We are global investors, seeking to apply our standards consistently across markets. For certain markets that present unique sustainability challenges, however, we have developed specialized standards to guide our ESG research and review process. This paper outlines the factors we consider when evaluating the eligibility of companies for our portfolios that operate in Burma (Myanmar). We hope that it will help to illustrate how Domini addresses these key challenges, as well as provide guidance to other investors and corporations.
While the democratic transition in Burma (Myanmar) is widely welcomed and foreign investments are critically needed, challenges remain. The country remains a high risk environment for business operations due to weak human rights protections, weak environmental regulations and weak institutional governance.
Domini’s policy is to assess each company’s involvement in Burma, on a case-by-case basis. In this analysis, we consider ten severe categories of human rights violations and governance concerns, paying particular attention to certain high risk sectors and business activities. We also evaluate positive actions companies are taking in Burma to advance democratic reform and improve lives.
For many years, Domini’s policy was to exclude from our mutual fund portfolios any companies with significant involvement in Burma, a country run by a military regime that held its democratically elected leader under house arrest. By avoiding investment in companies doing business in Burma, and encouraging companies to leave, we sought to highlight the critical importance of democracy to both human rights and long-term investment returns, avoid a variety of human rights risks, and apply leverage to an unjust regime.
We were proactive in addressing these concerns as well. For example, our research on Toyota Motor uncovered previously unknown connections between a key trading affiliate and the Burmese military regime. Although we have consistently excluded the company from our funds, we helped to lead a three-year engagement by responsible investors, culminating in the company’s announcement in 2010 that its trading affiliate had divested itself from the joint venture.
In 2011, following a historic election that brought long-imprisoned democratic leader Aung San Suu Kyi to the Burmese parliament, the U.S. government began the process of lifting long-standing economic sanctions, and corporations announced that they would soon resume business there.
The U.S. State Department developed a set of reporting requirements to ensure that companies doing business in Burma disclose sufficient information to allow the U.S. government to evaluate their impact on human rights and democratic reform. In 2012, Domini participated in an in-person meeting with National Security Council (NSC) directors to share our concerns, including: the continued imprisonment of political prisoners; weak rule of law, including a weak judicial system; continuing violence against ethnic minorities; and the potential financing of notorious human-rights violators. We then worked independently and with other members of the EIRIS Conflict Risk Network to develop and submit concrete recommendations1 to inform that reporting process. Although the State Department adopted at least two of our recommendations, our most important concerns regarding public transparency in several key areas were not addressed. Leading companies, however, chose to issue public reports, which served as a basis for engagement with responsible investors and a framework for accountability.
In October 2016, as a final step in the process of lifting sanctions, the US government announced that it would no longer require US firms operating in Burma to report on their human rights risk assessments, a decision that faced strong objections from various human rights organizations due to an array of ongoing serious human rights violations, as reported by the US State Department.2
Challenges Facing the Democratic Transition
As investors evaluate corporate activity in Burma, it is important to understand that, despite important steps towards democracy, very serious challenges remain. All corporate activity in Burma should be evaluated against the backdrop of the following ongoing human rights violations:
These violations are compounded by a number of governance concerns, including:
Despite what appears to be a green light from the U.S. State Department, these concerns will continue to present material legal, operational and reputational risks to businesses operating in Burma including the ongoing potential for:
• Violations of the U.S. Foreign Corrupt Practices Act
• Violations of the regulations prohibiting the importation of goods made with child or forced labor
• Consumer boycotts
• Complicity in severe human rights violations.
The potential failure of democratic reform in Burma represents even greater risks to its citizens and the region, risks that also carry economic import.
Based on these observations, it is important to consider any business operations in Burma with enhanced due diligence. At the same time, it is also true that foreign investment is a key to economic development for the country, providing access to essential products and services, and needed improvements to the country’s infrastructure.
We believe that responsible investors can play an important role in Burma’s progress towards democracy and prosperity by shifting from a strategy of avoidance and divestment to one of careful scrutiny and engagement.
For Domini, this means that we will devote particular scrutiny to a select group of high risk sectors and business operations. In recognition of the difficulty in addressing these problems, and the critical need for foreign investment, we will also seek to incorporate into our analysis positive actions companies are taking to advance democracy and human rights in Burma.
High Risk Sectors/Areas of Business
We consider the following sectors highest risk, requiring the closest scrutiny:
Energy, particularly fossil fuel exploration and production operations,6 including oil-field service providers and wholesale trading companies where a government stake or ownership is required in the projects. Investors should pay particularly close attention to operations where joint ventures with government entities are required, as the risk of corruption is particularly high.7
Infrastructure Projects raise the possibility of corruption, land grabs, forced migration or displacement, and labor rights concerns. Companies should undertake careful and transparent environmental and societal impact assessments before undertaking such projects, and be prepared to discuss these assessments with investors.
Agricultural projects raise risks of child labor, land grabs, and forced migration or displacement. Again, companies should undertake careful and transparent environmental and societal impact assessments prior to investment and on an ongoing basis. 8
Information and Communications Technology (ICT). While this sector provides critical services needed to advance both democracy and economic development, companies and investors should pay careful attention to risks of government censorship and surveillance, including requirements in government contracts to customize services to enable censorship and surveillance.9 Domini encourages companies to comply with guidelines developed by the Global Network Initiative to address these risks.10
Materials & Wholesale Trading. Investors should pay particular attention to timber, minerals and gems such as ruby and sapphire, for potential environmental and human rights violations. 11
Key Factors to Consider when Evaluating Business Involvement
Each of the high-risk industries present important opportunities for the people of Burma and, therefore, for investors. Without proper attention to the concerns noted above, however, these opportunities can be transformed into long-term, intransigent risks. Careful and responsible judgment is called for, and can make an important difference. Domini recommends the following four key factors to consider when evaluating corporate operations in Burma:
Positive Efforts to Promote Democratic Transition and Improve Lives
Foreign investment is necessary, but not sufficient, to further advance democratic reform in Burma and to improve the lives of the Burmese people. A company’s proactive efforts to address the challenges discussed above can be just as important as the products and services it provides. In particular, we encourage companies to engage in the following:
- Participate in, or support, institutional capacity building, through active involvement in multi-stakeholder collaborations. In particular, reforms are needed to strengthen Burma’s legal systems, including independence of the judiciary, environmental protection, and labor rights, including legal protections for labor unions.
- Provide education or vocational training to employees and local communities.
- Provide access to products and services to disadvantaged communities.
- Promote international human rights standards for its supply chain and other partners in Burma.
- Mitigation and Remediation. According to the UN Guiding Principles on Business and Human Rights, companies have an obligation to mitigate and remediate potentially adverse human rights impacts and to monitor progress in key areas of concern.
Companies seeking to do business in Burma face an array of difficult human rights, environmental and governance challenges. As investors, Domini encourages companies to engage in robust human rights impact assessments prior to entry and, if they do choose to enter, to continue to engage and report on how they are addressing these ongoing challenges. Investors with an understanding of these issues can help to advance democratic reforms while mitigating risk to their portfolios.
