the cost spread over six months’ salary, to “drastically reduce costs without job losses.”
US Treasury secretary stated this week that, without strong federal intervention, the pandemic could send unemployment soaring to 20%. Recent estimates from the UK are that over 200,000 people working in the leisure and hospitality sectors have been laid off since mid-February, a number which could rise soon to over one million – with around a quarter of the UK’s workers in sectors where demand has shrunk due to social distancing measures.
In a study released this week by the International Labor Organisation (ILO), the ILO finds that the virus and subsequent economic shocks will impact both the quantity and quality of jobs. There will be “a significant rise in unemployment and underemployment in the wake of the virus.” With the base level of global unemployment at 188 million (2019 figures), unemployment would rise in the millions – anywhere between 5.3 million and 24.7 million. Underemployment, characterised by “significant downward adjustments to wages and working hours” is also likely, coupled with a restriction on self-employment options due to limitations on movement.
The ILO points to a likely “disproportionate impact on certain segments of the population, which can trigger worsening inequality.” In particular, “the strain on incomes resulting from the decline in economic activity will devastate workers close to or below the poverty line.” There will be an additional 8.8 to 35 million people in working poverty, as compared to if COVID-19 had not taken place. The ILO provides a list of those groups who are most vulnerable, including young persons, older workers and women. Unprotected workers, such as self-employed, casual and gig workers are likely to be disproportionately hit by the economic effects of the virus, as are migrant workers.
The ILO urges governments to adopt policies that will mitigate the impacts of COVID-19 on the world of work. These policies include measures to protect workers and employers and their families from the health risks of COVID-19, as well as “timely, large-scale and coordinated policy efforts … to provide employment and income support and to stimulate the economy and labour demand.”
(Update: The ILO has since said that global job losses from the coronavirus crisis will exceed this 25 million estimated. “The projection will be much bigger, far higher than the 25 million we estimated” according to Sangheon Lee, director of ILO’s employment policy department)
Source: International Labor Organisation Note, COVID-19 and world of
work: Impacts and responses (18 March 2020)
2. The economic fallout of social distancing (lay-offs and wage reductions) is being hardest felt by those on lower incomes and without savings, with most at-risk workers in retail, air transport, hotels and restaurants, motor vehicle hire, cleaning, arts and entertainment, and personal services (according to Resolution Foundation)
In a study released this week (focused on the UK), think-tank Resolution Foundation finds that:
- The social distancing put in place to respond to COVID-19 is impacting some sectors more severely (retail, air transport, hotels and restaurants, motor vehicle hire, cleaning, arts and entertainment, and personal services) than others
- In the face of uncertainty about how long these economic impacts will continue, firms are much more likely to lay off staff
- Workers on lower incomes within most-at-risk sectors are extremely unlikely to be able to work from home and will be the most exposed to the risk of losing all or part of their pay
- These workers also lack the financial buffers – the necessary savings – to cope with hits on their income, since they are more likely than average to have no savings
Source: Resolution Foundation, Doing what it takes: Protecting firms and families from the economic impact of coronavirus (19 March 2020)
Resolution Foundation recommends three measures to the UK government:
- Boosting sick pay
- Helping struggling firms with their wage costs and
- Strengthening the social security safety net for those who fall out of employment
Denmark, France, Germany, Ireland and Sweden are all countries that have recently put in place significant measures to help workers remain attached to firms in the face of a temporary loss of revenue.
UPDATE: In the UK Government 20 March briefing, UK Chancellor of the Exchequer Rishi Sunak asked companies to stand by its workers and announced a new Coronavirus Job Retention Scheme that will help pay wages for the first time in UK history (80 % of salary of workers, up to £2,500 per month). “It means that workers across the company can retain their jobs, even if their bosses can’t afford to pay them.”
“A few weeks ago, the dominant view was that the main economic impact of this crisis was the temporary absence of sick workers alongside disruption to sales and supply chains. The economic implications of (fully justified) steps to intensify social distancing, not least the move to close schools, are likely to far outweigh those from forced work absence due to sickness or self-isolation. We are on course for job losses to be significant, with the initial sudden stop to economic activity being concentrated in the jobs-rich parts of our economy, like non-food retail and hospitality.”
Resolution Foundation, Doing what it takes: Protecting firms and families from the economic impact of coronavirus (19 March 2020)
“The key risk facing the economy is a downward spiral of job losses, corporate liquidations and ever lower consumption hurting the ability of the economy’s supply side to rebound when demand and spending recover.”
Martin Beck, Senior Economist, Oxford Economics, Millions of UK jobs at risk owing to virus shutdown (FT, 18 March 2020)
3. Biopharmaceutical companies make individual and collective commitments to tackle the rapid spread of the novel coronavirus – including launching joint R&D collaborations, providing grants to support healthcare systems, donating drugs and prioritising the development of vaccines and relevant manufacturing capabilities
There are a number of important priorities for the biopharmaceutical sector in the face of the rapid spread of the novel coronavirus. These include prioritising the development of (1) treatment for those infected, (2) a vaccine to prevent COVID-19 and (3) diagnostics kits to identify the disease – all while supporting global healthcare systems to face the major strain they are facing and continuing to supply essential medicines, vaccines and diagnostics for patients with other life-threatening diseases.
This week, we saw a number of biopharmaceutical companies come out with commitments that seek to address these priorities:
- Pfizer published a 5-point plan outlining the role the company will play to tackle COVID-19. Actions include (1) making tools developed to tackle the virus available on an open source platform, (2) creating a SWAT team to focus solely on addressing this pandemic, (3) sharing the company’s clinical development and regulatory expertise to support smaller biotech companies that are working on tackling the virus, (4) offering its manufacturing capabilities once a therapy or vaccine is approved, and (5) reaching out to federal agencies to build a cross-industry rapid response team to move into action immediately when future epidemics surface
- Novartis has created a COVID-19 Response Fund of USD 20 million to support public health initiatives designed to help communities manage challenges posed by the pandemic. The company has also joined two cross-sector collaborations bringing together pharmaceutical companies and academic institutions to accelerate R&D efforts: the COVID-19 Therapeutics Accelerator, an initiative coordinated by the Bill & Melinda Gates Foundation, Wellcome, and Mastercard, and a COVID-19 directed partnership organized by the Innovative Medicines Initiative (IMI)
- Gilead Sciences has provided remdesivir to physicians for compassionate use to treat several hundred severely ill patients with confirmed COVID-19, in parallel to initiating two Phase 3 clinical trials of remdesivir. Remdesivir is a novel antiviral drug developed as a treatment for Ebola virus disease and Marburg virus infections. Update: Gilead Sciences has been criticised since for requesting ‘orphan status’ in the US for remdesivir which would give it exclusivity on sales and the right to set prices for seven years.
- Roche has donated nearly $2m-worth of Actemra to help China manage the COVID-19 outbreak. (Actemra which treats arthritis was approved by China this month to treat COVID-19 patients with lung complications). Roche is also prioritising the production of testing kits
- See this backgrounder compiled by the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) for further examples on individual company commitments
On March 19th, biopharmaceutical companies aligned under the auspice of the IFPMA to issue a joint sector-wide commitment to “support the fight against the spread of COVID-19”. In this commitment, biopharmaceutical companies commit to screening their libraries of medicines to identify potential treatments, undertaking numerous clinical trials, sharing real-time clinical trial data with governments and other companies, dedicating expertise to speed up the development of vaccines, supporting global healthcare systems, scaling up the capacity of diagnostics testing for COVID-19 and increasing and sharing their manufacturing capacity once a vaccine or treatment is developed. They also commit to working to secure the continuity of supply for other essential medicines, vaccines and diagnostics.
“Pfizer calls on all members of the innovation ecosystem – from large pharmaceutical companies to the smallest of biotech companies, from government agencies to academic institutions – to commit to work together in addressing this dire crisis. With our combined efforts we know that there is no health challenge that we cannot overcome.”
