Sustainable profits can’t be built on poverty

As an institutional investor, LGIM supports investee companies delivering year-on-year increases in profits and returns. It’s part of our fiduciary duty to clients. However, as a responsible investor, we also question whether these returns are secured at the expense of income inequality.

A living wage or living income is the benchmark income level that allows people to enjoy a decent standard of living as stated in Article 25 of the Universal Declaration of Human Rights. Receiving a living wage is a human right: Oxfam has estimated inequality contributes to a death every four seconds.¹

The EU Corporate Sustainability Due Diligence Directive is now being finalised, and we expect living wages/incomes to be referenced. 

Rising expectations

Regardless of a company’s domicile, we expect that within the next few years, companies will be required to confirm that not only are they paying employees a living wage, but also that their supply chain workers are receiving a living wage. If they don’t, this could impact their ability to trade within the EU. 

So, what should companies do? As with many issues, knowledge is power. Companies should get a head start and be prepared. Even if the countries in which a company operates have a government-endorsed living wage/minimum wage, the actual real living wage may be somewhat higher. 

There are several organisations² that can help companies understand what a living wage is, and how far a company is from meeting that wage level both within its own operations and more globally within its supply chains. Some will also work with companies to achieve their goals.

Case study: Unilever*

It took Unilever six years to achieve its ambition of ensuring that all employees within its operations were being paid a living wage. The company then set an aspirational goal to ensure that all workers directly providing goods and services to Unilever earn a living wage by 2030. 

Unilever started to tackle this goal by targeting their highest-priority direct suppliers through a capability-building programme. In addition the company focused specifically on the most vulnerable in manufacturing and agriculture.

Importantly, to support the delivery of the target, 25% of long-term incentive is linked to the progress of sustainability goals, which includes the living wage. We applaud Unilever’s ambition in setting out a goal to tackle its entire operation in such a strategic way.    

Our income inequality engagement campaign

As a responsible investor, we want to make sure our investee companies are paying a living wage. In August, we launched a targeted income inequality engagement campaign, starting with the largest global food retailers spanning the US, Europe, Japan and Australia. We intend to extend this campaign to general retailers and then food producers over the course of the next six months. 

Our asks are simply for companies to set out a time-bound strategy on living wages, both for ‘own operation’ employees and for supply chain workers, and to be transparent in the approach to delivering on this strategy. 

We also ask that training programmes are in place to educate, upskill and retain employees. In addition, we want companies to help secure a future generation of workers by providing training opportunities that are accessible to people from diverse backgrounds. Examples include graduate recruitment, apprenticeships and work experience programmes. 

Those companies targeted by our campaign that have not met our minimum expectations will face a vote against the chairman’s re-election at their annual general meeting in 2025 (2026 for those companies targeted in 2024).

We encourage all our investee companies to take steps to end income inequality and poverty.

1. Inequality kills | Oxfam International

2. For example, Fair Wage Network, WageIndicator.org, Global Living Wage Coalition, Living Wage for US, IDH etc. 

*For illustrative purposes only. Mention of this stock does not constitute a buy or sell recommendation.