Peace and prosperity for the people of Burma is in the best long-term interests of investors and corporations. This can only be achieved by a functioning democracy supported by a fair economic system.
We hope that this description of our evaluation process will help to communicate our expectations to corporations while assisting other responsible investors seeking broad-based wealth creation for society as well as their clients.
1 Domini’s letter to the State Department regarding Reporting Requirements on Responsible Investment in Burma (Oct. 3, 2012), available at: http://www.reginfo.gov/public/do/DownloadDocument?objectID=38146500; EIRIS CRN letter re: same (Oct. 4, 2012), available at: https://business-humanrights.org/sites/default/files/media/burma_reporting_requirements_-_investor_comment_4_oct_2012.pdf Domini is represented on the EIRIS CRN advisory board.
2 U.S. Department of State 2015 Country Report on Human Rights Practices in Burma (April 13, 2016), available at http://www.state.gov/j/drl/rls/hrrpt/2015/eap/252751.htm
3 Attention has focused on the Rohingya population in Rakhine State (formerly known as Arakan state), near the Bangladeshi border, with recurring reports of rape, massacres, torture and extrajudicial executions. See, e.g, Burma: Satellite Images Show Fire-Damaged Villages (Human Rights Watch, Oct. 31, 2016), available at: https://www.hrw.org/news/2016/10/31/burma-satellite-images-show-fire-damaged-villages; Dispatches: Burma’s Rohingya Muslims in Desperate Straits (Human Rights Watch, April 26, 2016), available at: https://www.hrw.org/news/2016/04/26/dispatches-burmas-rohingya-muslims-desperate-straits; Myanmar: Kofi Annan to head Commission on Rakhine state (Amnesty International, Aug. 24, 2016), available at: https://www.amnesty.org/en/latest/news/2016/08/kofi-annan-to-head-commission-on-rakhine-state/. Abuses and violence against Karen and Kachin groups has also been reported. See, e.g.,The Farmer Becomes the Criminal: Human Rights and Land Confiscation in Karen State (Human Rights Watch, Nov. 3, 2016), available at: https://www.hrw.org/report/2016/11/03/farmer-becomes-criminal/human-rights-and-land-confiscation-karen-state. See also, Indigenous Peoples’ Rights and Business in Myanmar (Myanmar Centre for Responsible Business, Feb. 8, 2016), available at: http://www.myanmar-responsiblebusiness.org/publications/indigenous-peoples-rights-and-business-in-myanmar.html
4 The Farmer Becomes the Criminal: Human Rights and Land Confiscation in Karen State (Human Rights Watch, Nov. 3, 2016), available at: https://www.hrw.org/report/2016/11/03/farmer-becomes-criminal/human-rights-and-land-confiscation-karen-state
5 See, generally, Human Rights Watch: https://www.hrw.org/asia/burma.
6 Review Domini’s policy on fossil fuel exploration and production at http://domini.com/responsible-investing/key-issues/our-position-fossil-fuel-owners-and-producers
7 See Myanmar Oil & Gas Sector-Wide Impact Assessment (SWIA) (Myanmar Centre for Responsible Business), available at: http://www.myanmar-responsiblebusiness.org/swia/oil-and-gas.html
8 Burma: Farmers Targets of Land Grabs (Human Rights Watch, Nov. 3, 2016), available at: https://www.hrw.org/news/2016/11/03/burma-farmers-targets-land-grabs
9 See, Sector-Wide Impact Assessment of Myanmar’s ICT Sector (Myanmar Centre for Responsible Business), available at: http://www.myanmar-responsiblebusiness.org/swia/ict.html
10 http://globalnetworkinitiative.org/ Domini is a founder, and is represented on the Board, of the Global Network Initiative.
11 See, Myanmar Mining Sector-Wide Impact Assessment (SWIA)(Myanmar Centre for Responsible Business), available at: http://www.myanmar-responsiblebusiness.org/swia/mining.html; See, also, Burma’s Gem Trade and Human Rights Abuses (Human Rights Watch, July 29, 2008), available at: https://www.hrw.org/news/2008/07/29/burmas-gem-trade-and-human-rights-abuses.
12 From Red to Green Flags - Respecting Human Rights in High-Risk Countries (Institute for Human Rights and Business, (April 27, 2011) available at: https://www.ihrb.org/focus-areas/commodities/report-from-red-to-green-flags; Business and Human Rights Guide for Companies in Burma (Myanmar Centre for Responsible Business, April 7, 2015), available at: http://www.myanmar-responsiblebusiness.org/news/business-and-human-rights-guide.html
14 http://www.ungpreporting.org/ Domini is represented on the Eminent Persons Group that has advised on the development of the framework.
On March 28, at an event in Brussels, the Global Network Initiative (GNI) announced that it has dramatically expanded its reach with the addition of seven new corporate members serving more than 1.5 billion people in over 120 countries in Africa, North, Central and South America, Europe, the Middle East and the Asia-Pacific:
“Millicom, Nokia, Orange, Telefónica, Telenor Group, Telia Company and Vodafone Group have joined GNI’s five global internet company members – Facebook, Google, LinkedIn, Microsoft and Yahoo – and with more than 35 human rights and press freedom groups, academics and investor members in this unique collaboration to strengthen protections for global digital rights.”
Why is this so important?
Your home computer and the device you carry in your pocket connect you to the world in a way that is unprecedented in human history. But we aren’t the only ones empowered by this technology. Each government’s ability to monitor and track our communications—and even our precise location — is also unprecedented. If you live in a developing country with a repressive government, a mobile device can be a powerful economic and political tool, but it can also put you at serious risk.
A range of global corporations sit between you, your government, and the global community. And every day, around the world, companies receive thousands of requests from governments to censor content on the Internet or turn over phone records or other personal information. Many of these requests—perhaps even most of these requests—are perfectly legitimate law enforcement efforts. Many, however, are more sinister, representing real threats to freedom of speech and privacy, including government-ordered shutdowns of internet and telecommunication services around elections or other important civic events. And, in an age of global terrorism, democracies are debating how to balance privacy, security, and freedom of expression.
Internet and telecommunications companies are caught in the middle of a very difficult balancing act. If companies fail to comply with these requests, they face serious legal consequences, including imprisonment of local employees or, ultimately, the loss of their license to operate in certain countries. If they comply, they risk losing the trust of their consumers and they become complicit in serious violations of fundamental human rights that ultimately threaten democratic institutions, rule of law and the long-term growth of their businesses.
Companies that are dedicated to building global communication networks and providing platforms for open communication do not want to find themselves on the wrong side of history. They also do not want to break the law, even when the law may be inconsistent with international human rights principles.
In 2005, we were concerned to learn about online censorship efforts by the Chinese government, and horrified to hear that a journalist named Shi Tao was sentenced to ten years in prison for sending an email through his Yahoo account relating to the anniversary of the Tiananmen Square massacre. We helped draft and coordinate an investor statement on freedom of expression. We also began reaching out to companies in our portfolio to begin a dialogue about what could be done. By 2006, we had joined more formal multi-stakeholder conversations involving companies, investors, human rights organizations and academics.
