Institutional investors have the power to unlock change in the corporate world by leveraging the large sums of money they invest in listed companies. In doing so, investors can play a major role in improving labour standards for workers, both employed by firms directly and in their supply chains.

The Workforce Disclosure Initiative (WDI) is a new programme mobilising investors to push for better quality jobs. As a first step, the WDI brought investors together to encourage companies to disclose more comprehensive workforce data.

The absent ‘S’

Mainstream investors increasingly recognise the importance of integrating sustainability issues into investment decisions in order to achieve long-term returns. Investors approach this by taking into account environmental, social and governance (ESG) issues. Demand is growing for ESG products, with assets in socially responsible funds rising 76% over the last five years.

Despite this growth, the development of tools for investors to sufficiently analyse the ‘S’ has been lagging behind its ‘E’ and ‘G’ counterparts. A key goal of the WDI is to ensure that the people impacted by businesses are not left behind.

Legislation like the 2014 EU Non-Financial Reporting Directive is pushing companies to disclose more workforce information. The 2015 UK Modern Slavery Act is also prompting companies to disclose their approach to managing workforce-related risks in the supply chain. 

The good news is that momentum is growing on social issues. Legislation like the 2014 EU Non-Financial Reporting Directive is pushing companies to disclose more workforce information. The 2015 UK Modern Slavery Act is also prompting companies to disclose their approach to managing workforce-related risks in the supply chain. In the ethos of ‘what gets measured, gets managed’, the goal is to use transparency as a driver of better company practice.

On the global stage, the UN’s Sustainable Development Goals (SDGs) provide a roadmap to a more sustainable economy. Companies and investors alike have made commitments to contribute to the Goals. Similarly, the UN’s Guiding Principles for Business and Human Rights give particular focus to companies’ responsibilities regarding human rights.

Important initiatives like the Corporate Human Rights Benchmark (CHRB) and Know the Chain (KTC) are playing a key role in helping investors identify human rights risks in their investments. Though different in scope and processes, the CHRB, KTC and the WDI all share the common aim of driving investor and company action on ‘Social’ issues.

The materiality of the workforce

Making progress towards goal 8 of the SDGs, which calls for ‘decent work for all’, can benefit workers, firms, and investors. Companies stand to gain from examining their operations and working with suppliers to improve workforce management and labour conditions. A recent review of 92 studies on the relationship between HR policies and financial outcomes concluded that ‘there is sufficient evidence of human capital materiality to financial performance to warrant inclusion in standard investment analysis’. Moreover, a study by the Better Work programme has shown that factories where employees report better working conditions are more productive and profitable.

The need for better disclosure

Despite the benefits of better workforce management, the lack of comparable workforce data is a major barrier to the integration of labour standards in investment decisions.

As a recent report by the Business and Human Rights Resource Centre on the shortcomings of companies’ statements in response to the Modern Slavery Act concludes, "most companies provide very little information…on specific risks in the supply chain, both with regard to the type of risk and where in the supply chain the risk was identified."

Disclosure on firms’ direct operations is similarly lacking. A 2015 report by the Pensions and Lifetime Savings Association (PLSA) found that only 12 percent of companies in the FTSE 100 reported their rate of employee turnover, and only 11 percent reported their injury rate.

The WDI aims to help overcome this challenge by mobilising investor support to push large listed companies to disclose more comprehensive data on how they manage their workforce.

The WDI aims to help overcome this challenge by mobilising investor support to push large listed companies to disclose more comprehensive data on how they manage their workforce. Funded by the Department for International Development (DFID), and led by ShareAction, in collaboration with Oxfam, the WDI involves an annual investor-led survey. Companies are asked to disclose information on the employment practices in their direct operations and supply chains. In collecting data on key metrics, the WDI will allow investors to identify good labour practices and encourage a race to the top. By encouraging companies to examine their workforce management practices and better understand their supply chains, the WDI can help them progress towards providing ‘decent work for all’.

Going forward

While only in its pilot year, the WDI is backed by 79 investor signatories with combined assets under management of $7.9 trillion. The growing interest of investors in company labour practices is now clear.

Companies have much to gain by leading on transparency and engaging in this fast-developing space. The ball is now in the court of companies to drive the process forward and respond to the WDI survey, and for investors to communicate to companies that this is a priority for them.