Albert Bourla, CEO, Pfizer, Pfizer Outlines Five-Point Plan to Battle COVID-19 (13 March 2020)
“We are dealing with an extraordinary and unprecedented public health crisis that requires an incredible level of involvement and collaboration across government, society and business.”
Vas Narasimhan, CEO, Novartis, Novartis announces broad range of initiatives to respond to COVID-19 Pandemic; Creates USD 20 million global fund to support impacted communities (17 March 2020)
“We have a strong sense of responsibility to act together, as well as in partnership with the World Health Organization (WHO), governments and health systems across the world in a concerted, collective response.”
Thomas Cueni, Director General, International Federation of Pharmaceutical Manufacturers & Associations (IFPMA), Global Biopharmaceutical Industry Commitment to Address Coronavirus Public Health Crisis (19 March 2020)
Week of 9 March 2020
1. The economic effects of COVID-19 are significant (S&P 500 suffered its quickest descent into a bear market in history) and are being felt by investors, companies and their workers around the world — in particular low wage workers without a safety net in Asian supply chains
The economic effects of COVID-19 are significant, and are changing on a daily basis:
- S&P 500, Wall Street’s equities benchmark, plunged 9.5% on Thursday 12th. This is the biggest one-day drop since Black Monday of October 1987. The benchmark took 16 days to go from a bull market (that had started in 2009) to a bear market: this is the quickest descent in the history of the index. (A bull market is one in which we see sustained growth in shares and a strong economy, while a bear market is one in which we see share prices drop and a weak economy). The UK’s index, FTSE 100, also suffered its worst day since 1987. The index dropped by over 10%, wiping £160.4 billion off the market
- UNCTAD, the main U.N. body dealing with trade, investment and development, reports that the largest 5,000 multinational companies have seen downward revisions of 9% of their 2020 earnings. The sectors impacted the most severely are the automotive industry (44%), airlines (42%) and energy and basic materials industries (13%). (Note that this report was issued before recent events further impacting reported earnings, such as US President Trump’s ban on citizens of most European countries from entering the US)
- Regional development bank Asian Development Bank (ADB) finds that a moderate case estimate of the global impact of COVID-19 could be $156 billion (0.2% of global GDP), but could also cost up to $347 billion (0.4% of global GDP). ADB finds that production in China fell to 50%–60% of normal levels, but is now normalizing
COVID-19 is leading to quarantined factories, raw material shortages from China and a decrease in consumption. We are seeing the impacts on workers rippling through Asian supply chains. The figures of affected factories and workers change daily – here is a snapshot based on public information:
- In China, workers are being terminated or suspended with partial or no compensation, and paychecks are being cancelled or delayed. Research firm Gavekal Dragonomics estimates that China’s 300 million rural migrant workers could lose a combined US$115 billion in wages, an amount that would be impossible to recoup by working longer hours once production starts again
- In Cambodia, factories are suspending operations and paying partial wages to workers. The Cambodian Labor Confederation states that 33 factories have closed, resulting in suspension of 17,000 workers. The Garment Manufacturers Association in Cambodia (GMAC) states that over 30 factories have been closed, impacting 20,000 workers. The Cambodian government estimates that 200 factories will stop, or slow down, impacting 100,000 workers in total
- In Myanmar, where around 90% of woven fabrics come from China, 20 Yangon factories have filed closure notices, with the Myanmar Garment Manufacturers Association warning that half of the country’s 500 factories could shut down by March. (Update: On 15 March, U Thein Swe, Minister of Labour Immigration and Population, stated that approx. 4,000 workers had lost their jobs in Myanmar due to closures and reduction of workforce in 15 factories)
- In Sri Lanka, the Sri Lanka Apparel Exporters’ Association reports that 50 factories (50% of their members) are being faced with temporary closure
- In Bangladesh, the world’s second-largest garment manufacturing industry after China with 4,000 garment factories employing approx. 4 million workers, it is unclear how many workers will being impacted, but the number is thought to be high since 70% of the raw materials used in factories come from China
- In Laos, work on the China-Laos railway and the surrounding tourism and trade hub has been suspended in the absence of Chinese workers (managers and technicians) and Chinese tourists
“The ITUC is calling for urgent measures to ensure that workers who display symptoms can receive free health care and take sick leave without fear of losing their jobs or incomes”
Sharan Burrow, General Secretary of the ITUC and Phil Bloomer, Executive Director of Business & Human Rights Resource Centre, COVID-19 – time for governments, brands and employers to protect supply chain and precarious workers from hardship and infection (March 2020, BHRRC)
2. Technology, logistics and gig economy companies go beyond legal requirements to continue paying contract workers and self-employed workers who are unable to work as a result of COVID-19 (linked to office closures or illness)
A growing number of companies have shut down their offices and are asking their employees to work from home to limit the spread of COVID-19. This means that the services provided by some workers are no longer needed (e.g. those working in office canteens, shuttle drivers, cleaners, contractors providing specific services). Typically, when contract workers are not working, they do not get paid.
Microsoft announced on March 5th that the company would continue to pay the same pay to all of its vendor hourly service providers, as if the office closures had not happened. This decision impacts 4,500 hourly workers working from the Puget Sound region of Washington state, as well as workers in northern California. Although confined to these two locations, the company is exploring how it can proceed in a similar way in other parts of the country and the world. Companies Facebook, Amazon, Expedia Group, Google and Twitter followed suit.
For other companies that rely heavily on self-employed workers as part of their business model (e.g. logistics companies, food delivery companies, car-riding companies), COVID-19 would typically mean that self-employed workers who need to take time off for sickness would not get paid, and may not have work to return to once they are on the mend. Hermes Parcelnet announced on March 6th that it would continue to pay its couriers who need to self-isolate for two weeks, and would create a £1 million support fund to cover these payments. The company also committed to keeping all work available to couriers who need to self-isolate. Deliveroo has followed and states that riders who are diagnosed with Coronavirus are eligible for financial support. Uber and Lyft have made similar statements.
“We appreciate that what’s affordable for a large employer may not be affordable for a small business, but we believe that large employers who can afford to take this type of step should consider doing so.”
Brad Smith, President, Microsoft, As we work to protect public health, we also need to protect the income of hourly workers who support our campus (Microsoft, 5 March 2020)
“I hope this has broader implications. In moments of crisis, we take steps that define who we are”
Brad Smith, President, Microsoft, Coronavirus puts worker rights and protections top of the agenda (Financial Times, 10 March 2020)
“This is an extraordinary situation. We have taken the decision to help support our couriers financially if they need help and also ensure we are doing everything we can to prevent the spread of the virus. It is simply the right thing to do and I hope that other organisations will follow our lead”
Martijn De Lange, CEO, Hermes UK, Delivery firm Hermes to pay gig workers if they must self-isolate (The Guardian, 6 March 2020)
“It is not surprising that tech and logistics companies acted first. Where business models are built on extensive outsourcing, companies are increasingly realising that people they rely on — but who are less visible — need to be protected too”
Anna Triponel, Business and Human Rights Expert, Coronavirus puts worker rights and protections top of the agenda (Financial Times, 10 March 2020)
3. A typical economy only gives women three-quarters the rights of men in the workplace (World Bank), and it will take 99.5 years to attain gender parity if we continue at the present rate of change (World Economic Forum)
International Women’s Day took place on 8 March. The Generation Equality campaign this year was focused on the idea that a gender-balanced world benefits everyone, economically and socially. And it’s up to all of us, whatever our gender, to make it happen. The campaign focused on six key themes: (1) championing women forging tech innovation, (2) applauding equality for women athletes, (3) forging inclusive workplaces so women thrive, (4) supporting women to earn on their own terms, (5) empowering women through health education, and (6) increasing visibility for female creatives. (See #BalanceforBetter, #EachForEqual and #GenerationEquality on Twitter for more.)