At the time, I was quoted in The New York Times that a trade-off was being made between "making money and a person going to prison for expressing their viewpoint." I soon learned that the headlines were clear-cut, but the real-world dilemmas faced by these executives were not. This is the benefit of dialogue. In reality, there were far more questions than answers:
How would a company know that a request was inappropriate, when governments often refuse to explain why they need the information? Should companies leave countries where content is censored? When is it appropriate for a company to refuse to comply with a request from local law enforcement? Where is the line and how should it be drawn?
There was no handbook to answer these questions. There was no set of “best practices.” Each company had its own approach, but these internal policies were confidential. How could investors and citizens know when a company was doing the right thing? What was the right thing to do?
The Global Network Initiative was created in 2008 to help answer these questions and to provide a platform to advocate for better laws and regulations that respect our fundamental rights. Its founding members include Google, Microsoft, Yahoo, Human Rights Watch, the Committee to Protect Journalists, academics and investors, including Domini.
Today, all corporate members of the GNI commit to a set of principles and implementation guidelines, based on international human rights instruments, and each company agrees to have its commitment to these principles evaluated every two years through a unique independent assessment process.
Domini helped to draft the GNI principles, which provide guidance to companies on how to respect, protect and advance user rights when they respond to government demands for censorship, disclosure of user data and restrictions on access to communications services. They are designed to strengthen rule of law and, over the long run, to hold governments to international human rights standards. We were also deeply involved in the creation of the GNI’s independent assessment process—the only one of its kind.
We stand at a unique point in history. Today, social media, online journalism, government surveillance and cybersecurity are top-of-mind issues for human rights defenders and government officials alike. The integrity of elections, national security and our ability to communicate and meet our most basic economic needs are at stake. There is no putting the genie back in the bottle. We believe that such challenges call for a multi-stakeholder response, and that efforts such as the Global Network Initiative present our best hope for a sensible path forward.
Originally Appeared in Domini Funds' 2017 Semi-Annual Report
In a tightly interconnected world, investors can no longer afford to ignore the social and environmental costs of business as usual. For decades, responsible investors have joined with civil society organizations, corporations and public institutions to address working conditions in global supply chains and, although problems persist, we’ve made significant headway.
Twenty years ago, companies argued that they carried no responsibility for working conditions in factories they did not own. We no longer hear that argument. While it is true that these human rights abuses occur at factories and fields owned by third-parties, global companies can exercise significant influence. According to the United Nations’ Guiding Principles on Business and Human Rights, adopted in 2011, global businesses are obligated to identify these problems and do what they can to address them.
Around the world, approximately 150 million people leave their countries each year in search of economic opportunities elsewhere, often passing through the hands of unscrupulous recruiters with every incentive to take advantage of their vulnerable situation. Many workers find themselves working months on the job simply to pay off exorbitant recruitment fees. In other words, they are working for no pay at all. This is known as ‘bonded labor’ – a form of forced labor where a person is working to pay off a debt. It is considered the most common, and least known, form of modern slavery.
The International Labor Organization estimates that almost 21 million people are trapped in conditions of forced labor, generating over $150 billion for other parties. More than 75% of these workers work within the private sector, particularly in industries such as agriculture, construction and manufacturing.
Migrant workers are among the most vulnerable members of the global workforce and are subject to multiple forms of abuse across industries.
While attention has been paid to conditions in the factory or on the farm, less attention has been paid to the path migrant workers take to get to the workplace, and the unique risks they face. Today, that is changing.
What Can Investors Do?
Our experience teaches us that investors can have significant influence over corporate practices.
Domini has worked closely with the Interfaith Center on Corporate Responsibility (ICCR), a coalition of faith-based and socially responsible investors, since our inception. ICCR has launched a “No Fees Initiative” to address unethical recruitment practices, based on three pillars:
1. No Fees: Workers should not be obligated to pay for their job and should be immediately reimbursed for any fees charged. If a worker is indebted to her recruiter, she can effectively work months without pay. She may even feel honor-bound to repay these unjust debts. According to a 2014 US Department of Labor-funded study, “92 percent of the migrant workers in Malaysia’s electronics industry had paid recruitment fees and…92% of that group had paid fees that exceeded legal or industry standards.”
2. Workers should be provided with contracts in their own language: If a worker’s contract is written in another language, he can’t agree to the terms of his employment, and he can’t understand his legal rights.
3. No passport retention: If a worker cannot retain her passport or other identify documents, then she is unable to go home.
These are the most common factors that hold these workers in debt bondage, often without their awareness.
According to Know the Chain, a project led by Humanity United that ranks companies in the apparel, tech and food and beverage sectors on their responses to forced labor issues, corporate awareness of unethical recruitment practices is very low. For example, in the tech sector, out of twenty companies reviewed, “only four of the companies demonstrate awareness of the risks of forced labor that can arise from the use of recruitment agencies.” Know the Chain awarded the industry an average of 20 points out of 100 on recruitment issues.
Investors have important opportunities to raise awareness of the problem, set expectations and engage with companies to eradicate these practices.
The Corporate Response
Many of us first learned about the extreme conditions migrant workers can face after a series of articles broke in the Guardian and the Associated Press in 2014 and 2015, uncovering slavery in the Thai shrimp supply chain. Our research department spotted the issue early, leading to decisions to continue excluding Thai Union and Charoen Pokphand (CP) Foods, two Thai companies at the heart of the controversy, from the Domini Funds. We made those decisions before these stories broke.
Often, we are unable to obtain reliable information about labor issues from the companies themselves. In the absence of corporate reporting, we must rely on what we know about these industries and the regions where they operate. Reliable NGOs can be an invaluable source of information. In this case, a report published by Finnwatch in 2013 highlighted problems identified by interviewed workers including accusations of low wages, child labor, a large migrant workforce, and unpaid compensation and leave. The report stated that about half of Thai Union Manufacturing’s (TUM) employees were Thai citizens and the rest were migrant workers from Myanmar and Cambodia. Finnwatch reported that violations of migrants’ rights are common in Thailand. The NGO also reported the company’s denial of these allegations.
Under the spotlight of public attention, conditions are changing. Large consumer-facing brands like Costco and (William) Morrisons (United Kingdom) are taking action as part of the Shrimp Sustainable Supply Chain Task Force, a multi-stakeholder alliance which aims to tackle forced labor and human trafficking in Thailand’s seafood supply chain. The ability to track workers far out at sea is one critical piece of the problem they are trying to solve. CP Foods and Thai Union are also engaged, and working to improve their practices.
Unfortunately, the flawed recruitment system that produced those horrifying conditions also serves a wide range of industries. And in those industries as well, several long-term Domini Funds holdings have taken leadership.
HP Inc. reports that it was the first IT company to develop its own foreign migrant worker standard, a standard that addresses each of the three pillars of ICCR’s initiative. But the company took a step further that gets much closer to the root of the problem: HP is the first company in its industry to require direct employment of foreign migrant workers in its supply chain. Its policy, and the audit tools it has developed to enforce them, were developed in collaboration with Verité, a well-respected international nonprofit that promotes safe, fair, and legal working conditions, with particular expertise in combatting forced labor in supply chains.
