The Importance of being Earnest – Institutional investing and SDG 8

Investors must work harder to ensure that our statements and ambitions actually drive improvements, says the CEO of Sweden’s biggest pension fund

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One of the greatest challenges when it comes to working with Sustainable Development Goal number 8, Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all, is to ensure decent work along the tiers of the supply chain. For us, being invested in multinational food companies, we are continuously faced with the challenge of many and complex layers of actors.

It is, to speak with the words of Oscar Wilde, important to be earnest about where the problem lies and important to be earnest about these same problems with all players in the supply chain. And as the characters in Wilde’s play had little respect for the institution of marriage, we as an investor sometimes feel that there are actors in the supply chain, especially when it comes to agriculture, that have little respect for the institutions governing employment and decent work for all. And a chain is only as strong as its weakest link.

We as an investor sometimes feel that there are actors in the supply chain, especially when it comes to agriculture, that have little respect for the institutions governing employment and decent work for all

So, to be earnest, what can we do? We need to ensure that there are channels to cascade our expectations across tiers of actors. We, as an institutional investor, encourage and expect the companies we invest in to monitor and initiate inspections on farms and in factories, but we find that it is often not enough.

In July 2020, we published a report called Better Conditions in the Food Supply Chain – a result of cooperation between four Swedish pension providers: Alecta, AP7, AMF and Folksam. The four of us are committed to a working group on SDG 8 as part of our work in the Sida-initiated network Swedish Investors for Sustainable Development (SISD).

The food supply chain consists of a myriad of actors and is hard to survey, and the production is often located in countries assessed with high risk of human rights violations. Retail chains and food companies often have their own sustainability policies, which they try to enforce as best they can. As institutional investors, we need to work with the board of directors and the management of the companies in these sectors and encourage them to intensify the enforcement of these policies. We need to make sure that the companies are earnest in their efforts.

One way of doing this is to ensure that the companies’ procurement and sustainability departments work more closely together. In some cases, we found that procurement departments use their power in negotiations to drive down prices on agricultural products to levels that are not nearly compatible with a living wage, much less a decent wage. This of course affects a producer’s chances of paying decent wages to their workforce, which goes against many companies’ own policies.

We also found that it is of utmost importance to be earnest about the fact that a country’s minimum wage does not always equal a living wage. In these cases, better collaboration between a company’s different departments could also mean striving to pay a decent wage rather than a minimum one.

Moreover, as institutional investors, it may be appropriate to work more broadly with governments to improve working conditions by encouraging changes in legislation, supporting enforcement efforts and raising awareness of labour rights among farmers.

Institutional investors, in our role as shareholders, are far from the producer and the processing segment of the food production chain. Information-gathering on the actual conditions in risk countries is resource-intensive and is facilitated through collaborations with other investors as well as trade unions and NGOs. Social auditors and human rights screening experts are widely used by companies and investors to identify risks and to evaluate the status of sustainability efforts. However, there are pros and cons to outsourcing this type of control to a third party. Sustainability efforts are more effective when the adequate competence to understand the problems, interpret information and ask the right questions to the companies already exists within the investors’ own organisations.

Preparedness, including that of portfolio companies and their suppliers, to correct misunderstandings and solve problems in difficult situations, strengthens sustainability efforts. Continued ownership strengthens investor influence.

Discontinuing an investment commitment when labour rights issues are found rarely leads to long-term change. Better working conditions and respect for human rights benefit from systematic and diligent work in priority areas.

Real changes are made possible through collaborations.

So, to be earnest, we as institutional investors need to be better at making our own statements true. We need to work harder to ensure that our statements and ambitions actually drive improvements in how the people producing our food are being treated.

Investors are at the top of the food chain, and when the rainstorm hits, the house leaks from the top down. In the current build-back phase, our role as investors in supporting decent work for all is of the utmost importance to meeting the SDGs.  

Magnus Billing is the CEO of Alecta, Sweden’s SEK893bn occupational pension fund.