The World Bank’s recent Women, Business and the Law report looks at how women are treated by law as they begin, progress through, and end their careers, and how this aligns with the economic decisions women make at various stages of their lives. The study analyses laws and regulations affecting women’s economic opportunity in 190 economies in the areas of mobility, workplace, pay, marriage, parenthood, entrepreneurship, assets, and pension. It finds that only eight countries (Canada, Belgium, Denmark, France, Iceland, Latvia, Luxembourg and Sweden) provide women the same rights as men in the workplace setting. The typical economy only gives women three-quarters of the rights of men in these eight areas.
The World Economic Forum’s (WEF) recent Global Gender Gap Report 2020 looks at progress on relative gaps between women and men on health, education, economy and politics. The country with the highest score on gender equality is Iceland, followed by Norway, Finland and Sweden. Western Europe has taken the largest strides toward parity (76.7%), and North America follows (72.9%). South Asia, the Middle East and North Africa are at the lower end of the scale, with parity sitting between 60.5% and 66.1%. The WEF finds that it could take as long as 99.5 years to achieve global gender parity.
“Legal rights for women are both the right thing to do and good from an economic perspective. When women can move more freely, work outside the home and manage assets, they are more likely to join the workforce and help strengthen their country’s economies. We stand ready to help until every woman can move through her life without facing legal barriers to her success”
David Malpass, World Bank Group President, 40 Economies Make 62 Legal Reforms to Advance Women’s Economic Participation (January 2020, World Bank)
“At the present rate of change, it will take nearly a century to achieve parity, a timeline we simply cannot accept in today’s globalized world, especially among younger generations who hold increasingly progressive views of gender equality”
Klaus Schwab, Founder and Executive Chairman, World Economic Forum, Global Gender Gap Report 2020 (2020)
Week of 2 March 2020
1. The Supreme Court of Canada finds for the first time in Canadian legal history that a mining company (Nevsun Resources) can be sued for breaches of customary international law (including modern slavery) in its majority-owned joint venture overseas; decision paves the way for other lawsuits in common law countries
Three workers claim they were forced to work in harsh and dangerous working conditions at an Eritrean copper, gold, silver and zinc mine (the Bisha mine). This was part of the Eritrean ‘National Service Program’, whereby Eritreans are compelled to work on a non-voluntary basis for military projects. The mine they worked at was owned by Bisha Mining Share Company, which in turn was 60% owned by Canadian company Nevsun Resources Ltd and 40% owned by the Eritrean National Mining Corporation (ENAMCO). These three workers sued Nevsun Resources in Canada for violations of customary international law (including forced labour as well as cruel, unusual, or degrading treatment).
On February 28, the Supreme Court of Canada decided that the lawsuit against mining company Nevsun Resources for violations of customary international law (including modern slavery) in its majority-owned joint venture in Eritrea can go forward in Canadian courts.
The majority of judges at the Supreme Court of Canada decided that the ‘act of state doctrine’ (which would have prevented Canadian courts from ruling on what happened in Eritrea because it was a sovereign act of a foreign government) does not apply in Canadian law. They agreed with the plaintiffs that customary international law is part of Canadian law, and that companies can be sued in court based on breaches of this law. For the non-lawyers here, customary international law is based on established international practice and applies to States, even if it is not written down or provided for under treaty.
This is the first time in Canadian legal history that the Supreme Court of Canada has found that customary international law is part of Canadian common law, and that companies can be sued on that basis. While it is unclear whether Nevsun Resources will be deemed to have breached customary international law, the significance of the ruling lies in the jurisdiction (Canada) and applicable law (customary international law). A number of legal commentators remark on the important precedent this sets for companies being sued in common law countries for incidents taking place overseas.
2. A group of mainstream UK investors representing £7.7 trillion AUM and owning one third of the value of UK listed companies tell companies they need to take climate change seriously at the boardroom and adapt their business models accordingly; climate change will be the priority in this year’s AGM season
Investment Association, a trade body that represents 250 investment managers and asset management firms which collectively manage over £7.7 trillion and own one third of the value of UK listed companies, pronounced itself on the climate crisis for the first time this week. Investment Association announced that climate change will be a priority for investment managers in this year’s annual general meeting (AGM) season. In its new Good Stewardship Guide 2020, the association notes that “[c]limate related risks to companies range from the impact of extreme weather events on business operations and supply chains, to health implications, changes in consumer demand and employee behaviour. As long-term investors in listed companies, investment managers’ ability to create sustainable value on behalf of savers will be driven by how well listed companies identify, manage and mitigate the impact of climate change.”
The association remarks on the need for companies “to explain in their annual report the impact climate change will have on their business model and how these risks are being measured and managed. This will provide essential evidence of how well companies are responding to climate change, and whether they are adapting their strategy to ensure the long-term viability of their businesses.” This announcement comes after the association found that only 30 companies on the FTSE 100 provided relevant climate disclosure.
The association is providing UK listed companies a three-year deadline to provide answers to the following questions (aligned with the Task Force for Climate-related Financial Disclosures (TCFD) recommendations):
- Does the company describe its governance of climate related risks and opportunities?
- Does the company describe the actual or potential impacts of climate related risks and how it will assess and manage them?
- Does the company explain how its strategy takes into account the impact of climate change?
- Does the company describe climate change related metrics and targets?
“With one-third of the FTSE owned by IA members, our industry is looking to the UK’s largest listed companies to demonstrate that climate change is being taken seriously in boardrooms. Climate change could result in a significant loss of value in companies if risks are not effectively measured and managed, ultimately hitting savers’ pockets. Companies need to be looking at the impact of climate change on their business, products and strategy and set out to investors how they are responding to these risks.”
Andrew Ninian, Director of stewardship and corporate governance, Investment Association, Investors Demand Companies Manage Climate Change Risk Ahead of 2020 AGM Season (March 2020)
3. In a first for the financial sector, an Australian bank (ANZ bank) provides remedy to families displaced by a Cambodian sugar project the bank financed; underscores importance of ensuring policy and screening practices are aligned, of undertaking human rights due diligence before providing loans and of considering remedy
In 2011, the Cambodian branch of Australian and New Zealand Banking Group Limited (ANZ) provided partial financing to the developer of a sugar plantation and refinery project in Cambodia, Phnom Penh Sugar, for the construction of a refinery. In 2014, civil society organisations Equitable Cambodia and Inclusive Development International brought an instance on behalf of Cambodian villagers against ANZ before the Australian OECD National Contact Point (NCP). (As I explain elsewhere, OECD NCPs are particularly interesting since they are quasi-judicial mechanisms that look at whether companies have met human rights-related expectations under soft law. OECD NCPs have the ability to assess whether companies are putting relevant policies and processes in place to meet their responsibility to respect human rights, as expected under the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises.)
The plaintiffs state that 681 families living in the south-west of Cambodia (in Kampong Speu province) had been forcibly displaced and dispossessed of their land through this project. (Other concerns raised included arbitrary arrests and intimidation of villagers, the use of child labour and dangerous working conditions which have resulted in death). ANZ’s response was to end its relationship with Phnom Penh Sugar, a response which was criticised at the time. Oxfam Australia noted that this case “had become an emblematic case study, it exemplifies that reputational risk for banks exposed to land grabs remains ongoing until a fair outcome is reached.” Stakeholders remarked on the need for the bank, following soft law expectations, to stay engaged and seek to use its leverage to improve the situation for displaced villagers.
In 2018, the Australian NCP found that “it is difficult to reconcile ANZ’s decision to take on [Phnom Penh Sugar] as a client with its own internal policies and procedures—which appear to accord with the OECD Guidelines—as the potential risks associated with this decision would likely have been readily apparent.”
Following this, the Australian NCP’s newly-appointed Independent Examiner facilitated a conciliation meeting between the parties, which resulted in a unique agreement in February 2020. In this agreement, ANZ:
- acknowledges that its initial due diligence, before making the loan, was inadequate
- recognises the hardships faced by the affected communities caused by the land concession granted for the project
- agrees to contribute the gross profit it earned from the loan to help alleviate the hardships faced by the affected communities and support their efforts toward rehabilitation
- commits to reviewing and strengthening its human rights policies, including its customer social and environmental screening processes, and specific grievance mechanism accessible to affected communities
ANZ makes these commitments, while making clear that it is not legally liable for the adverse impacts arising from the land use concession and sugarcane project. This is another interesting example of a company making the distinction between legal liability and soft law responsibility when communicating publicly.