When a person works in a factory, but is employed by the labor agency that recruited them, they are at far greater risk of exploitation. According to Verité, “HP’s standard requiring direct hiring will remove a key obstacle to ethical treatment of migrant workers. The standard sets a new bar and will likely result in substantial financial benefit to foreign migrant workers in HP’s supply chain, and we hope other companies will adopt similar policies.” We agree, and are raising this issue with other companies. Direct employment may be the solution to this problem, but we will need to overcome objections from factory owners and others that argue that it is too expensive or burdensome for small suppliers to adopt.
Companies realize that they need to work collaboratively to find solutions to these endemic problems. Leading companies in the electronics industry have turned to the Electronics Industry Citizenship Coalition (EICC). EICC members share a common code of conduct for their supply chains and a common factory audit process. Thanks to the leadership of companies like HP, the EICC code of conduct now addresses unethical recruitment practices.
Another important collaborative effort cuts across industries. The Coca-Cola Company, HP Inc., Hewlett Packard Enterprise, IKEA and Unilever launched the Leadership Group for Responsible Recruitment, focused on promoting ethical recruitment and combating the exploitation of migrant workers in global supply chains across industries. Walmart and Marks & Spencer (M&S) have joined the initiative, which is supported by the Institute for Human Rights and Business, ICCR, the International Organization for Migration and Verité. The Leadership Group is working to champion the “Employer Pays Principle”, which states that no worker should pay for a job – those costs should be borne by the employer.
Case Study: Turning Words into Deeds
In many instances, Domini has acted as a catalyst for change, helping to set a company on a new course that may produce substantial benefits in the future. Apple is a case in point.
In 2004, when we first reached out to Apple, the company was silent about working conditions in its supply chain, and did not have a policy to protect the rights of these workers. We changed that. After months of dialogue with Domini, Apple adopted a strong code of conduct, committing it to uphold core labor rights in its global supply chain.
Only words on paper. But when a corporation adopts a policy, it works to implement it. That code provided the foundation upon which to build a labor standards program. The company soon began public reporting, to ensure a degree of public accountability. Public reporting is needed to ensure effective implementation of these kinds of policies, and to educate others about the kinds of problems that are found, the tactics that work and those that don’t. It is also a necessary mechanism for building trust with investors, consumers and other stakeholders, a valuable asset for any global brand. Our engagement also provided the foundation for a dialogue we have maintained with the company ever since.
Today, Apple is far more transparent about problems in its supply chain, and actively works to address them. Visit www.apple.com and click on “Supplier Responsibility” to read the story of Rechel Ragas, a factory worker recruited from the Philippines to Taiwan in search of higher wages. Apple reports that “to secure a factory position there, Rechel had to use a job broker agency that charged her more money than she made in an entire year working in her home country.” When Apple uncovered these fees – fees that were legal, but violated Apple’s policies – it ensured that she received full reimbursement. As a result, she was able to return home six months earlier than she had planned. Apple is the only company we are aware of that discloses the amount of recruitment fees it has reimbursed to workers: $25.6 million since 2008, including $4.7 million in 2015.
The company has not solved all of the problems it has found in its supply chain. We don’t demand perfection – not because we don’t want to see it, but because we don’t expect to find it. We do expect companies to acknowledge these challenges and demonstrate how they are meeting them.
Apple has come a long way since 2004 and, although we would never claim that our efforts were responsible for all of this hard work, we believe we have had an impact.
We applaud the EICC’s efforts to address unethical recruitment issues, but still believe the industry should be doing more. On behalf of a group of institutional investors affiliated with ICCR, we wrote to IBM and Motorola Solutions with a series of questions about how they ensure that workers in their supply chains are free of these abuses. We also signed letters to Broadcom, Canon, Cisco, EMC, Hitachi, Johnson Controls, Medtronic, Microsoft, Qualcomm, Texas Instruments and Xerox.
We followed our letter to Motorola with a shareholder proposal on the topic, which prompted a constructive conversation with the company. Motorola Solutions has policies in place to address these issues, and as an EICC member, has adopted a “no fees” commitment. The company tells us that it is actively working through the EICC to develop more effective responses to these unethical recruitment practices. We recognize these efforts, but believe that investors have insufficient information to gauge how well the company is addressing these serious risks to workers. Our proposal seeks to rectify that by requesting an annual report disclosing the company’s efforts to ensure that its global supply chain is free of forced or bonded labor, including any efforts to reimburse workers for recruitment fees that were paid in violation of company policies. We look forward to continuing our dialogue with the company.
Out of twenty apparel companies, Know the Chain found only seven that were aware of the risks of exploitation to migrant workers. They found only two companies that encouraged the direct hiring of workers in their supply chain.
Adidas (Germany) received the top ranking in Know the Chain’s 2016 survey, and the top score for worker recruitment practices. Know the Chain praised Adidas’ “strong awareness” of the risks facing migrant workers and listed a number of leading practices. Of particular importance, if an agency is involved in the recruitment process, Adidas requires that workers sign contracts directly with the factory, not with the recruitment firm. The company requires suppliers to disclose the recruitment firms it uses, and to monitor all recruiters. The Adidas Group publishes a list of names and addresses for its primary factories, subcontractors and licensees, a practice adopted by many leading companies in the apparel and electronics sectors.
We recently met with Gap to discuss its approach to these issues, including the possibility of adopting a direct employment policy, and wrote to Ralph Lauren, Michael Kors (where we ultimately submitted a shareholder proposal), Nike, L Brands (Victoria’s Secret, Bath & Body Works) and Coach.
Ralph Lauren reports that it is working towards a “recruitment fee–free” environment for all workers. The company reported to Know the Chain that an audit had uncovered that a group of new Bangladeshi workers had recently started work in one of its supplier facilities in Jordan, and had paid recruitment fees. The factory is now fully reimbursing the 33 workers affected over a period of 3 months.
These kinds of reports should help to illustrate a basic point – these problems are out there to be found and addressed. No company’s supply chain is immune. Our letter prompted a constructive conversation with the company, which we look forward to continuing. We appreciate the company’s recognition of the plight of migrant workers and are encouraging clearer commitments and more transparent reporting.
Another long-term Domini holding that has taken leadership on these issues is Unilever (Netherlands, United Kingdom). The company ranks first on Know the Chain’s benchmark for the food and beverage sector, because of its commitment to traceability. The company’s commitment to eradicating modern slavery and human trafficking is impressive given that it reportedly has 76,000 suppliers. Unilever is working to reduce the number of recruiters used by factories. It reports that it uses very limited numbers of recruiters in North America, Europe and South America, but larger numbers in Asia and Africa.
Consider how you might handle the daily struggles these migrant workers take on, day after day. They are working far from home for people that speak another language. They may not be in the job they thought they bargained for. Those in the fishing industry may never have seen the sea before. Many find that their paycheck is considerably less than expected, but they have no option but to keep working -- they have family back home depending on them.
