As information regarding the Economic, Sustainable, and Corporate Governance (ESG) policies of a business
become more transparent, investors are now using it as a criterion for funding. From an investor standpoint, these human rights and labour rights, which include employee health and safety, child labour, responsible sourcing, and fair wages etc., are amongst the key concerns of investment due to the reputational and downside risk to the valuation of companies.
A recent study done by cKinetics and Oxfam India analysed 35 large listed companies to understand their disclosure and actions on human and labour rights, which extended to the supply chain as well. A panel discussion held at the UN Responsible Business and Human Rights Forum scrutinized the findings of the study and used them as a backdrop of conversation between investors, companies, civil society organizations, and policymakers. Panellists from UN and partner organizations discussed the relevance of labour rights in companies to investors, the information listed by companies for investors’ purposes, the drivers for companies to report said human and labour rights, the gaps that arise in the process, and how non-profits can be an enabler for the same.
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The Sustainability Report
The report released by Oxfam India, in collaboration with cKinetics, an accelerator firm for sustainable and investment practises based in India, studied 35 large market companies, with an aggregate investment of institutional shareholders being INR 4,853 billion. It found that more than 50 per cent of the shortlisted companies explicitly commit to respect to human rights such as rights of all workers for freedom of association and collective bargaining. However, the enforcement or procedure for compliance to back the commitments are neither mandated in the reporting requirements and therefore are not clearly laid out. The public commitments in most cases are silent on the management of impacts/risks i.e., the corrective action company would take a supplier is found in violation of the indicators.
The 35 companies analysed in the report belong to India’s food & beverage, automotive, oil & gas, mining & minerals, infrastructure & construction, and chemical industries. These include Reliance Industries Ltd. BPCL, Hindustan Uniliver Ltd, D-art, Dabur India Ltd, Larsen & Turbo, and Godrej Consumer Products Ltd, among others. The report also looked at investors, which include the Life Insurance Corporation of India, ICICI Prudential, SBI MF, HDFC, Aditya Birla Sun Life, and Euro-Pacific Growth Fund, among others.
Key points from the summary of the report:
a) 97% of the companies surveyed reported on the number of permanent female employees, while 94% reported on the number of male employees.
- b) 69% of the companies extended their human rights policies to vendors, suppliers, subsidiaries
c) 89% of companies have a recognized Employee Association
d) 63% reported complaints of sexual harassment
e) 71% explicitly stated prohibition of child labour in their code of conduct/policy for supply chains
f) 20% of companies explicitly provided some or complete reporting on compliance with minimum wage
g) 11% of companies reported cases of human rights complaints
“A lot of dialogue needs to happen, even with the largest companies, to ensure that there is full disclosure on their behalf. Our survey, surprisingly, pointed out that no company had received complaints about child labour/ forced labour/ discriminatory labour. However, only 3/4th of the firms had strict policies to prohibit child labour in supply chains,” cKinetics Managing Director Pawan Mehra said.
The Investor Viewpoint
Investors who the team spoke to said, “We have never believed that it is ethical or good business sense to buy a terrible company and then write ‘ESG engagement letters’ to a recipient who won’t care. We want to engage but are not so deluded as to believe that everyone will listen. India has many promoter-controlled companies, and some are amongst the most ethical people we have encountered. However, when some are non-compliant, our controlling stakes force us to tell untruths to clients.”
Investors, hence, are looking to manage companies predisposed to working on ESG issues. Most of them gain insights before investing, and once that is done follow a minute monitoring process. In case a controversy happens, it triggers an enquiry of the management process.
“Merely issuing a supplier code of conduct is not sufficient, as actual complexities related to labour/human rights lie in supply chains. Very few corporates know much about their supply chains,” Mr Mehra said, adding that, in the Indian context, information about the implementation of code of conduct and violations in regard is often limited.
Arindom Dutta, Executive Director, Rabobank said that their company performs sustainability due diligence before investing in a business, and any shortcoming in the same leads to a pull-out in case the rating falls below Rabobank’s threshold. “We look at the sustainability policy, how companies report it, and actual implementation of the policy. For instance, if we invest in a food and agriculture business, ESG becomes very important, as rural areas always have labour rights issues,” he added.
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The Government as an Investor
Members of the panel stressed the need for governments to invest ethically. India’s leading government insurance company, LIC, today invests in a number of private companies. Pradeep Narayan, Director, Partners in Change and Praxis Institute for Participatory Practices, said that the government should appear as a prime human rights investor and choose companies that have a clean slate. “The LIC holds a 16.1% share in ITC, a tobacco manufacturing company, which comes across as unethical. It also holds shares in companies of big Indian industrialists. LIC can become a model investor, push ethical investment practices. The soon to be released National Action Plan on BHR also pushes for ethical government investment and procurement,” he added.
As a regulator, the government should gauge the increasing inequality among employees in a single company. An analysis by the non-profit Civil Society Watch revealed that the contractual workforce in India (in top 300 companies) has grown three times from 2017. Representation of physically abled and female employees continues to be minimal, as does the presence of members of the Bahujan community in decision-making positions. CSW also found that the top five executives in these companies received salaries much higher than median permanent employees. Panellists advocated that since these areas are still not regulated, they should come into the ESG aspect of businesses.
“There are a lot of human rights issues in our supply chains. Not too long ago, multinational companies had exported their social and environmental problems to developing countries, but now we see that our domestic companies are also exporting their share of the problems to low tier supply chains. The second and third-tier supply chains have a yawning gap between claim and reality, even in companies integrated into global supply chains,” Sachin Joshi, an independent researcher, added.
(The panel, as featured on the UN RBHR Forum, was organized Fair Finance India and cKinetics. The forum hosted seminars on the topic of Business and Human Rights in the Asia Pacific Region through June 1st to 4th. Delhi Post has published stories on multiple perspectives presented during the seminar.)