“ANZ agreeing to contribute the gross profit it earned from the loan to the affected families has created an important precedent for the banking sector and we congratulate ANZ on becoming a global leader regarding an agreement of this kind”
Australia Lyn Morgain, Chief Executive – Oxfam, ‘Important precedent’: ANZ pays Cambodian families hurt by project it funded (February 2020, The Sydney Morning Herald)
Week of 24 February 2020
1. Discussions regarding an EU-wide mandatory human rights and environmental due diligence requirement (as a legal duty or standard of care) intensify with the release of a European Commission-sponsored study
The 2018 European Commission Action Plan on Financing Sustainable Growth discusses looking into “the possible need to require corporate boards to develop and disclose a sustainability strategy, including appropriate due diligence throughout the supply chain” and the 2018 European Parliament Report on Sustainable Finance calls for a “legislative proposal” for “an overarching, mandatory due diligence framework including a duty of care.” In response, the the European Commission DG Justice and Consumers commissioned a study on due diligence through the supply chain. The resulting study, undertaken by the British Institute of International and Comparative Law (BIICL) in partnership with Civic Consulting and LSE Consulting, was released on 24 February.
The views reported are based on 334 business survey respondents (from all sectors and sizes), as well as 297 general survey respondents (including business associations and industry organisations, civil society, worker representations or trade unions, legal practitioners and government bodies).
Key points (taken from the study itself) are as follows:
- One-third of business respondents indicated that their companies undertake due diligence which takes into account all human rights and environmental impacts, and a further one-third undertake due diligence limited to certain areas
- The majority of companies are limiting their due diligence to first tier suppliers only
- Although the vast majority of business stakeholders cover environmental impacts, including climate change, in their due diligence, it was reported that human rights and climate change processes often take place in “silos”
- Common due diligence actions referenced include contractual clauses, codes of conduct and audits
- The three primary incentives for undertaking due diligence were (1) reputational risks, (2) investors requiring a high standard and (3) consumers requiring a high standard. In contrast, general stakeholders and civil society respondents viewed regulatory incentives as the top incentive for due diligence. (The authors note that this difference in view is presumably because of the existing lack of regulatory or legal requirements on companies to undertake due diligence)
Companies were asked how they would like the EU to proceed when it comes to environmental and human rights due diligence.
- Do they prefer the status quo with no policy change at the EU level (option 1)?
- Would they like new voluntary guidelines at EU level for companies on undertaking due diligence through the supply chain (option 2)?
- Would they prefer new regulation at EU level requiring due diligence reporting (option 3)? or
- Would they prefer new mandatory due diligence requirement at EU level which would require companies to carry out human rights and environmental due diligence as a legal duty or standard of care (option 4)?
Here are the responses:
- Company respondents didn’t like option one. They noted that the current legal landscape at the EU level does not provide companies with legal certainty about their human rights and environmental due diligence obligations, and is not perceived as efficient, coherent and effective
- Company respondents didn’t like option two either. They felt that there was already enough voluntary guidance. (The authors remark here on a marked difference between company responses and business associations, with business associations expressing a preference for this option 2)
- Company respondents were open to considering option three, since they noted that reporting requirements in this area had had a positive impact in raising awareness. At the same time, they noted that reporting requirements do not usually provide for effective sanctions for non-compliance, and do not substantively require appropriate due diligence for compliance with the regulatory obligation
- The majority of stakeholders (company respondents and other stakeholders) indicated option four could provide potential benefits to business. In particular, companies pointed to the advantage option 4 would bring of harmonization, legal certainty, and the creation of a level playing field, as well as increasing leverage in their business relationships throughout the supply chain through a non-negotiable standard. Almost all interviewees were in principle in favour of a policy change to introduce a general standard at the EU level, although they differed on aspects of liability and methods of enforcement.
These are important findings that will hold significant sway during the EU discussions this year. We already have seen responses from MEP Anna Cavazzini and MEP Heidi Hautala (members of the European Parliament’s International Trade Committee) as well as a large number of civil society organisations (e.g. a joint civil society response as well as a Global Witness briefing).
2. The Paris Agreement needs to be considered by the UK government when approving new projects, says the UK Court of Appeal (rejecting Heathrow airport’s third runway); this sets the stage for climate change to be considered for all high-carbon emitting projects moving forward
England’s Heathrow airport in London is one of the world’s busiest airports (with 80 million passengers a year). In 2018, the government’s national policy statement approved plans to build a third runway (£14 billion cost) to enable the passage of 700 more planes a day.
A number of organisations and individuals (Plan B, a legal charity, local residents, councils, the mayor of London, Friends of the Earth, Greenpeace and others) contested the national policy statement. They argued in court that the target captured in the Paris Agreement (of keeping global temperature rise as close to 1.5C as possible) had been ratified by the UK government and therefore formed an essential part of government climate policy and needed to be considered by ministers in their decision-making.
The Court of Appeal agreed, and found on 27 February that the failure by then transport secretary Chris Grayling to take into account the Paris Agreement commitments when approving the third runway was “legally fatal”. The judges note that it “appears that the reason why it was never done is that the secretary of state received legal advice that not only did he not have to take the Paris Agreement into account but that he was legally obliged not to take it into account at all”. This was viewed as a “material misdirection of law at an important stage in the process.”
Transport secretary, Grant Shapps, has remarked that the government will not appeal the ruling. Commentators note that the impact of this decision will be far-reaching. Not only does it mean that the Paris Agreement would need to be considered for any high-carbon emitting project moving forward in the UK, it may open the door to challenges against similar projects in other jurisdictions that have ratified the Paris Agreement.
The ruling’s “implications are global. For the first time, a court has confirmed that the Paris agreement temperature goal has binding effect. This goal was based on overwhelming evidence about the catastrophic risk of exceeding 1.5C of warming. Yet some have argued that the goal is aspirational only, leaving governments free to ignore it in practice”
Margaretha Wewerinke-Singh, international public law expert, Leiden University, the Netherlands, Heathrow third runway ruled illegal over climate change (The Guardian, 27 February 2020)
3. Investors responsible for $2.4 trillion in assets join forces to request that Alphabet (Google) put in place Board-level oversight of human rights and take its growing human rights risks related to technology seriously
A number of human rights-related resolutions were filed last year at Alphabet’s (Google’s parent company) annual shareholder meeting. Topics included Google’s conduct in China and conditions for Google workers. Alphabet’s board recommended votes against each, and they were all rejected.
Following this, 83 investors sent a letter to the company late last year, requesting a meeting to discuss how Alphabet could devise adequate controls to monitor its human rights risks. Particular concerns related to the lack of human rights governance; the risks of digital surveillance related to the company’s moves into health, location and financial data; as well as the risks of exacerbating bias, reinforcing discrimination and facilitating incitements to violence connected to the company’s algorithms.
When faced with the company’s refusal to advance the human rights agenda, over ten investors responsible for $2.4 trillion in assets co-filed a shareholder resolution (coordinated by the Investor Alliance for Human Rights). This investor resolution, which will be put to a vote in June 2020, calls on the company to set up an independent committee at board level tasked with monitoring human rights risks in its products and value chain. Backers include Axa Investment Managers, the Church of England, Aviva Investors, Robeco, Hermes EOS, Boston Common Asset Management, NEI Investments, Loring, Wolcott & Coolidge and Pury Pictet Turrettini & Cie.
This resolution comes after Ross LaJeunesse, Google’s former head of international relations, reports that he was sidelined for raising human rights concerns related to Google’s plans to create a censored search engine in China (Project Dragonfly).