We invest in companies that can make a significant difference in the lives of migrant workers. That means that we can make a significant difference, as long as we refuse to turn a blind eye, and we persist in raising these concerns and pressing each company that recognizes the issue to do more.
Today the Supreme Court was scheduled to hear what would have been a landmark trial for LGBT rights, until a national policy reversal resulted in the case being sent back to the lower court. The case is that of Gavin Grimm, a 17-year-old student from Virginia who was barred from using the boys’ restroom at his high school because he is transgender. Rather than accept this injustice, however, Gavin chose to fight, and in the process, he has become a national hero for transgender rights. The American Civil Liberties Union filed a suit against the school board on Gavin’s behalf, arguing that the policy, which segregates transgender students by forcing them to use “alternative private” restrooms, is discriminatory and unconstitutional.
Beneath the surface, this case is about much more than just bathroom rights. It is about ensuring that all students in our public schools are treated fairly and given the same opportunities. It is about standing together as a nation and saying that we will not condone discrimination of any kind. It is about reaffirming the resolution that all Americans—gay, straight, bisexual, transgender, or other—deserve to be treated with dignity and respect. It is about equality.
Last year our country took an important step in this direction under the Obama administration when the Department of Justice and the Department of Education issued clarifying guidance on Title IX of the Education Amendments of 1972. This new guidance instructed public schools to treat transgender and gender non-conforming students consistent with their gender identity, rather than with the sex on their birth certificate. Unfortunately, that guidance has now been rescinded, leaving trans kids in our public schools exposed to bullying and harassment. In light of this policy reversal, the Supreme Court sent Gavin’s case back down to the Fourth Circuit Court of Appeals to be reconsidered, wiping out its previous ruling in Gavin’s favor.
Despite this (hopefully temporary) setback for transgender rights, there has been a tremendous outpouring of support for Gavin’s case from individuals and institutions across the country, including educators, faith leaders, medical professionals, and business leaders. Numerous amicus briefs were submitted to the Supreme Court supporting Gavin’s argument, including one signed by more than 50 of the largest and most well-known companies in the U.S. The brief reads:
“Amici support and defend public policies that protect civil rights and foster acceptance and equal treatment for all of their employees, their customers, and the families of both. Many amici employ and/or serve transgender people, and all amici are concerned about the stigmatizing and degrading effects of the policy adopted by the Gloucester County School Board… The Policy, and the policies and statutes of other government entities that would be permitted if the Policy is sustained, adversely affects amici’s businesses, employees, and customers, and undermines amici’s ability to build and maintain the diverse and inclusive workplaces that are essential to the success of their companies.”
It has been shown that support from prominent companies can make a difference when it comes to civil rights causes. Over the past decade, a number of companies have emerged as leading champions for LGBT rights. Business leaders know that homophobia and transphobia have no place in forward-looking organizations. That is why 91% of Fortune 500 companies now prohibit discrimination based on sexual orientation, and 67% have extended health and insurance benefits to all LGBT families. Many did so after prompting by socially responsible investors, including Domini, and LGBT activists. While it is simply the right thing to do, studies suggest that it can also be good for business.
According to research from the Williams Institute, LGBT-supportive policies and workplace climates can affect organizational outcomes by leading to greater job commitment, improved workplace relationships, increased job satisfaction, improved health outcomes among LGBT employees, and increased productivity and creativity among LGBT employees. Other positive potential organizational outcomes may include lower health insurance costs, lower legal costs, greater access to new customers, more business from customers who want to do business with socially responsible companies, and more effective recruiting of employees who want to work for an employer that values diversity.
Despite the obvious benefits and the significant progress that continues to be made by the business community in protecting and promoting LGBT rights, the law has not caught up with the times. Both at the national level and in many states, legal protections for LGBT people are still lacking. In many places people can still be fired or denied employment because of their sexual orientation or gender identity. Sixteen U.S. states do not provide ANY legal protection for LGBT employees, while a number of others provide protection only in public service. Some states provide protection on the basis of sexual orientation, but not on the basis of gender identity, leaving out a particularly vulnerable portion of the LGBT population.
Meanwhile, the past few years have seen a concerning rise in anti-LGBT bills introduced in state legislatures around the country, including numerous “religious freedom bills”. These controversial bills, which seek to provide businesses the legal right to deny services to LGBT individuals on the basis of religious beliefs, have been met with widespread criticism and boycotts from opponents who argue that religion is not an excuse for discrimination.
When lawmakers and politicians stand behind senseless policies that enable harassment and discrimination in our public schools, while simultaneously backing bills seeking to make it legal for businesses to openly discriminate, they are failing to uphold our nation’s founding principle of equality, leaving the rest of us with an even greater responsibility to help defend it. Businesses in particular, which employ and serve LGBT people, have a responsibility to use their voices to help change these discriminatory policies. When companies speak, lawmakers listen. Last year, for example, the governor of Georgia vetoed a religious freedom bill after a number of major companies threatened to pull business out of the state.
Companies also have the opportunity to set examples within their own organizations for how tolerant, open-minded cultures should act. One simple step is to ensure that their non-discrimination policies cover both sexual orientation and gender identity. While the former is widely covered today, fewer companies have added protections for transgender and gender non-conforming employees. This is something every company can and should do. Companies should also make efforts to promote diversity education and inclusion programs among employees to create an environment where everybody feels safe and welcome.
As investors, we have a role to play too. Domini has consistently voted in favor of shareholder proposals advancing LGBT rights. In the past, we also filed a number of our own resolutions that successfully convinced several companies to adopt policies prohibiting discrimination on the basis of sexual orientation. In 2015, we signed an amicus brief to the Supreme Court in the case that established the right of same-sex couples to marry. More recently, we signed investor letters, backed by trillions in assets, opposing anti-transgender bathroom bills in North Carolina and Texas. We also signed letters supporting twelve companies with operations in Singapore that sponsored Pink Dot Sg, an annual celebration in support of the country’s LGBT community. Singapore’s government, which is notorious for its anti-LGBT policies, warned the companies against sponsoring the pride event, but these letters encouraged them to stay the course.
It is encouraging that major companies are increasingly stepping up support for LGBT causes, from sponsoring pride rallies in Singapore to fighting against anti-trans bathroom laws here at home. LGBT rights are human rights. People like Gavin Grimm are not looking for special treatment; they just want to be shown the respect and dignity that everybody deserves, and to be able to live their lives without fear of harassment or discrimination. Companies have both the ability and the responsibility to help make that happen, and as investors we will continue to encourage them to do so.
In January, more than 630 investors and corporations signed a statement asking the incoming administration and Congress to continue moving us toward a low carbon economy, and not to walk away from the historic agreement on climate change reached in Paris last year.
You can find the statement at lowcarbonusa.org. Alongside our name, you will find the names of some of the largest companies in the world. Today, that statement has grown to include over 1,000 companies and investors headquartered in 46 states.
Perhaps even more importantly, more than 200 major companies have made public commitments to set “science-based targets” for reducing their greenhouse gas emissions. This means that they will seek absolute reductions in line with what climate science demands, while continuing to grow their companies. These commitments replace climate goals that improve efficiency but may not actually reduce emissions as companies grow.
