Our latest research paper shows why ‘decent work’ matters – and highlights the investment risks and opportunities. In the absence of global standards, we’ve produced a framework to recognise decent working practices. This should make it easier for abrdn to identify companies offering employment that’s in line with decent working practices in sustainability and impact funds.
What is decent work and what’s the issue?
The United Nations unveiled its 17 Sustainable Development Goals (SDGs) in 2015. These included SDG 8, "decent work and economic growth: to promote inclusive and sustainable economic growth, employment and decent work for all.”
At abrdn, we define ‘decent work’ as work that provides seven key, widely accepted features :
- A living wage
- Guaranteed secure employment
- Safe working conditions
- Equal employment opportunities and treatment
- Social protection for workers and their families
- Prospects for personal development and encouragement of social integration
- Workers are free to express concerns and to organise (workers’ voice)
Aligning companies with SDG 8 has been difficult. There’s no universal standard or framework in place. Companies haven’t historically reported on decent work. Meanwhile, there are large variations in the rates that these criteria can be found globally. For example, informal employment (with zero contracted hours) is significantly higher in developing and low-income countries.
There are variations in sectors, too. Those traditionally viewed as ‘low skilled’, such as agriculture, construction or domestic work, tend to have higher rates of informal employment. This contrasts with sectors like education, finance, and information and communications technology, which offer better opportunities for decent work.
Why does decent work matter to investors?
Decent working practices – and their influence on efficiencies and risk – directly affect corporations and the individuals they employ. Decent work within organisations can make for a more productive workforce, increased operational efficiency, and reduced reputational risks. A report by the PRI (Principles for Responsible Investment), stated that income disparities lead to increased inequality at financial and system levels. This, in turn, can negatively affect investors’ portfolios. The same report also highlighted that by addressing supply chain, governance, and labour issues, investors were able to reduce their beta risks (the volatility of an investment or portfolio in relation to the overall market).
The OECD (Organisation for Economic Co-operation and Development) has similar findings. It demonstrated a connection between income inequality and certain decent work issues that negatively affect political and social stability, while reducing economic performance. We believe it’s important to recognise and understand a company’s alignment with decent working practices. This could make it easier for investors to include businesses that offer employment that’s in line with decent working practices in their investment strategies.
What are the investment risks and opportunities?
Numerous companies have made the headlines for poor labour practices, resulting in significant financial losses. Boohoo is a recent example. In 2020, it was discovered that employees in its supply chains were working in slavery, and two of its suppliers were paying workers between £3.50 and £4 per hour. This revelation knocked off more than £1.5 billion from the company’s value, according to The New York Times.
Our research identifies several investment implications of decent work, which are outlined below.
- ITThere are more IT jobs than workers to fill them, while the sector lacks skilled employees. Companies are therefore incentivised to provide decent work opportunities to attract and retain talent.
- HealthcareAgeing populations around the globe are driving sector growth. It’s no secret, however, that nurses are often overworked and underpaid. Decent working practices must be implemented to support such a critical part of the workforce. Furthermore, high-skilled jobs in healthcare will remain in demand, this includes employees to meet the research and development needs for innovation and new products. Offering decent working opportunities is one way to attract and retain talent.
- Care and wellbeingAgeing populations and a growing middle class are likely to propel the sector’s expansion, creating investment opportunities. Investors should be mindful that, at present, care work is often low-paid and informal. It’s generally considered a ‘low-skilled’ sector and, subsequently, opportunities for decent work are lower compared with high-skilled sectors. The care sector employs a higher proportion of women than men, meaning companies can help address gender inequality.
- Energy transitionNot all ‘green’-related jobs are decent, and investors must do their due diligence on company and supply chain labour practices.
- Gender, race, and ethnicityIt’s generally accepted that gender, race, and ethnic inequality is bad for the economy and bad for business. It prevents people from realising their full economic potential and, therefore, results in an economic cost. Companies that have strong diversity, equity, and inclusion (DEI) policies face less risk of high turnover rates. There’s also less risk of scandals due to DEI discrimination.
- Youth unemploymentYouth unemployment reduces individuals’ career potential and earnings. On a macro level, it can exacerbate inequalities and increase the costs of unemployment support. In 2022, nearly a quarter of the world’s youth population was classed as NEET (not in education, employment, or training). Investing in companies that are actively employing young people aligns with SDG 8.6, “By 2020, substantially reduce the proportion of youth not in employment, education or training”.