“Given the size and influence of Alphabet, it is of crucial importance that the responsibility for the governance of human rights concerns is at board level”
Larisa Ruoff, Head of shareholder advocacy, Loring, Wolcott & Coolidge, Alphabet faces investor backlash over human rights policies (FT, 24 February 2020)
Week of 17 February 2020
1. The health and future of children in every country is threatened by climate change, ecological degradation, migrating populations, conflict, pervasive inequalities, and predatory commercial and marketing practices (according to the WHO, UNICEF and the Lancet)
In its report of 18 February, a commission comprised of the World Health Organization (WHO), the United Nations children’s agency (UNICEF), and medical journal the Lancet find that “today’s children face an uncertain future”, with every child facing “existential threats.”
The commission compares 180 countries and provides a list of the best countries for children to flourish in their early years. When per capita carbon emissions per country are factored in, the top countries on the child flourishing ranking fall in the index. The only countries that are both (1) on track to reach their CO2 emission per capita targets by 2030 and (2) performing on child flourishing measures (within the top 70) are: Albania, Armenia, Grenada, Jordan, Moldova, Sri Lanka, Tunisia, Uruguay and Vietnam. The report also describes the risks to children from harmful marketing and predatory commercial practices, and calls on governments to put measures in place “to ensure children receive their rights and entitlements now and a liveable planet in the years to come”.
“We live in an era like no other. Our children face a future of great opportunity, but they stand on the precipice of a climate crisis … our challenge is great and we seem to be paralysed. Although awed by the scale of our task, this Commission is also optimistic about our chances to change our world for the better, for and with children. It will require bold politicians, courageous community leaders, and international agencies that are willing to radically change the way they work. No excuses, and no time to lose”
A WHO–UNICEF–Lancet Commission, A future for the world’s children? (The Lancet Commissions, February 2020)
2. Company reporting on climate and human rights following the EU Non-Financial Reporting Directive represent warm words, rather than concrete targets (according to the Alliance for Corporate Transparency’s review of 1,000 reports)
On 17 February, the Alliance for Corporate Transparency (a project initiated by Frank Bold with a range of civil society organisations) released its latest report analysing disclosure of 1,000 companies pursuant to the EU Non-Financial Reporting Directive. The analysis finds that the information provided is falling “far short” of expectations and that:
- Disclosure generally fails to address concrete issues, targets and principal risks, and report outcomes
- Only 14 % of companies report their Boards discussing specific issues in their non-financial report, and only 15 % report a link between sustainability objectives and executive remuneration
- On climate change, only 35 % of companies have targets and only 28 % report on their outcome
- The number of companies reporting specific issues and targets on climate change has reduced
- Companies who chose to give no information at all about the general structure and risks of their supply chain has increased
- Less than 4 % of companies report on measurement of actions to manage human rights risks
- Only 7 % of companies express a commitment to remedy affected workers or communities
- Over 75 % of companies do not provide information about supply chain transparency in their reports, with less than 1 % publicly listing their suppliers (with the exception of apparel)
The findings will feed into discussions at the European Commission level related to updating the directive and the development of the European Non-Financial Reporting Standard, as well as ongoing EU and national legislative discussions.
“The true challenge is whether fundamental environmental and societal change in our world is so rapid, that the legislation itself is failing to enable business, markets and society to adapt, respond and to meet those changes. The fact that the UN International Panel on Climate Change predicts that we have only a decade left to avert a disastrous climate change speaks for itself”
Richard Howitt, 2019 Research Report: An analysis of the sustainability reports of 1000 companies pursuant to the EU Non-Financial Reporting Directive (The Alliance for Corporate Transparency with Frank Bold, February 2020)
3. Discussions on a legal duty to prevent human rights harms, building on the UK Bribery Act, take place in the UK (with release of BIICL report)
A report by the British Institute of International and Comparative Law (BIICL, with support from Hogan Lovells and Quinn Emanuel) looks at the legal feasibility of introducing a failure to prevent mechanism for business and human rights legislation, modelled on section 7 of the UK Bribery Act. This had been proposed by the UK Joint Committee on Human Rights (JCHR) in its 2017 report – a select committee of both the House of Commons and House of Lords in the UK Parliament. In short:
- A failure to prevent mechanism would establish a new legal duty for a company to prevent human rights harms in its own activities and business relationships
- This failure to prevent mechanism would establish a right to civil action by those affected for compensation for damages suffered as a result of a failure to prevent human rights harms
- The company could avoid civil liability by demonstrating that it has undertaken the due diligence required in the circumstances – ‘reasonable’ due diligence. (This is distinct from questions of criminal liability)
- What is reasonable would be determined on the facts of each case, with the authors recommending that guidance be produced alongside legislation to ensure due diligence does not become a ‘safe harbour’
- The law could also provide for preventative and injunction orders, as well as state-based oversight mechanisms
The report also describes survey responses (40) received primarily from large companies, in which the majority of respondents indicated that additional regulation may provide benefits to business: through providing legal certainty (82 %); through levelling the playing field, insofar as it will hold competitors and suppliers to the same standards (74 %); and by facilitating leverage with third parties, including in the supply chain (75 %). Similar benefits of legal certainty, levelling the playing field and facilitating leverage were reported by companies applying the UK Bribery Act.
Week of 10 February 2020
1. Half of apparel and furniture companies sourcing significant amounts of cotton are not thinking about the environmental and socio-economic impacts of the cotton they source (according to the Sustainable Cotton Ranking 2020)
Organisations PAN UK, Solidaridad and WWF have ranked companies (apparel brands, supermarket chains, and furniture and department stores) which use a significant amount of cotton (over 10,000 metric tonnes of cotton lint per year). 77 companies were assessed based on their policy, uptake of sustainable cotton as well as traceability (the origin of their cotton, who their suppliers are, and how much cotton passes through their supply chain).
The resulting Sustainable Cotton Ranking 2020 found that 38 out of these 77 companies have not yet started considering sustainable cotton. Front-runners included Adidas, IKEA, H&M, C&A, Otto Group, Marks and Spencer, Levi Strauss, Tchibo, Nike and Decathlon. In interviews, Marks & Spencer and H&M provide some tips for companies, including the importance of senior management support and public targets.
2. BP sets new targets for the extractive sector by committing to net zero across its entire operations by 2050 or sooner
BP’s new CEO Bernard Looney announced this week a fundamental reorganization of the company to help the company reach its ambition to be a net zero company across its entire operations by 2050 or sooner. This includes emissions from BP fuel burnt by the company’s customers which entails tackling approx. 415 million tonnes of emissions, most of which (360 million) comes from the carbon content of the company’s upstream oil and gas production. The company has also committed to helping the world meet net zero.
The five aims for BP to be a net-zero company are:
- Net zero operations: Get to net zero across entire operations on an absolute basis by 2050 or sooner
- Net zero oil and gas: Get to net zero on an absolute basis from Upstream production by 2050 or sooner
- Halving intensity: Halve carbon intensity of the products sold by 2050 or sooner
- Reducing methane: Halve operated methane intensity, and measurement at all major processing sites by 2023
- New $ for new energies: Increase investment into new energies
The five aims for BP to help the world meet net zero are:
- Advocate: Stop corporate reputation advertising and redirect resources to active advocacy for progressive climate policies
- Incentivize employees: Incentivize employees to deliver on our aims and advocate for net zero by increasing climate element in annual bonus for leadership and 37,000 employees
- Align associations: Reframe relationships with trade associations and exit when appropriate
- Transparency leader: Become a recognised leader in transparency for our sector – support Task Force on Climate-related Financial Disclosures (TCFD) recommendations and work to implement them
- Clean cities: Create a team dedicated to helping countries, cities and corporations around the world decarbonize
The FT views the commitment as the “most ambitious climate target to date from a major oil company” and notes that “[s]hareholders gave the plan a cautious welcome with BP’s shares closing up 1 per cent.”
UPDATE: The company has since released further details on how it will achieve its commitment.