These climate commitments are not based on political ideology, but on a pragmatic, hard-nosed look at reality. These companies—among the largest in the world—have done the math, and they see the risk. As a recent Scientific American article proclaimed, “physics doesn’t care who was elected president.” Commitments based on an accurate understanding of reality will remain.
Just last week, one of the world’s largest money managers installed a statue of a defiant little girl, facing down the famed Wall Street bull. They did this to raise awareness of the need to increase the number of women on corporate boards. They did not do this solely out of the goodness of their hearts. They did this because they recognize that diversity is good for business.
All of this reinforces a core belief we have always held: small things matter. When we look back over the course of our history, we see that movements are made of individuals. We can all applaud the billionaire philanthropist or private equity investor looking to make a real impact, but those investors are riding the crest of a wave. Looking back, we see one small investor after another merely seeking to build a college fund or a retirement account that reflects their concern for human rights and environmental sustainability.
For many, it began with a small voice that said “I don’t feel right investing in that company.” These are the change-makers that brought us to a world where the largest companies in the world now monitor their supply chains for child labor and environmental abuses.
Many of these corporate commitments began with a call from a responsible investor, explaining how business can be strengthened by taking sustainability seriously. Investors large and small helped to make the case to company after company, year after year, and our voices are being heard. There is much more work to do, but there is also much to celebrate.
Every day, the news seems to give us more cause for alarm. But this is not the time to flinch or to turn back. We have been here through Democratic and Republican administrations, doing what we do—using social and environmental standards to select our investments, engaging companies to move them in the right direction, and finding ways to make a direct impact for communities in need.
We are working to ensure that the capital markets serve society, and not the other way around. We are part of a community of responsible investors that is larger, stronger, more innovative, and more effective than it was ten or twenty years ago, and we have more allies than ever before.
Your investment portfolio may seem like a small thing. When it is invested responsibly, however, it can serve as one more link in a chain of accountability that will not be broken.
Corporate tax avoidance has been an important component of our engagement and policy work for several years. The United Nations’ backed Principles for Responsible Investment is a global network of investors responsible for $60 trillion in assets. After expressions of interest from a significant number of its members, PRI established a Taskforce on Tax, including Domini, to develop guidance to help investors engage with corporations on global tax strategies. In the fourth quarter, the PRI published the result of this work, and in the first quarter hosted a roundtable discussion with a group of six non-US corporations to discuss the guidance. We were very encouraged by the constructive nature of the meeting and look forward to continuing our work with the Taskforce.
One of the most important areas of corporate social responsibility has gone largely ignored, until now. The headlines are filled with stories of aggressive strategies by corporations to minimize or eliminate their tax payments, primarily through the use of offshore tax havens. Countries around the world are losing billions in tax revenues, all in the name of shareholder value.
Tax avoidance weakens societies and threatens long-term wealth creation. That is why Domini is taking a lead role in asking corporations to adopt more responsible and transparent tax strategies.
Tax is an investment in society. What is our return on investment? Corporations and investors depend upon government services funded by tax revenues, including law enforcement, market regulation, judicial systems, infrastructure maintenance, public education, poverty alleviation, environmental protection and national defense. These indispensable services can only be funded by tax revenues.
Economist Joseph Stiglitz warns that corporate tax avoidance threatens the wellspring of “future innovation and growth.” Companies like Google and Apple have benefited from taxpayer-funded scientific research.
Investors need to speak up, and end this global race to the bottom. At Domini, we are asking companies to adopt ethical principles to guide their tax strategies, considering their impact on society and brand value, just as they have with bribery, child labor and climate change.
Quick Facts on Corporate Tax Avoidance
Corporate profits are booked in places like Bermuda to avoid paying taxes where those profits were actually earned. How do we know? In 2010, the amount that American companies told the IRS they actually earned in Bermuda was 1,643% of that country’s entire yearly economic output.*
At least 362 companies (72% of the Fortune 500), operate subsidiaries in tax haven jurisdictions as of 2013.*
When corporations don’t pay their taxes, somebody else needs to pick up the tab. In 1952, 32% of U.S. federal tax revenues came from corporate income tax. By 2012, this portion had shrunk to only 8.9%. (Source: Congressional Research Service)
*Source: Offshore Shell Games 2014 (U.S. PIRG Education Fund and Citizens for Tax Justice)
Investors may only just be waking up to this critical issue. Our first of its kind proposal, asking Google to adopt a set of ethical principles to guide its tax strategies, went to a vote at the company’s annual meeting in May. Although we received a very low vote, nearly 20% of investors abstained, telling us that many investors are undecided. In the meantime, our proposal helped to raise awareness, and led to our first conversation with Google about its tax strategies, a dialogue that we hope will continue.
On May 14, Google Inc. shareholders rejected a proposal sponsored by my firm, seeking the adoption of a responsible code of conduct to guide the company's global tax strategies. I suspect this proposal prompted a quizzical reaction from many investors who assume that minimizing corporate tax payments is good for shareholders. An April 28 Pensions & Investments editorial, “Tax exempt but tax conscious,” wrestled with this issue, ultimately concluding fiduciaries could not ask companies to pay more.
We believe a deeper analysis is required. Corporate tax minimization strategies present serious threats to long-term wealth creation and might pose greater risks than corporate taxation itself. But first, I think it is important to dispel a few myths.
The P&I editorial reports the U.S. has the highest effective tax rate in the industrialized world, at more than 40%. According to the Congressional Research Service, however, the average effective corporate tax rate in the U.S. is 27.1%, compared with 27.7% for the rest of the world. In fact, a number of multinationals pay far less than 27%, and some pay nothing at all. But this is not solely a U.S. problem. According to MSCI research, 21.4% of companies in the MSCI World index paid tax rates substantially below the weighted average tax rate of the countries in which they generate revenues.
Why would a company pay even 20% when it could go to Bermuda and pay nothing? The statutory rate is irrelevant. At issue is the ability of multinationals to pay nothing.
The P&I editorial repeats another common myth: “Corporations don't pay taxes, they collect taxes. They allow Congress to hide the true level of taxes.” This version of the “corporate taxation is double-taxation” rhetoric is also false.
Corporations collect payroll and sales taxes, and also pay real estate and income tax. A portion of corporate profits are taxed twice if they happen to be paid out in the form of dividends. But, of course, companies are not required to pay dividends and they do not pay out all of their profits. Shareholders are taxed on capital gains, based on their cost basis when they sell their shares, and on dividends. These taxes bear no direct relation to annual corporate profits.
Perhaps the biggest myth of all is that fiduciary duty compels us to look the other way. Imagine a legal obligation, based on principles of prudence and loyalty, that compels us to condone behavior that stifles innovation, destroys local and national economies, and shifts heavy financial burdens to our own clients and beneficiaries.
Fortunately, this obligation to minimize tax payments does not exist.
