Living wages in the supply chain (Just Capital)

Our key takeaway: Research has found that paying a living wage can benefit a company’s bottom line, with benefits ranging from increased retention and lower turnover among staff, to greater reliability and higher-quality products from suppliers. A report by Just Capital features case studies from five top-performing companies on this topic (Morgan Stanley Capital International (MSCI), Accenture, Analog Devices, Smartsheet, and Teradyne) which underscore the strategic value of “influencing suppliers to treat workers fairly, pay a living wage, and actively supporting suppliers in attaining these targets.” Only a small number of companies (3% out of this study’s sample set) are pushing the envelope on living wages in the supply chain, but Just Capital encourages all companies to follow three leading practices: (1) Providing clear guidance on living wage for suppliers, including a definition with a research-backed methodology; (2) Considering living wage to be a human right and explicitly linking the two in policies and engagement with suppliers; and (3) Developing sustainable supply chain strategies that are actionable, scalable and regularly monitored. 

Just Capital published a report on living wage trends in the supply chains of U.S. companies (May 2023):

• How companies are influencing their suppliers: The report studied the disclosures of 951 out of the Russell 1000, reflecting the largest public companies in the U.S. Just Capital found that 30 of the companies, around 3%, “require or encourage suppliers to pay their employees a living wage. Out of those 30, nine companies describe this policy as a supplier requirement.” The remaining 21 “encourage” suppliers to pay a living wage. For those companies that do include a living wage requirement, the research found that having a clear, research-backed definition of living wage is important to “help suppliers understand, prioritize, and conform to requirements”—although only 9 out of the 30 companies that require or encourage a living wage to be paid in the supply chain have a clear definition. Importantly, the majority of those companies (23 out of 30) indicate that they recognise living wage as a human right.
  

• Diverse industry representation: Just Capital “expected to find that companies who influence their supply chains to provide a living wage might be concentrated in industries with short supply chains and majority white collar workers, instead, we found that there is low but somewhat industry-distributed traction around companies encouraging or requiring their supply chains to pay a living wage.” For instance, across 36 different industries tracked, 19 (or 53%) were represented among the 30 companies that require or encourage their suppliers to pay a living wage. Industries influencing suppliers to pay a living wage include: Food, Beverage & Tobacco, Real Estate, Restaurants & Leisure, and Semiconductors & Equipment (3 companies per industry); and Banks, Commercial Support Services and Utilities (2 companies per industry). Other industries represented (1 company per industry) include: Aerospace & Defense, Automobiles & Parts, Basic Resources, Capital Markets, Clothing & Accessories, Commercial Vehicles & Machinery, Consumer Services, Health Care Providers, Media, Oil & Gas, Personal Products and Software. The wide diversity of industries represented suggests that living wages are becoming more mainstreamed across sectors.
  

• Three top company practices: The report identifies three best practices for companies. First, providing clear guidance for suppliers: “Provides a clear definition of living wage for suppliers to follow. Describes living wage as meeting basic needs and separate from fair wages or legal minimums.” For example, Accenture "has developed an action plan and targets for scaling living wage throughout their global operations and supply chain, and they regularly disclose progress and update targets. They currently hold a ‘real living wage’ accreditation in the United Kingdom, and require suppliers in the United Kingdom to pay employees a living wage. At present, they strongly encourage suppliers in global operations to pay a living wage. As part of their work with suppliers, they also employ best practices such as regularly reviewing supply chain practices.” Second, considering living wage to be a human right: “Explicitly links wage practices and living wage as a basic human right. The ability to provide for basic needs and the needs of dependents is already considered a human right by global Human Rights watchdogs including the United Nations and the World Economic Forum.” For example, Morgan Stanley Capital International (MSCI) uses strong language in its policies, “requiring rather than encouraging that suppliers pay their employees a living wage. In addition, MSCI provides a clear definition of living wage which is essential in influencing behavior change.” Third, developing sustainable supply chain strategies: "Develops actionable strategies to scale living wage in supply chains and own operations, and regularly reviews supply chain policies to improve living wage. This includes moving from merely encouraging suppliers to pay a living wage, to requiring that they do so. […] Disclosing transparent strategies demonstrates a commitment to living wage beyond virtue signaling and provides a clear roadmap for others within the same operating environment to follow.” For example, software company Smartsheet requires its suppliers to pay a living wage to their employees as well as to their contractors. They also require that supplier employees and contractors are guaranteed the same working conditions. According to Just Capital, “[t]his kind of impact is far reaching, leveraging multiplier effects to create positive changes in workers wages well beyond their own operations.” As another example, semiconductor and equipment company Teradyne has developed “a management approach designed to ensure that they are implementing responsible sourcing practices that engage all stakeholders in their own company, environment, governance, the communities they impact and in the products that they produce.”