A new structure
- As of 1 July 2020, BP’s business model is replaced by a new one which is “more focused, more integrated and faces the energy transition head on.” BP calls this “a fundamental reorganization – possibly the most wide-ranging in over a century.”
- The new business model focuses on four core capabilities: (1) operations, (2) customers, (3) low carbon and (4) innovation. These business groups will work with three integrators, to facilitate collaboration and unlock value. Four teams will serve as enablers of business delivery.
Source: BP, Reinventing BP
A new leadership team: The leaders of these 11 teams will form the new BP leadership team
New ways of working: These leaders are now in the process of developing their new strategy which will be announced in September. This will include placing digital technologies at the heart of the business, as well as measures to empower and support teams.
“We have got to change – and change profoundly. But it is more than having to change – we want to change, because it is the right thing for the world, and it is a tremendous business opportunity for BP.”
Bernard Looney, BP Chief Executive Officer, Reinventing BP (BP, February 2020)
“The world’s carbon budget is finite and running out fast; we need a rapid transition to net zero.”
Bernard Looney, BP Chief Executive Officer, Reimagining energy (BP, February 2020)
3. New UK High Court case shines the spotlight on the need for companies selling ships to conduct human rights due diligence and the rise in deaths of workers dismantling ships in Bangladesh
Shipbreaking, the practice of dismantling the world’s ships, has long been known to be a dangerous activity. Deaths and accidents take place every year in the shipbreaking yards, most of which are situated in Bangladesh, India and Pakistan. When ships are broken apart directly on the beach (instead of in an industrial site), this is known as “beaching”. NGO Shipbreaking Platform reports that close to 700 ships were sold to Bangladesh in 2019 – making Bangladesh the country with the most shipbreaking yards in the world. This is also where health and safety standards are the lowest in the world (the NGO reports 389 worker deaths linked to shipbreaking since 2009, a number of which took place in Bangladesh).
One case will now be ruled upon later this year by the UK high court. In March 2018, Khalid Mollah was working to cut up a 300,000-tonne super-tanker in Chittagong, Bangladesh, and died when he fell from the eighth storey. His wife has brought a UK court case against the company that owned the ship before it was sold for demolition. She argues that shippinh company Maran (UK) would have known that the ship was going to Chittagong for demolition and should have anticipated the risk of injury to workers demolishing it.
Week of 3 February 2020
1. Discussions take place in Switzerland on environmental and human rights due diligence legislation, and in Canada on modern slavery legislation
In Switzerland, parliament’s upper house (the Council of States) adopted last year an indirect counter-proposal to the Responsible Business Initiative (calling on companies to conduct environmental and human rights due diligence). On 31 January, the legal affairs committee of the lower house (the National Council) decided to reject this counter-proposal and reaffirmed its commitment to its own indirect counter-proposal (with a few further changes). Discussions focused on applicable law and corporate responsibility.
In Canada, three parliamentarians introduced a Modern Slavery Act in the Senate on 5 February that would require large companies to disclose what they are doing to identify and prevent forced labour in their business and value chains. The bill builds on the UK and Australian Modern Slavery Acts, and seeks to go further by amending the Customs Tariff so that it prevents goods manufactured or produced by forced labour or child labour from being imported into Canada. Companies subject to the law could also be subject to an investigation and a $250,000 fine.
While we’re talking about laws, there was a development on 30 January regarding the first court case looking into the French duty of vigilance law. France’s civil court (tribunal de grande instance) ruled that it did not have jurisdiction to look into whether Total met its duty of vigilance related to its activities in Uganda, and has passed the case over to to the the commercial court (tribunal de commerce).
2. Quasi-judicial mechanisms (OECD National Contact Points) are used to shine a spotlight on banks’ financing activities: ANZ and Australian bushfires, Credit Suisse and pipeline impacts on indigenous peoples in the United States, ING Group and palm oil
As a recap, National Contact Points (NCPs) are government-supported offices whose core duty is to advance the effectiveness of the OECD Guidelines for Multinational Enterprises (the Guidelines). These Guidelines provide for a specific responsibility on companies to seek to respect human rights, including in their extended value chain. This means that plaintiffs can resort to NCPs to hold companies to account for their activities impacting upon human rights and the environment taking place in far-flung places. There are currently 48 NCPs. I discuss these quasi-judicial instances with Practical Law here.
On 30 January 2020, Friends of the Earth Australia and individuals affected by the bushfires in Australia filed an instance against the Australia New Zealand Bank (ANZ) at the Australian NCP. The complaint states that ANZ does not adhere to the Paris Agreement in its lending activities and should disclose its full lending emissions. (This follows an OECD NCP instance filed against ING in the Netherlands which resulted in ING making a number of new carbon-related commitments).
On 30 January 2020, Women’s Earth & Climate Action Network, International (WECAN) and indigenous women filed an instance against Credit Suisse at the U.S. NCP for contributing to adverse impacts to indigenous peoples and the environment through their financing of firms that built the Dakota Access Pipeline and Bayou Bridge Pipeline. (This follows an OECD NCP instance filed against Credit Suisse by the Society for Threatened Peoples (STP) at the Swiss NCP regarding the bank’s financing of the Dakota Access Pipeline. That case related to the bank’s project financing and resulted in Credit Suisse committing to incorporate the concept of Free Prior Informed Consent – FPIC – into its internal guidelines on project financing. This new case relates to the bank’s corporate lending, not project financing).
On 20 January 2020, the Dutch NCP accepted an instance filed against ING Group related to environmental, human rights, and labour rights impacts of palm oil allegedly caused by subsidiaries of ING’s clients Noble Group, Bolloré Group/Socfin Group, and Wilmar International. The Dutch NCP will now proceed to seek to “bring parties to agreement on possible improvements of ING’s due diligence policies and practices regarding palm oil, and to assess the enterprise’s involvement with the actual or potential adverse impacts identified, in order to determine the appropriate responses and specifically, assess whether the enterprise contributed (or would contribute) to the adverse impact; or whether the adverse impact is (or would be) directly linked to its services by the business relationships.” This determination matters, since how the bank is viewed as connected to the impact determines what it should be doing about it, with complainants alleging that the bank has contributed to the impacts due to the high degree of foreseeability of the harmful impacts and ING’s failure to mitigate or decrease the risk of impacts over time.
3. Companies steps in to protect trade unions in their supply chains (17 companies sourcing garment, footwear, and travel goods from Cambodia; adidas sourcing from Myanmar) and Turkish metalworkers’ trade unions tackle the effect of inflation on wages
Legislative developments have recently been taking place in Cambodia related to labour rights. A range of stakeholders (including Cambodian and international civil society organisations, the Office of the UN High Commissioner for Human Rights, and the International Labor Organization) state that the legal revisions fall short of international labour rights standards, in particular when it comes to freedom of association, and rights to organize and collective bargaining. In a letter addressed to the Prime Minister on 22 January, 17 companies (adidas, Burton, Esprit, Fruit of the Loom, Kik, Levi Strauss, lululemon, MEC, Montane, New Balance, PVH, Puma, Ralph Lauren, Salewa, Schoffel, Under Armour and VF Corporation), the American national trade association representing apparel, footwear and other sewn products companies (American Apparel & Footwear Association) and a number of other organisations reiterated this point. The private sector sourcing garment, footwear, and travel goods from Cambodia request that the government immediately amend the Trade Union Law so that it aligns with international standards, repeal a law that enables repression of civil society organizations and unions (the Law of Associations and NGOs) and drop all outstanding criminal charges against trade union leaders.
A footwear factory in Myanmar (Myanmar Infochamp) fired four workers when they sought to organise a trade union for the workers in the factory. The concerns they were seeking to address included management forcing workers to undertake non production-related work during lunch breaks, verbal abuse, and non-payment of bonuses. The factory also blacklisted the trade union leader, making it impossible for her to find a new factory position elsewhere. Adidas, a buyer from the factory, worked with civil society (Workers Rights Consortium, the Clean Clothes Campaign and Action Labor Rights) to address the case. Because the factory was going out of business, reinstatement of the workers was not an option. Adidas ensured that the factory would provide back pay to the fired trade union leaders, legally-owed severance pay to all workers following the factory closure and pay to the blacklisted trade union leader to compensate for preventing her from finding new employment.