According to a legal opinion issued by the U.K. law firm Farrer & Co., “the idea of a strictly "fiduciary' duty to avoid tax is wholly misconceived” and a duty on corporate directors to maximize profits for the benefit of shareholders is “unknown to English law.” In the U.S., I believe a legal analysis would produce the same conclusion — the business judgment rule protects directors who choose to assess their company's “fair share” of taxes, in light of the reputational and legal risks presented by aggressive tax avoidance measures.
For fiduciaries serving investors, the duties are similarly clear — to diversify assets and pursue long-term risk-adjusted returns on behalf of their clients and beneficiaries. Even if Google itself is somehow shielded from costly liability as a result of its tax strategies, it is necessary and appropriate for fiduciaries to consider how Google's activities affect the portfolio, the broader economy, and participants and beneficiaries “in their retirement income,” to quote the Department of Labor's interpretation of obligations under the Employee Retirement Income Security Act. Trustees of underfunded state pension funds might want to do a bit more than merely consider these things.
Aggressive tax avoidance is not the norm, nor should it be. It is a short-sighted and risky strategy that harms investors and society.
Corporate tax avoidance is a direct threat to government and rule of law, and, at a time of high unemployment and high government debt, tax-avoidance strategies have prompted many countries to fight back, including active work by the G20 group representing major economies and the Organization for Economic Co-Operation and Development. Reliance on aggressive tax strategies targeted for reform could result in financial shocks for investors. Google's effective foreign income tax rate has been in the single digits for more than a decade even though most foreign countries it operates in have corporate tax rates in the mid-20s. Does anybody think this can go on forever? The U.K. House of Commons Public Accounts Committee published a report in June 2013 criticizing Google's U.K. tax-minimization approach. The committee chair referred to these tax arrangements as “highly contrived,” “devious” and “unethical.” The French government just handed Google a tax bill for nearly $1.4 billion. If France is successful in collecting even a portion of this, we will see other aggrieved countries stepping up for their share.
Certain multinationals are weaving intentionally opaque and winding trails in and out of every loophole they can find. This global shell game not only hides taxable revenues from governments, it also hides the true sources of corporate value from investors. What portion of Google's profits are derived from superior products and services, and what portion from creative accounting? I would certainly like to know.
Tax should be viewed as an investment, not a cost. To paraphrase Oliver Wendell Holmes, tax is an investment in civilization. Too often in these debates over the burden of corporate tax, we fail to consider what corporate taxes deliver in the long run. What is our return on investment?
Corporations and investors depend upon government services funded by tax revenues, including law enforcement, market regulation, judicial systems, infrastructure maintenance, public education, poverty alleviation, environmental protection, national defense and scientific research. These indispensable services cannot be funded by corporate philanthropy or a rise in share price.
Economist Joseph Stiglitz warns that corporate tax avoidance threatens the wellspring of “future innovation and growth.” Other economists have documented the critical and visionary role government has played in spurring scientific and technological innovation when private investors were unwilling to take the risk. Google and Apple Inc. might not exist today if it had not been for taxpayer funded research. Larry Page and Sergey Brin's initial research was financed by a taxpayer funded National Science Foundation grant.
Investors should be asking Google and other multinationals to adopt ethical principles to guide their tax strategies, considering their impact on society and brand value. Just as corporations should be expected to follow consistent standards globally regarding bribery, child labor, greenhouse gas emissions and non-discrimination, they should adopt principles to help navigate the complexity of local and national tax systems.
We believe this is what fiduciary duty demands.
A year after one of the worst factory disasters in history, Domini continues its work as part of global investor initiative to help respect and protect the fundamental human rights of workers in global supply chains throughout the world.
The coalition of institutional investors, representing over $4.1 trillion, originally came together last May, under the leadership of the Interfaith Center on Corporate Responsibility, following the Rana Plaza factory collapse in Bangladesh, a disaster that claimed the lives of more than 1,100 individuals and injured 2,500 more. At that time, we issued a statement appealing to apparel companies to use their influence to help implement systemic reforms to ensure worker health and safety.
Last week, we joined the coalition in releasing a new statement marking the one-year anniversary of the Rana Plaza collapse. In it, we highlight the improvements that have been made over the past year, while renewing our appeal to brands and retailers and detailing the progress that still needs to be made. Notably, we urge companies to make stronger financial commitments to the Rana Plaza Donors Trust Fund, which was established to provide much-needed aid and remediation to the victims and families affected by Rana Plaza.
Originally Appeared in Domini Funds' 2013 Annual Report
On March 25, 1911, a fire swept through the 8th-10th floors of the Asch Building in lower Manhattan, occupied by the Triangle Waist Company garment factory. This tragic event, which killed 146 young immigrant workers, helped spur the growth of unions and set in motion a series of legal reforms to protect U.S. garment workers from such preventable disasters.
More than 100 years later, however, garment workers around the world still face the same risks that led to that tragedy. The recent collapse of the Rana Plaza factory complex in Bangladesh was the worst disaster in the history of the apparel industry. The owners of the eight-story complex had illegally added three floors to the building, and although cracks had been seen in the walls the day before the collapse, the factory owner chose to ignore warnings and protests, and ordered workers into the building.
Unfortunately, Rana Plaza was no anomaly. Factory disasters claim the lives of countless workers around the world every year. In Bangladesh, more than 1,800 workers have been killed during the past eight years, and in the past eight months alone, approximately 130 Bangladeshi workers have lost their lives in factory fires.
Globally we have seen a continuous search for the lowest-cost facilities, but nowhere has this issue become as critical as it is in Bangladesh, where the apparel sector employs more than four million people, mostly women. The minimum wage in the country is $38.50 per month, less than half the wage paid in Cambodia and a quarter of the wage paid in China. According to the World Bank, as of 2010, Bangladesh ranked last in terms of minimum wages for factory workers. This race to the bottom has made Bangladesh the second-largest global apparel exporter, behind China. Adding to the problem is a history of weak labor unions and strong representation of factory owners in government. Roughly ten percent Bangladesh’s parliamentary seats are currently held by garment industry leader. The sector’s political influence has been, predictably, an obstacle to meaningful reform.
In the same way that the Triangle Shirtwaist fire brought attention to these issues in the United States a century ago, Rana Plaza has now brought attention to these issues globally. Below, we discuss several paths that companies have taken to improve worker health and safety, particularly in Bangladesh, where the issue has become most critical.
Factory Monitoring Efforts
When we began reaching out to companies to discuss supply-chain sweatshop issues in the mid-1990s, we heard a common refrain: “we don’t own these factories.” However, as responsible investors, consumer activists, students and other labor rights groups engaged with companies to discuss the advantages of taking on greater accountability, things began to change. Companies in a wide range of industries have since adopted codes of conduct for their suppliers and have instituted factory monitoring programs. Many have supplemented these efforts with training programs to educate workers and managers on factory safety and labor rights. Some companies, like Gap, have recognized that a degree of responsibility also lies back at corporate headquarters, where cost-cutting initiatives and last-minute changes to orders can trigger overtime violations and increased pressures on factory managers to cut corners on safety.