- Informal employmentInformal jobs are generally not regarded as decent work and people often take them as a last resort. These are jobs that usually lack social protection, have lower pay, fewer rights, and diminished opportunities for social dialogue. Those in informal jobs are more likely to be in working poverty and have greater exposure to economic shocks.
How do we help determine alignment with decent work?
While alignment with SDG 8 decent work is difficult, we believe it’s possible. To that end, we’ve produced a decent work framework. It includes a best-practice checklist and engagement questions that companies should meet to align with an accepted definition of decent work. The absence of such a framework may prevent, or at least complicate, investment alignment with decent work.
Our decent work framework in action
As an example, the table below shows our assessment of decent work on a large pharmacy chain in Brazil. We view this company as a leader on decent work practices.
| Decent work outcome |
Engagement questions | What a good answer should include |
Company example: pharmacy chain in Brazil |
|---|---|---|---|
| 1) Living Wage | •Do you pay your workers a living wage? If not, why not? •How do you calculate a living wage? |
• Employees are paid a living wage. • Living wage is calculated based on the cost of living for the relevant location. |
• Average entry wage is about 4-5x more than the average national minimum wage. |
| 2) Guaranteed secure employment |
•Do you issue formal employment contracts? If not, why not? •What policies do you have on fair dismissals? |
• Formal contracts for employees. • Robust policies on fair dismissals |
• Formal contracts for employees.
Engagement point – unable to fund a policy on fair dismissals? |
| 3) Safe working conditions |
• How do you identify, prioritise and mitigate health and safety issues? • How are health and safety practices incentivised at different levels of management? • Are incidents measured? If so, how? • How are incidents responded to? How are they escalated? • What health and safety training is provided to staff? • Do you offer hybrid/working from home options? (Where relevant) |
• Transparent H&S record (fatalities, accidents, near misses; clear consideration of occupational health and relevant ongoing exposures) • H&S is integrated into the group’s risk assessment process • H&S is linked directly to board and executive remuneration • Relevant H&S training provided • Hybrid (with safe transport) and working from home options offered if employee safety is a concern |
• Clear H&S frameworks in place with tracking and transparency on incidents.
Engagement point – is this incentivised at different levels of management? |
| 4) Equal employment opportunities and treatment |
•What policies do you have on diversity, equity, and inclusion (DEI)? |
• Clear DEI strategy with targets and incentives at senior management and board levels. |
• DEI commitment to increase the representation of minority groups in staff and ensure respect in work environment.
Engagement point – are KPIs linked to senior staff/board incentives? |
| 5) Social protection for workers and their families |
•What social protections do you have for employees (e.g. parental benefits, sickness benefits, etc)? •Do these protections extend to employees' families? |
• Parental leave, sickness leave, childcare leave, etc provided. • Protections available for families such as healthcare. |
• Includes extended parental leave, healthcare, life insurance, and dental care. |
| 6) Prospects for personal development and encouragement of social integration |
• What training and development is provided? | • Relevant training and development courses offered at no cost to employees. | • Progression opportunities available. No external hires can be moved up to managerial level. • Academy allowance. |
| 7) Workers free to express concerns and to organise (worker voice) |
• How many of your employees are part of unions? • How do you work with labour unions? • What grievance/whistleblowing mechanisms for employees does the company have? |
• Open and transparent discourse with unions and employees, no negative repercussions. • Grievance and whistleblowing mechanisms available, these must protect employees identities. |
• Compensation is determined alongside consultation with 250 different unions. • Anonymous whistleblowing system. |
| *Do these apply to temporary and contract workers? |
Final thoughts…
Aligning with SDG 8 (decent work and economic growth) has presented challenges, prompting us to develop a comprehensive decent work framework. This serves as a starting point for us to evaluate companies' practices related to decent work. Issues pertaining to decent work can influence a company's productivity and reputation; when effectively addressed, they contribute to reducing inequality and poverty. Therefore, we believe it’s crucial for investors to consider decent work practices in their investment and engagement decisions
- We have based our definition on the International Labour Organisation and European Commission’s definitions. Please note we use living wage instead of a fair wage. The World Benchmarking Alliance’s Social Benchmark uses a living wage.