With the mounting pressure to achieve ‘net-zero’ and mitigate climate change, many companies are racing to prove environmental compliance. Yet social issues like living wage and living income are falling through the cracks.
Over a billion working people worldwide, that is 1/3 of all workers, are estimated to earn less than they need to afford a decent standard of living[1]. In addition to this, less than 4% of the 350 most influential global food and agriculture companies are identifying living income benchmarks or calculating living income gaps in their supply chains[2]. These are huge challenges to social justice and solving them will be no simple feat.
The economic impacts of the pandemic and climate change, increased food and input prices, and rampant volatility in a system already not equally and fairly distributing value and risk, has put more pressure on households in commodity sectors[3]. Governments also have limited capacity to ensure compliance around wages and working conditions. This is all compounded by confusion around the core definitions of ‘living wage’ and ‘living income’, as different countries use different benchmarks.
However, recent developments on living wage and living income driven by the EU and agreements by the International Labour Organisation (ILO) give newfound clarity and remind companies to put social issues back on the agenda.
In March this year, the ILO collectively agreed upon a new policy that clearly defines what “living wage” is. This provides principles for the estimation of living wages and brings transparency to the concept. In parallel, the EU has released a new directive on Due Diligence requiring companies to prevent, end or mitigate their adverse impacts on human rights and the environment. If these requirements are not met in time, companies risk fines of 5% of their net worldwide turnover, hitting their bottom line. These new policies emphasise that prioritising social aspects in tandem with the environment are critical to securing the future of our global supply chains.
Aside from being required by law, closing living wage and living income gaps can bring many potential benefits for companies: greater productivity, lower turnover, more substantial worker commitment and a better quality of life that contributes to stronger communities[4]. But this will be an investment. Better working conditions, living wages and living income are not going to come for free. This is a cost that must come from the value chain. To create fairer value distribution, a larger part of the value in global chains must stay with the producing countries. For this, current business models that are being implemented need to be reimagined.
For a just transition, farmer households also need to be compensated for revenue as productivity may drop. Through shorter payment terms and longer contract periods the relationship between buyers and suppliers can also be strengthened. This means if a business wishes to make progress towards achieving living wage and living income, their procurement practices ought to be adapted.
Procurement practices can become more sustainable by ensuring fair remuneration for farmers and promoting better farming practices. This leads to more sustainable yields and lands[5]. Sustainable procurement can also enhance brand reputation and customer loyalty but also safeguards against supply chain disruptions and compliance risks.
Through its Roadmap on Living Wages and Roadmap on Living Income, IDH supports companies’ efforts to close gaps on living wages and living income by strengthening international alignment, sharing knowledge and tools, and building tangible solutions. Living wage gaps can be calculated with the IDH Salary Matrix. And the IDH Living Wage Action Guide provides guidance on how to take steps with supply chain partners to close those gaps. In addition, living income can be addressed through Smallholder-Inclusive Business Analysis (IBA), a step-wise approach for companies to assess the sustainability of their procurement and the impact that has on the living income of farmers in their supply chain.
In 2023, IDH expanded the reach of the Roadmap on Living Wages through its partnership with the United Nations Global Compact Forward Faster initiative, which supports companies to accelerate action towards the SDGs through five key topics, including living wages.
This June, IDH and GIZ with sponsorship from the UNGC, will bring together 400 public and private sector decision makers from producing countries and consuming countries at the Living Wage and Living Income Summit to co-create deeper and more cohesive change on these topics.
A new tool to calculate living income gaps will also be launched at the summit.
Want to join us in putting living wages and income back on the agenda? Contact us.
Sources:
[2] 2023 Food and Agriculture Benchmark, World Benchmarking Alliance
[3] 2022, Accelerating change for closing living income gaps, IDH & WUR
[4] 2022, Accelerating change for closing living income gaps, IDH & WUR
[5] 2022, Accelerating change for closing living income gaps, IDH & WUR