It is clear, however, that these efforts have been insufficient to address systemic problems that persist in factories around the world, including excessive hours, forced labor, child labor and safety problems. Many multinational corporations report that they are serving a regulatory function with factory owners that should be played by government. While several leading companies have partnered with civil society organizations to find more lasting solutions, Rana Plaza has made it abundantly clear that more drastic and immediate action is needed.
Banning Production in Bangladesh
Global brands cannot police factory working conditions if they do not know where their clothes are being made. When a company places an order with a factory that meets its standards, it is not uncommon for that factory to ship the order to another factory without the buyer’s knowledge. This practice of unauthorized subcontracting is endemic in Bangladesh, where it is estimated that half of the nation’s roughly 5,000 factories are subcontractors. Even companies with rigorous monitoring programs risk finding their orders being produced at factories not on their approved list. Such was the case when several boxes of Disney sweatshirts were found at the Tazreen factory after a November fire that killed 112 workers.
Our relationship with the Walt Disney Company dates back to 1996, when we first encouraged the company to take greater responsibility over its supply chain. Since then, we have seen a dramatic evolution in its approach to these issues. In addition to providing feedback over the years on Disney’s code of conduct and audit program, we have also visited factories and participated in a hands-on project with Disney and McDonald’s to find a better path towards sustained factory compliance with labor standards.
Two months before Rana Plaza, Disney executives reached out to obtain our feedback on their plans to withdraw from Bangladesh. Disney permits licensing of its name and characters for production in more than 170 countries. While Bangladesh represented only a very small portion of its global sourcing, Disney believed it presented significant risks. Leaving Bangladesh could help the company reduce risk to its brand and allow it to focus efforts where it could most improve working conditions. Therefore, in March, Disney announced that Bangladesh had been removed from its “Permitted Sourcing Countries” list.
Some have accused Disney of “cutting and running,” a tactic that companies use to avoid accountability for sweatshop conditions, but we disagree with those accusations. Disney’s limited economic activity in Bangladesh would have afforded it little leverage with factory management, but by publicly withdrawing, it was able to exercise its leverage as a global brand to send a clear message. The Bangladeshi government needs to understand that substandard working conditions will have economic consequences if it does not take immediate action.
A Shift in Worker Safety Initiatives
For many companies, however, leaving Bangladesh is not a viable option. These companies instead must take a hands-on approach to reform.
In the wake of the collapse, several significant initiatives have arisen to improve worker safety issues. Most notable is the Accord on Fire and Building Safety (the Accord)—a five-year, multi-stakeholder agreement between retailers, non-governmental organizations, and labor unions to maintain minimum safety standards in the Bangladesh textile industry. We believe that this initiative is the best hope for meaningful reform. As a legally-binding agreement, the Accord represents a significant shift from past practice. Its board of directors, which is chaired by the International Labor Organization (ILO), is split evenly between corporations and labor unions. We believe that this equal representation of trade unions is critical. Domini’s Global Investment Standards have always recognized that:
“Healthy and vital unions play a crucial role in addressing the imbalances in power that often arise between corporate management and workers in their struggle for fair working conditions. Without unions, the possibilities for long-term equal partnerships between management and labor would be vastly diminished.”
One Rana Plaza survivor told Time: “The managers forced us to return to work, and just one hour after we entered the factory the building collapsed…" It was not simply lax regulations, political corruption and greed that led to these deaths—it was also fear. In order for desperately poor workers to stand up for themselves, they need strong labor unions.
To date, the Accord has been signed by more than 80 companies, primarily based in Europe. One of the first to sign was Hennes and Mauritz (H&M, Sweden). Over the past three years, we have seen impressive improvements in H&M’s approach to labor conditions in its supply chain. The company has advocated for increases to the minimum wage and for the adoption of a “living wage” standard, and has pledged to remain in Bangladesh even if wages rise.
Some of the other major global brands that have signed the Accord include Fast Retailing (Uniqlo, Theory), PUMA, Carrefour, Tesco, Next and Marks & Spencer. The decision to sign the Accord by Japan’s Fast Retailing, one of the world’s largest retailers, supplements an already impressive social profile, including its practice of publicly reporting the results of its factory audits and the remedial measures its takes. To date, only a handful of American companies, including PVH (Calvin Klein, Tommy Hilfiger) and American Eagle Outfitters, have signed the Accord.
Domini Helps Lead Investor Response to Rana Plaza
In May, Domini worked with other investors affiliated with the Interfaith Center on Corporate Responsibility (ICCR) to draft a public statement urging global companies sourcing from Bangladesh to sign the Accord on Fire and Building Safety and to strengthen local trade unions, disclose suppliers, and ensure appropriate grievance and remedy mechanisms for workers.
More than 200 institutional investors from around the world, representing more than $3.1 trillion, signed our statement. The first 120 signatories came together in only 48 hours, a strong testament to the seriousness of this issue and the need for systemic reform (Read the investor statement).
Citing legal concerns with the Accord, a group of 20 North American retail companies, including Gap, Wal-Mart, Target, Macy’s, Nordstrom and Costco, announced another initiative—The Alliance for Bangladesh Worker Safety (“the Alliance”). While we favor the Accord over the Alliance because of its legally-binding nature and the role of labor unions in its governance structure, both initiatives represent an important shift in approach to worker safety issues. Both the Accord and the Alliance focus on bottom-line, critical reforms to address urgent fire and safety issues; both recognize the need for competitors to work together toward common solutions, to share the results of their factory inspections with each other, and to enforce common standards; both are committed to a level of public transparency; and both recognize the need for workers to have a voice.
Domini is currently helping to coordinate a global investor coalition focused on factory safety in Bangladesh. In the coming months, as we follow developments with the Accord and the Alliance, we will turn careful attention to those apparel companies that have not signed up for either initiative.
Here are a few additional changes we will continue to push for, both in Bangladesh and around the world:
- A global dialogue is needed about the definition and achievement of a sustainable living wage—sufficient for a worker to support a family and save for the future.
- A social safety net should be provided for the families of workers who are injured or killed in the line of work.
- The New York Times reports that children in Bangladesh can tell the latest fashion trend based on the color of the water in the canal that runs past their schoolhouse. The environmental consequences of global supply chains are significant and must be addressed.
- We would like to see the Accord model, which incorporates cross-company information sharing, an active partnership with unions and a commitment to public transparency, become the norm for global supply chains everywhere.
- While Bangladesh may be the flash point today, similar problems persist in other countries around the globe. It is our hope that the reforms sparked by Rana Plaza will reach beyond Bangladesh.
Rozina Akter, a 21-year-old survivor of the Rana Plaza collapse, told the Wall Street Journal: "I'll go back to work as soon as I get better. Not all buildings will collapse." What other choice does she have?
Like the Triangle Shirtwaist fire of another era, we hope to look back on Rana Plaza as a turning point for Bangladesh, and an end to the global “race to the bottom” that this poor country has come to symbolize. We hope that it will catalyze a new era of labor reforms that will provide young women like Ms. Akter with more acceptable and dignified choices. As investors, we will continue to do our part to bring that hope to fruition.