A collective agreement governing approx. 200 metal companies and 130,000 trade union metalworkers in Turkey expired in 2019. On 29 January, following collective bargaining negotiations and striking activity, the relevant trade unions for metalworkers (Türk Metal, Birleşik Metal-İş and Özçelik-İş) reached an agreement with the Turkish Employers Association of Metal Industries. Of particular note, the agreement seeks to address the impact that high levels of inflation, combined with devaluation, has had on wages in Turkey. All wages and benefits will be increased above inflation levels every six months.
Week of 27 January 2020
1. Attacks against people shining the spotlight on negative impacts of business-related activities (human rights defenders) continue, with 2,000 attacks in the last 4 years and close to 600 attacks in 2019 alone, according to the BHRRC
The attacks include frivolous lawsuits, arbitrary arrests and detentions to death threats, beatings and even killings. The Business and Human Rights Resource Centre (BHRRC) reports the following:
- 2,000 attacks on human rights defenders between 2015 and 201
- 572 attacks in 2019 alone, up from 492 in 2018
- Attacks on women (in particular, indigenous women and affected rural communities’ leaders and members) have increased every year for the past five years, with 137 attacks recorded in 2019
- These attacks include restrictions on worker organising and violence against labour rights defenders
- These attacks took place, primarily, in Latin America, followed by Asia and the Pacific region, and Eastern Europe and Russia
The companies that should be the most concerned are those from mining, agribusiness, waste disposal, renewable energy, construction, extractive (oil, gas, coal), and logging and lumber. A number of companies have taken a specific position on human rights defenders (including adidas, FIFA, Chevron, M&S, Barrick Gold, Unilever, the RSPO) and organisations have provided a number of expectations of companies when it comes to playing a role to protect human rights defenders.
“Governments do not realise that sometimes the vision of development needs to go beyond economic benefit, beyond the capitalist view, but it has to be a holistic view that is actually respectful of minorities… There are many companies that recognise that it is important to join the struggles on women’s rights, LGBTI, with indigenous people — but it is necessary that they get involved more genuinely, because they have a level of power and access with government, that for civil society is much harder to reach“
Joshi Adriana Leban Montenegro (Nicaraguan human rights defender), Business and Human Rights Defenders & Business: January 2020 Snapshot (BHRRC, January 2020)
2. Climate change could cause the next financial crisis (Bank for International Settlements); European investors doubled investments in sustainable funds in 2019 (€120bn compared to €48.8bn in 2018, Morningstar); and asset owners take decisive actions to incentivise asset managers to invest in sustainable companies (e.g. Brunel Pension Partnership, Church of England Pension Board)
The Bank for International Settlements, which represents all central banks, said climate change could cause the next financial crisis. The bank further noted that central bankers at present lack tools to deal with what could be one of the biggest economic dislocations of all time.
“Climate change poses unprecedented challenges to human societies, and our community of central banks and supervisors cannot consider itself immune to the risks ahead of us.“
François Villeroy de Galhau (governor of the Banque de France), The green swan: Central banking and financial stability in the age of climate change (Bank for International Settlements, January 2020)
According to data provider Morningstar, a record €120bn was invested in sustainable funds, more than double the amount in 2018 (€48.8bn). Responding to client demand, an increasing number of asset managers are converting products into sustainable funds, and creating new funds. These funds integrate environmental, social and governance standards into their portfolios, pursue sustainability-related themes, or provide sustainability metrics alongside financial returns.
“Sustainable solutions are more attractive than ever and demand across Europe is increasing rapidly.“
Jan Erik Saugestad, Chief Executive, Storebrand Asset Management, Europeans make record investments in sustainable funds (Financial Times, January 2020)
Brunel Pension Partnership, a £30bn British pension fund which manages pension money for councils in south-west England and the Environment Agency, has adopted a new policy stating that it would “review the mandates of asset managers that don’t reduce exposure to climate risk by 2022.” Asset managers affected include Aberdeen Standard, Invesco, Legal & General Investment Management, Royal London Asset Management and Wellington Management. The Guardian reports the following issues amongst asset managers, identified by Brunel: short-termist thinking, unwillingness to invest in companies pursuing low-carbon technologies, and risk models that rely on flawed assumptions and fail to integrate climate risks.
“Climate change is a rapidly escalating investment issue. We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change.“
Mark Mansley, Chief Investment Officer, Brunel Pensions Partnership, £30bn pension fund: we’ll sack asset managers that ignore climate crisis (The Guardian, 27 January 2020)
The Church of England Pension Board (which oversees the £2.8bn pensions for the Anglican clergy) has launched the first passive index on the London Stock Exchange that enables passive funds to invest in companies aligned to the Paris Agreement. The FTSE TPI Climate Transition Index was developed in collaboration with FTSE Russell. The Church of England will invest an initial £600m in the index.
David Cumming from Aviva Investors urges asset managers to adopt a more radical approach in the face of climate change. David provides guidance on engagement, internal structures that are needed within asset managers, and communication.
“Climate change has changed everything. Investment objectives have to include responsible values and actions, in addition to financial returns. We have to respond by engaging in a different way and by taking decisive action when the companies we invest in don’t. We cannot be passive in the face of climate change. We have to be active.“
David Cumming, Chief Investment Officer for equities, Aviva Investors, Why asset managers cannot be passive on climate change (FT Opinion, 30 January 2020)
3. A lack of decent work combined with rising unemployment and persisting inequality affects nearly half a billion people worldwide, according to the ILO
The International Labour Organisation (ILO), in its report the World Employment and Social Outlook: Trends 2020, finds that almost half a billion people (470 million) are working fewer paid hours than they would like or lack adequate access to paid work. The report notes that the share of national income which goes to labour declined substantially between 2004 and 2017, from 54 to 51 % (in particular in Europe, Central Asia and the Americas).
The report finds that “even when people have a job, there remain significant deficiencies in work quality. Decent work concerns the adequacy of wages or self-employment earnings, the right to job security and a safe and healthy workplace, access to social protection, the opportunity to voice one’s views and concerns through a trade union, employers’ organization or other representative body, and other fundamental rights such as non-discrimination. Decent work deficits are especially pronounced in the informal economy, which registers the highest rates of in-work poverty and high shares of people who are own-account self-employed or contributing family workers who lack adequate protection.”
Another key finding relates to “substantial inequalities” which “prevail in the access to work and work quality. These include key lines of segmentation among workers, according to geographical location (between countries and between workers in urban and rural areas), sex and age. Moreover, new ILO data on labour income (for all workers, including the self-employed) demonstrate that, at the global level, income inequality is far greater than previously thought.”
““For millions of ordinary people, it’s increasingly difficult to build better lives through work. Persisting and substantial work-related inequalities and exclusion are preventing them from finding decent work and better futures. That’s an extremely serious finding that has profound and worrying implications for social cohesion.”
Guy Ryder, ILO Director-General, Insufficient paid work affects almost half a billion people, new ILO report shows (ILO, 20 January 2020)
Week of 20 January 2020
1. The time on the Doomsday Clock has changed. With the climate crisis and nuclear threats, the world is the closest it has ever been to catastrophe since the end of World War II
The Doomsday Clock was created following World War II to illustrate the likelihood of a man-made global catastrophe. It is the “universally recognized indicator of the world’s vulnerability to catastrophe from nuclear weapons, climate change, and disruptive technologies in other domains.” Every year, leading scientists (who form part of the Science and Security Board within the Bulletin of the Atomic Scientists) decide where to place the minute hand of the clock.
