By Helen Price, Brunel Pensions Partnership

Brunel Pension Partnership is one of eight national Local Government Pension Scheme (LGPS) Pools. We believe in making long-term sustainable investments supported by robust and transparent processes. This blog was produced in support of ShareAction and Living Wage Foundation’s Living Wage Investor Toolkit

 

Covid-19 exposed the UK’s reliance on low-paid labour

The Covid-19 pandemic has shed light on a whole range of social challenges and inequalities, highlighting the need for the investment sector to engage further on the social component of ESG, not least workforce issues. As we continue to live with the virus and enter a recession, investors need to be engaging on workforce topics including safety and redundancy.

But fair pay should also be at the top of investors’ agendas. The pandemic has shone a light on the extent of low paid and insecure work in the UK.

Many of the workers we have relied on throughout the crisis, including our cleaners, social care workers, essential retail and delivery workers, are in low paid and insecure work. 1.3 million of those who have been deemed to be key workers earn below the Real Living Wage, as set by the Living Wage Foundation. The pandemic has highlighted how these roles have been undervalued and underpaid for too long.

At the same time, some of the sectors hardest hit by the pandemic – like hospitality and retail – and most affected by lockdown and social distancing measures are those where low paid work is particularly prevalent.

 

The risk to business

These industries are desperately in need of new approaches to staff investment to ensure a sustainable future.

Paying the Living Wage is not only the right thing to do. It also makes sense for businesses and for long term sustainable growth.

Businesses that are reliant on low-paid work create reputational and operational risks that have the potential to negatively impact the long-term sustainability of the business. Ultimately, for listed companies, they will also hurt investment returns. Low pay drives a range of risks including high staff turnover, absenteeism, reduced motivation, and lower productivity.

93 per cent of Living Wage employers reported that they experienced some form of benefit from accrediting including reputational effects and a greater ability to retain staff.

Early evidence suggests organisations that pay their workers a fair wage performed better in handling the initial shock of the pandemic – and in the first stages of recovery post-lockdown.

 

It’s time for investors to take action on fair pay

Over recent years, investors have become a critical player in the fight to tackle climate change. But we also need to play a central role in tackling workforce issues.

We have seen disputes over worker rights, most noticeably ride-hailing workers who took their fight for workers rights to the UK Supreme Court. The case has the potential to transform the gig economy in Britain. Workforce issues can cause significant disruption, erode shareholder value and the long-term viability of businesses.

Previous recessions have resulted in an increase in low paid and insecure jobs; we believe, investors must engage on fair pay and the Living Wage now.  As we look to rebuild the economy, now more than ever it is fundamental that workers earn a wage that meets the cost of living.

Brunel Pension Partnership joined ShareAction’s Good Work coalition earlier this year. In August, we and 15 other investors signed letters calling on companies to pay a real Living Wage. This is one easy action investors can take and co-ordinated, collaborative engagement from investors has proven effective. 41 FTSE100 companies are now accredited with the Living Wage Foundation – up from only 2 when the coalition began its engagement.

 

The role of active stewardship

As active stewards, investors should integrate issues surrounding fair pay into investment decisions and voting policies. At Brunel Pension Partnership, we will consider voting against the remuneration reports of companies where, through our engagements, we have identified risks relating to workforce pay levels.

Where company action on wages and workforce practices remains poor, we as investors must start to consider ways to escalate our engagement.

In the climate space, investors have filed resolutions to challenge the laggards. Earlier this year, Brunel Pensions Partnership joined 10 other institutional investors and, under the co-ordination of ShareAction, to co-file a resolution at Barclays, encouraging the bank to set phase-out targets for its financing of fossil fuel companies.

Climate-focused resolutions are increasingly being filed at corporate level, whereas relatively few have been filed on workforce issues, particularly in Europe. We, as the investment community should start using all of the tactics available to us to hold companies to account on fair pay.

ShareAction and the Living Wage Foundation’s newly-launched toolkit provides investors with a practical guide to effectively engage e with investee companies on the Living Wage. The toolkit includes a variety of useful instruments and information, including the business case for the Living Wage; industry specific challenges and opportunities; ideas for engagement; case studies of companies’ experiences of implementing the Living Wage; and case studies of investors’ experiences of engagement.

This is an urgent issue: why not take advantage of the Investing in the Living Wage Toolkit.