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Low wages and insecure work in retail supply chain


Low wages and insecure work are not just an issue for direct supermarket employees and contract workers in UK operations. They are a feature of working conditions in the UK and global supply chains of the supermarket retailers. Aldi, ASDA, Co-op, Lidl, M&S, Morrison’s, Sainsbury’s, Tesco, and Waitrose are members of the Ethical Trading Initiative (ETI). They have long had supplier codes of conduct that recognise that being paid a living wage[1] is a fundamental human right and reference the ETI base code which requires suppliers to ensure ‘living wages are paid’[2]. Despite the recognition at a policy-level, very few companies supplying to retailers can demonstrate that they are paying living wages in their supply chains. During the pandemic retailers' duty of care for workers beyond their direct employees has become clearer than ever.

There are significant barriers and complexities to implementing living wages in supply chains, but investor and stakeholder expectations are evolving

Barriers to implementing living wages and living incomes in supply chains have included the geographical scope and breadth of supply chains, differences, and disagreements in calculation methodologies, as well as the complexities of implementing living wages in long and complex supply chains. To address these challenges a number of the retailers including ALDI, Sainsbury’s, and Tesco, have joined the IDH living wage roadmap. The Roadmap has allowed retailers to pool calculations; recognise and compare different living wage calculation methodologies; benchmark wages against these benchmarks; verify calculations and move towards addressing these gaps.

Investors are increasingly visible in their engagement with retailers on their strategy for paying living wages in supply chains. For example, since 2018 the Platform for Living Wage Financials (PLWF) has been benchmarking 20 retailers' and food and agricultural companies’ policies and approaches to paying the living wage in supply chains. The 2020 assessment shows that both groups have a significant way to go to address this fundamental human right, but there are a number of food producers (Unilever & Olam) who are ahead of the retailers. PLWF notes that this is due in part to the number of supply chains that a typical retailer has compared to food and agricultural producers. They identify that both groups need to clarify their definitions of the living wage and set measurable targets, consult more fully with unions and local stakeholders, align their purchasing practices with expectations on the living wage, scale up existing pilots and make the stronger commitments made during the Covid-19 pandemic permanent.

Unilever are aspiring to be a leader on this topic

Unilever has recently stepped up to the challenge announcing that they will pay living wages in their supply chains by 2030. Unilever’s announcement and the work of the IDH Living Wage Roadmap show that multiple suppliers and supply chain complexity should not be a barrier to addressing this issue.

Unilever announce they will pay Living Wage in their global supply chain

In January 2021, Unilever made headlines by announcing its plans to ensure that everyone who directly provides goods and services to Unilever earns at least a living wage or income, by 2030. In making the announcement Alan Jope, CEO of Unilever stated that “inequality alongside climate change was one of the biggest threats to the world”. Paying a Living Wage in the supply chain was considered a natural step from paying employees a Living Wage, which was achieved in 2015.

Unilever has an estimated 60,000 suppliers that directly invoice the company and many more in the extended supply chain. Unilever estimated that millions of people stand to benefit from the decision. To implement the ambition, Unilever said it would work in partnership with its direct suppliers, who have welcomed the move. Unilever confirmed that they would be exploring with suppliers, peer companies, and NGOs to understand what it would take in terms of increased costs to suppliers.

Media commentary suggested that investors welcomed the move even if it has short-term impacts on margins.

Covid-19 has increased scrutiny of working conditions in food supply chains

The food production sector has come under intense scrutiny during the Covid-19 pandemic due to outbreaks in meat processing factories. The UK’s just in time food supply system[3] employs an estimated 430,000 workers, two thirds of whom are temporary or agency labour. Low wages and poor health and safety standards are ongoing challenges. The TUC has reported that between April 2020 and April 2021, a total of 32,022 Covid-19 infections and 387 deaths were reported under RIDDOR, according to HSE’s database. However the TUC point to the true death rate being much higher. There were 15,263 registered working-age adult deaths from Covid-19 in the year April 2020 to April 2021 suggesting that there was significant under reporting to RIDDOR and particularly in the food processing sector.

Investors should be pressuring food manufacturers to disclose better data on workforce safety and processes to mitigate risk, and the Workforce Disclosure Initiative is one mechanism of doing this. They should also be engaging with supermarkets - the lead firms in these supply chains - to improve practices in their supply chains. Judging by the recent passing of a Business and Human Rights Due Diligence resolution at Tyson Foods, there is increased investor attention on the issue and businesses can expect to see more in future years.

Business and Human Rights Due Diligence resolution at Tyson Foods passes in February 2021

In May 2020, The Guardian reported that almost half the Covid-19 hotspots in the US were linked to meat processing plants. In September 2020, it was reported that 42,534 workers at meatpacking plants in the US had contracted Covid-19. At least 203 lost their lives.

A shareholder resolution at Tyson passed in February 2021 with 78.7 per cent of independent shareholder votes including BlackRock and Vanguard. The same resolution filed in 2020 failed to pass.

The increased support this resolution received in 2021 suggests that a new consensus on the materiality of poor workforce management is emerging in the light of Covid-19. It also illustrates the influence of investor engagement and stewardship on changing corporate practice.

Pressure to address living wages in supply chains and improve working conditions in supply chains is not going away. If anything, over the last twelve months we have seen investors taking a greater interest in these topics, meaning the pressure on the retailers will grow as we emerge from the pandemic.

[1] The briefing uses the capitalised term Living Wage throughout when referring to a Living Wage where there is an agreed amount, living wages when referring to the concept in multiple geographies or where rates are contested and the term living income when the term is used for farmers and producers who are outside a formal employment relationship.

[2] Living wages are defined by ETI as “Wages and benefits paid for a standard working week meet, at a minimum, national legal standards or industry benchmark standards, whichever is higher. In any event wages should always be enough to meet basic needs and to provide some discretionary income.”

[3] Just in time refers to on an on-demand production system, which minimizes inventory and relies on retailer forecasting and responsive producers.