This year, they have moved the clock forward to 100 seconds to midnight. This is the closest to catastrophe that the scientists have judged the world to be at any point since the clock’s creation – including during the Cold War. The scientists explain that the situation is even worse now “because the means by which political leaders had previously managed these potentially civilization-ending dangers are themselves being dismantled or undermined, without a realistic effort to replace them with new or better management regimes.”
“Climate change that could devastate the planet is undeniably happening. … The global security situation is unsustainable and extremely dangerous, but that situation can be improved, if leaders seek change and citizens demand it. There is no reason the Doomsday Clock cannot move away from midnight. It has done so in the past when wise leaders acted, under pressure from informed and engaged citizens around the world. We believe that mass civic engagement will be necessary to compel the change the world needs.”
The Bulletin of the Atomic Scientists’ Science and Security Board, Closer than ever: It is 100 seconds to midnight (January 2020)
2. Timed for the WEF convening in Davos, Microsoft’s new carbon commitments shift the debate from avoiding and offsetting emissions to removing carbon from the atmosphere, with a particular focus on supply chain emissions
Microsoft has committed to be carbon negative by 2030, and by 2050, to remove from the environment all the carbon the company has emitted (either directly or by electrical consumption) since it was founded in 1975. To understand the implications of Microsoft’s commitments here, let us take a step back.
First, the kinds of commitments to carbon companies can take vary:
- Carbon neutral: the company reduces its emissions and pays to reduce carbon elsewhere to balance the remaining carbon it does emit
- Net zero: the company removes from the atmosphere the same amount of carbon it emits
- Carbon negative: the company removes more carbon than it emits each year
Second, companies have three types of carbon emissions:
- Scope 1: These are direct emissions that the company’s activities create
- Scope 2: These are indirect emissions coming from the production of the electricity or heat the company uses in its buildings
- Scope 3: These are indirect value chain emissions which include the emissions across the company’s value chain (e.g. of the company’s supply chain, associated with the use of products by consumers). This is where the level of emissions tend to be the greatest (but also where the company has the least control)
Microsoft’s commitment is far-reaching:
- Microsoft states that we must reach “net zero” emissions, meaning that humanity must remove as much carbon as it emits each year. (This is aligned with civil society’s recent open letter to World Economic Forum (WEF) delegates to transform the economy to reach net zero by 2050.) The company remarks that companies and organisations “who can afford to move faster and go further should do so.” Microsoft remarks that being carbon neutral will not suffice: the company is committed to reducing, then removing, the company’s footprint. As a first step, the company’s commitment to being carbon negative by 2030 will be achieved by (1) cutting the company’s carbon by more than half and and (2) removing more carbon than the remaining carbon it emits. As a second step, the company’s commitment to remove from the atmosphere all the carbon it has emitted (either directly or by electrical consumption) since it was founded in 1975 will be aided by the company’s financing of a $1 billion climate innovation fund to accelerate the development of necessary technologies for carbon reduction and removal
- The company speaks to the importance of focusing on scope 3 emissions where emissions will be the greatest. To illustrate this, the company notes that it has 100,000 metric tons of carbon as scope 1 emissions, as compared to 4 million as scope 2 emissions and 12 million as scope 3. The company remarks that “we’ve identified another shortcoming that we and many other companies need to overcome. Historically we’ve focused on Microsoft’s scope 1 and 2 emissions, but other than employee travel, we haven’t calculated as thoroughly our scope 3 emissions. That’s why we’re committing to becoming carbon negative for 2030 for all three scopes.” Measures to help the company’s suppliers reduce their emissions include integrating carbon reduction within procurement processes and charging the company’s business divisions an internal carbon fee for all their scope 3 emissions
This direction of travel is evident in other sectors too:
- Nestlé has committed to cut greenhouse gas emissions across its operations and supply chain to net zero by 2050
- Maersk has committed to become carbon neutral by 2050 (with regard to scope 1 – direct emissions)
- Mahindra Group has committed to net zero across the whole range of Mahindra businesses by 2040 (with regard to scope 1 – direct emissions)
(You can view CDP’s recently released 2019 annual A List which names 170 companies “as the leaders acting to address climate risks and build our future zero-carbon economy” here).
While it is imperative that we continue to avoid emissions, and these investments remain important, we see an acute need to begin removing carbon from the atmosphere, which we believe we can help catalyze through our investments. … Reducing carbon is where the world needs to go, and we recognize that it’s what our customers and employees are asking us to pursue. This is a bold bet — a moonshot — for Microsoft. And it will need to become a moonshot for the world.
Brad Smith, President, Microsoft, Microsoft will be carbon negative by 2030 (Microsoft, January 2020)
3. We now have a list of the 2,000 most influential companies that will make or break the world’s ability to meet the UN’s Sustainable Development Goals, courtesy of the World Benchmarking Alliance
The World Benchmarking Alliance (WBA) has identified 2,000 companies as “‘keystone companies‘ that will have disproportionate influence on industry’s collective chance of success for meeting” the UN’s Sustainable Development Goals (SDGs). These companies collectively make up half of the entire global economy and are responsible for $43 trillion in revenue. In short, without their committed actions, we face an unsustainable future, with the UN SDGs remaining unmet.
These 2,000 companies are the ones with the most impact and influence within industries that can positively and/or negatively impact one (or several) of the following seven transformations needed to meet the UN SDGs: social, food and agriculture, decarbonisation and energy, circular, digital, urban and financial. Companies on this list will be benchmarked by the WBA to see whether and how they are performing in line with sustainability expectations and in relation to their peers.
Without these companies aligning their business models and operations with the SDGs – they simply won’t be delivered.
Gerbrand Haverkamp, Executive Director, World Benchmarking Alliance, Tick tock, tick tock….Happy new year and here’s to a new decade (World Benchmarking Alliance, January 2020)
Week of 13 January 2020
1. Climate risk will re-shape finance, according to the world’s largest asset manager BlackRock
Larry Fink, founder and CEO of BlackRock (the world’s largest asset manager with close to $7 trillion in investments) is pushing companies to consider their carbon footprints. He announced that BlackRock would exit investments that “present a high sustainability-related risk” and that “in the absence of robust disclosures, investors, including BlackRock, will increasingly conclude that companies are not adequately managing risk.”
“Awareness [of climate change] is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance. The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.”
Laurence Fink, founder and CEO, BlackRock
Laurence Fink, A Fundamental Reshaping of Finance (BlackRock, 14 January 2020)
2. The last decade was the hottest decade ever, and years 2016 and 2019 were the warmest years on record, according to NASA and NOAA
NASA (The National Aeronautics and Space Administration) and NOAA (the National Oceanic and Atmospheric Administration) found that the average global temperature is now more than 1 degree Celsius (2 degrees Fahrenheit) above what it was in the late 1800s. (As a reminder, the critical threshold of warming is 1.5 degrees Celsius). Earth’s global surface temperatures in 2019 were the second warmest since modern recordkeeping began in 1880, and the past five years have been the warmest of the last 140 years.
“We crossed over into more than 2 degrees Fahrenheit warming territory in 2015 and we are unlikely to go back. This shows that what’s happening is persistent, not a fluke due to some weather phenomenon: we know that the long-term trends are being driven by the increasing levels of greenhouse gases in the atmosphere.”
Gavin Schmidt, Director of the NASA Goddard Institute for Space Studies (GISS)
NASA, NASA and NOAA Analyses Reveal 2019 Second Warmest Year on Record (NASA, 15 January 2020)
3. The European Commission launches consultations to discuss how to ensure that every worker in the EU is protected by adequate minimum wages
The European Commission is looking to collect “views on the possible direction of an EU action to ensure that every worker in the Union is protected by adequate minimum wages.” The commission clarifies that the new EU initiative is not seeking to “set a uniform European minimum wage, nor impose one model of minimum wage setting over another.” Rather, to assess in the first instance whether there is a need for action on fair minimum wages at the EU level.
“We have to restore the dignity of work. And the first dignity of work is to pay people a fair wage”
Nicolas Schmit, EU Commissioner for Jobs and Social Rights