Global work standards have improved in the past 20 years, but a new report on supply chain and labor issues has found that conditions remain poor in many parts of the world.
That said, labor-lens investing—where impact investors use their assets to help improve labor standards—is moving into the mainstream, according to “Labor Lens Investing: The Business Case for Fair Labor Practices,” a new report from research firm Boundless Impact Investing.
The paper explores investment models that address labor exploitation and forced labor, applying a human-rights framework to impact investments across public and private equities, debt, fixed income, and philanthropy.
“Labor-lens investing extends from a centuries-old agenda of protecting fair treatment and basic rights of workers, adapting the agenda to the realities of today’s complex globalized labor sector,” write the paper’s authors. “[T]he importance of this new investment category lies in its potential to scale financially along global supply chains as a lever for social and economic good, benefiting workers who are exposed to labor conditions that are unhealthy and ultimately harmful to business.”
A Pillar of the UN’s Sustainable Development Goals
Companies worldwide have generated approximately $51 billion in illicit profits annually from forced labor or human trafficking, according to Boundless. As many as 152 million child laborers and another 25 million adults worldwide work in substandard conditions. More than 2.3 million workers die each year as a result of on-the-job accidents, while another 317 million are injured—a crisis that spans both developed and developing countries.
Yet companies at the end of supply chains aren’t always aware of this crisis, even as an estimated 4% of global GDP is lost each year to occupational diseases and accidents, according to the International Labour Organization. Boundless notes some of the many financial costs, including damage to brands. Among some notable examples, in the 1990s Nike was criticized for using child labor, while more recently, online retail giant Amazon has garnered negative attention—and undergone strikes and boycotts—in association with reports of exploitative working conditions.
Establishing fair labor standards has been a priority for global economists and investors, which is one reason it’s one of the United Nation’s 17 Sustainable Development Goals. The UN’s decent work and economic growth goal includes improved labor rights and working conditions, equal pay, and the eradication of forced and child labor.
Investments Focused on Supply Chain and Labor Issues
Labor-lens investors seek to introduce fair labor policies into business practices, across asset classes. They often believe that financial results will advance as working conditions improve. Current labor-lens investors include private equity investors, venture capitalists, family offices, and public/private philanthropic groups.
Stardust Equity, for example, is a hybrid private equity/philanthropic fund that seeks to accelerate the economic and social power of exploited workers, while Humanity United, an early-stage venture fund, invests in ideas and solutions that address supply-chain accountability.
Within the public space, Boundless points to Motif Investing, which allows investors to design portfolios around “motifs” that screen stocks through impact-related themes. The motifs function similarly to ETFs and give investors fractional ownership in companies. Participating institutions include Norwegian and Dutch pension funds.
Fair Labor Standards: Signs of Progress
While the Boundless paper brings labor-lens investing into the spotlight, there are many other examples of investors who are—and have been—focused on supply chains and labor issues.
For example, 100 institutional investors representing $3.2 trillion in assets worldwide signed a letter to a palm oil industry group urging them to adopt more transparency in order to ensure fair labor practices. The letter was authored by Domini Impact Investments and Green Century Capital Management.
Investment firms including Natixis and Northern Trust have launched ESG target-date funds and ETFs that invest in companies with good track records on labor matters. And Quakers have long lead the way in using capital to end forced labor practices.
“In a global economic climate rife with mounting exploitation and vulnerability,” write the authors in the paper’s conclusion, “consumers and investors are being called towards awareness and engagement with the labor conditions behind the products they use. Labor-lens investing provides the framework for this engagement.”