The Quest for Supply Chain Resilience: Where Business Sense and Thriving Rural Communities Meet

Posted on April 20, 2020

Stina Nilsson
Stina Nilsson
Associate Director, Engagement Services

In this blog post we highlight the need for living income and living wages to build resilient supply chains and resistance to shocks such as the current COVID-19 pandemic. We explore the important role that investors play and how engagement efforts contribute to progress.

Millions of small-scale food producers and workers contribute to global food supply chains. To a large extent they are feeding the world. At the same time, small-scale food producers and agricultural workers are overrepresented among the world’s poor. As an example, cocoa farmers earn less than half what he or she needs to support basic needs such as food, accommodation, health, education etc. for his or her family. [1]

Not being able to decently live from farming, it is not difficult to understand the young generation looking for better opportunities in the cities. This is also what we see in developing countries, in the form of urbanization.[2] Movement of the young generation from rural areas means aging farmers. Without farmers, no food products. Neither is this a decent living for the farmer, nor is it a stable, resilient way to build a supply chain. To counteract, companies need to seriously be a part of building strong livelihood for small-scale food producers and agricultural workers.

A living income is the cornerstone to ensure both resilient farmer and resilient supply chains. This is how we can start building opportunities in rural communities and decrease urbanization.

Resilient farmers and resilient supply chains are maybe more important than ever. Living income and living wages in agricultural supply chains would benefit some of the world’s most vulnerable people, and people who have little to put against external shocks, such as the economic and health impacts of COVID-19, often not earning a living wage or living income and at a greater risk of using child labour to make ends meet. To secure supply during and post the pandemic, strengthening support to those most vulnerable would make both business sense and avoid considerable human suffering.

The absence of living income and living wages is not only compromising the basic human right to a decent standard of living, but also fails to counteract urbanization in food producing countries, jeopardizing a stable workforce and supply of raw materials. Companies and investors have a part to play to ensure such a salient human right is met, contribute to advancement of the SDGs, and secure the long-term supply of agricultural raw materials – the backbone of global value chains.

The Role of Investors and Engagement

What makes good business sense is good for investors. Portfolio companies with resilient supply chains are likely to give better returns to investors than those giving limited attention to secure supply. Investors also want to ensure they are respecting basic human rights such as access to food, education, housing and health care through their investments. Being active owners, engaging investee companies to work towards living income and living wages, therefore becomes a logical choice of investors.

As part of Sustainalytics’ Thematic Engagements tackling child labour and forced labour in food supply chains, we coordinate and lead investor efforts promoting living income and living wages. Regular dialogues are held with a number of food & beverage and food retailing companies on the topic. Our latest effort has been to coordinate an investor statement on living income and living wages, signed by 35 institutional investors globally, with a combined AUM of 2.4 trillion USD. With the investor statement, the investor group, led by Sustainalytics, is looking to send a clear signal and word of encouragement to companies to integrate living income and living wages as cornerstones of their supply chain management.

The time is right to do so, as country level and/or commodity specific commitments are emerging and living income and living wages have seen a clear uptake on corporate agendas in recent years.[3] Through this statement, investors can play a role in recognizing leading companies, as well as driving more action from a broader base of companies internationally.

Companies have been invited to enter into dialogue with investors to understand how to facilitate the building of roadmaps towards implementing living income and living wages and encouraged to sign a corporate statement as a signal of their commitment. Companies will also be supplied with good practice resources, such as Mars’ income position statement, H&M’s living wage strategy or Olam’s living income commitment, and are encouraged to join multi-stakeholder network on the topic, such as The Global Living Wage Coalition and The Living Income Community of Practice.

By adopting a living income and wage strategy, companies will:

  • Gain better insight into their supply chains.
  • Systematically manage root causes to adverse human rights impacts, providing a competitive advantage by preparing the company for a growing number of national supply chain and human rights due diligence requirements.
  • Attract producers and workforce in thriving rural communities, which is vital in securing a long-term supply of agricultural raw materials.
  • Signal to investors and other stakeholders an advanced and proactive level of respect for human rights and contribution to the SDGs.

As owners of supply chain dependent companies, investors have an interest in ensuring resilience among small-scale food producers and agricultural workers, thereby also strengthening the resilience of supply chains. The Covid-19 crisis has increased the urgency for supply chain resilience to be strengthened if our interdependent economy is to recover swiftly and lives are to be saved. We welcome investors to join us engaging companies towards living income and living wages in their supply chains, as a mean to contribute to the quest for resilience.

For more information regarding Sustainalytics’ Engagement Services or work on living income/living wage, please contact [email protected]

Sources:

[1] Living Income Report, Rural Ivory Coast, 2018: https://c69aa8ac-6965-42b2-abb7-0f0b86c23d2e.filesusr.com/ugd/0c5ab3_a437a776dc7747c2999d3b0c60a46a97.pdf; Living Income Report, Rural Ghana, 2018: https://c69aa8ac-6965-42b2-abb7-0f0b86c23d2e.filesusr.com/ugd/0c5ab3_55017cee608047d494f56b496925ae4a.pdf
[2] World Urbanization Prospects, 2018: https://www.un.org/en/development/desa/population/theme/urbanization/index.asp
[3] See for example the German retailer commitment on living income and living wages, and the Dutch initiative on living income in the banana supply chain https://www.rainforest-alliance.org/business/responsible-sourcing/german-retailers-committed-to-achieving-living-income-and-living-wage-for-farmers-and-workers/