The pandemic has intensified income and health disparities, prompting environmental, social, and governance (ESG) investors to more closely examine the “S” in ESG. Recent efforts such as those in the United States and the United Kingdom have put a new focus on wealth inequality and championed raising the minimum wage or paying what is known as a living wage.

Given the headwinds facing attempts to mandate a fair wage through legislative action, impact investors have begun stepping up to the plate.

Minimum vs. Living Wage

Advocates for increasing rank-and-file pay argue that doing so would both raise the standard of living for low-income workers and help support multiple Sustainable Development Goals, especially those aimed at reducing poverty and creating decent work. Among some quarters, the focus is on boosting the minimum wage. For example, support from the Biden administration for a $15 minimum wage reflects the fact that Congress has not raised the US federal hourly minimum wage of $7.25 an hour since 2007.

Still, determining the most prudent strategy for raising the minimum wage has proven to be complex. Attempts to gradually increase the minimum wage to $15 in the American Rescue Plan were unsuccessful. While a government report found that raising the minimum wage to $15 per hour would help as many as 27 million Americans, it also concluded that the move would cost 1.4 million jobs. An alternative proposal would index a minimum wage increase to the cost of living in each state rather than mandating one consistent wage, since the cost of living can vary dramatically in different regions.

Other advocates predict that raising the minimum wage would still leave budgets too tight for many workers and argue for companies to go further by paying a living wage. This would guarantee a baseline income level with which individuals can afford an acceptable standard of living.

Investors Step Up

Given the headwinds facing attempts to mandate a fair wage through legislative action, impact investors have begun stepping up to the plate.
Representing 60 members with more than £21 billion ($29 billion) in assets, the Church Investors Group announced in March 2021 that it was engaging with a group of UK companies to encourage them to provide working hours in line with the Living Hours initiative. Formed in 2011, the initiative calls on businesses to provide stable minimum working hours in addition to paying their employees a living wage.
Other investors like those in the UK-based Good Work Coalition of institutional investors are teaming up in collaborative efforts.

Impact investors can focus on living wage issues by making them a regular part of discussions on business strategy. It is also important to include the topic at annual general meetings and in voting policies. An initiative of the UK’s Association of Member Nominated Trustees called Red Line Voting encourages investors to vote against board pay proposals if any employees are paid below a living wage.

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