The Committee on Workers Capital’s Labour Rights Investor Network (LRIN) has released Investor Guidance and Expectations: Supply Chain Due Diligence and Binding Agreements (February 2025). The briefing note provides guidance to investors on how to engage with companies on the use of binding agreements between worker representatives and companies.
Human Level’s Take:
- There is evidence that binding agreements are effective both in terms of both reducing worker rights violations and lowering risk for companies and investors. They are also contributing to increased efficiency in sectors like fashion, which adds to the case for investors to support them through company stewardship and engagement.
- LRIN points out that these types of agreements can be more effective than voluntary initiatives and social audits, especially as they involve workers in their implementation and monitoring. This can create more transparency and accountability of companies, while empowering workers to advocate for their rights.
- Investors have an important role to play in furthering the use and scope of these agreements with their portfolio companies. LRIN’s guidance provides evidence and arguments for why binding agreements bring benefits to workers, companies and investors.
- The briefing signals that companies should be prepared for increased investor scrutiny regarding their HRDD practices. Investors may push for companies to join existing agreements, establish new ones and provide transparent reporting on supply chain due diligence.
Some key takeaways:
- What are binding agreements?: The past dozen years have seen the rise of an alternative form of supply chain due diligence: binding agreements between trade unions or worker representatives and companies. Binding agreements are agreements or contracts between trade unions or worker representatives and multinational corporations to address systemic labour rights issues in supply chains, generally in a particular sector and/or a specific region. Unlike social audits or other due diligence tools, they ensure accountability among parties by being legally enforceable and/or having significant market consequences for non-compliant companies, who risk losing business opportunities. These agreements prioritise worker involvement in their governance structure, independent oversight, grievance mechanisms and continuous monitoring. The briefing underscores that worker involvement is key to making these agreements effective at protecting labour rights. While they often focus on specific issues, industries, or regions — such as the Bangladesh Accord’s focus on health and safety, and the Dindigul and Lesotho agreements’ focus on gender-based violence — they can also cover a wider range of workers’ rights issues, like the Fair Food Program in agricultural production in the U.S.
- The case for investor support of binding agreements: Some investors are already advocating for binding agreements as a more effective alternative to other tools for due diligence, recognising their role in mitigating social risks and enhancing supply chain due diligence. In 2023, the Platform Living Wage Financials, a coalition managing over €7 trillion in assets, publicly urged companies to sign the International Accord for Health and Safety in the Textile and Garment Industry, highlighting its role in ensuring worker safety and closing the living wage gap. For other investors who are yet to make the case for them as part of effective HRDD, key arguments highlighted by the report include that they: (1) help companies comply with mandatory human rights due diligence requirements; (2) provide systemic solutions to systemic social risks, as they are designed to address impacts at scale; (3) are effective at significantly reducing social risks for companies, as demonstrated by the reduced health and safety risks in Bangladesh, the significant progress in combating gender-based violence in India and Lesotho through the Dindigul and Lesotho Agreements and the significant transformation of the labour conditions in some U.S. farms under the Fair Food Program; and (4) they are cost effective as they can improve efficiency and financial performance. The Dindigul Agreement, for example, increased worker productivity by 16% in 2022.
- How investors can support the uptake of these agreements. There are several ways investors can use their leverage to help improve the uptake of binding agreements as part of companies’ HRDD practices in global supply chains. One way is to set out clear expectations of companies in relation to binding agreements. They can request that investee companies join existing binding agreements and consider establishing new ones. Another way is to engage companies with specific questions on supply chain due diligence that include questions about binding agreements. A third way is to be prepared to rebut common company responses to these questions. Finally, the note suggests that investors can escalate actions if companies do not respond satisfactorily to engagement efforts. The note includes a number of key questions investors can ask companies about supply chain due diligence and provides sample responses to some questions the authors anticipate companies will have.
