Kelvin ho

UL - STR Responsible Sourcing

“Dedicated to helping our clients build secure and socially responsible relationships with their value chain partners”

Kelvin Ho, HK-Asia Regional Manager, STR RS

2011 TBLI Conference: Corporate Governance

Workshop – Managing Labor Risks

and Impacts in Emerging Markets

Social and environmental risks are increasingly considered as material risks for investors.

• Assessments: On-the-ground verification of labor, social, environmental and security policies and practices against IFC or other IFI standards.

• Capacity Building: Training and remediation to address real or potential risks identified in the due diligence process.

• Risk Indices: Country and industry-specific risk ratings related to core labor standards.

• Emerging Markets Research: Customized research on ESG risks related to specific countries and industries.

• Labor and Employment Standards Library: Searchable Database of Labor and Employment Laws for over 140 countries: http://lesli.strrs.com

STR RS Due Diligence Services

Industries• Manufacturing• Agriculture & Food Processing• Mining & Extractives • Automotive• Renewable energy (wind farms,

solar producers, hydropower dams, Clean Development Mechanism projects)

OfficesAuditsSTR-RS office locations

North America:USA

Latin America: Argentina

BrazilGuatemala

MexicoPeru

Middle East, Indian Subcontinent:

BangladeshIndiaIsrael

JordanPakistanSri Lanka

UAE

South East Asia:IndonesiaPhilippinesThailandVietnam

Europe:BulgariaGermany

ItalyRussiaPoland

PortugalRomania

SpainSwedenTurkey

UK

Africa: BurundiEgypt

South Africa

East Asia:China

Hong KongJapanKoreaTaiwan

Global Reach

© 2011 Specialized Technology Resources, Inc. www.STRQuality.com

STR RS invests in developing professionals in the regions where we operate. The majority of STR RS staff are local and speak the languages of the countries where they operate.

Managing Labor Risks and Impacts in Emerging Markets

© 2011 UL - Specialized Technology Resources, Inc. www.STRQuality.com

AgendaAgenda

• Why consider labor issues as ESG risks• Global developments in social and labor

issues• Examples of regional labor issues• How to incorporate labor risks into ESG

investment strategies• Q&A

Labor Issues as ESG Risks

© 2011 Specialized Technology Resources, Inc. www.STRQuality.com

Why consider ESG in Investment?Why consider ESG in Investment?

Goal: Enhance long-term company value and lead to superior risk-adjusted

returns, create more responsible and sustainable capital markets, and contribute to the sustainable development of societies.

Why now?Why now?

• Increasing pressure from NGOs• Increasing media scrutiny• Increasing host country litigation• Increasing transparency• Social & environmental risks no longer considered “non-financial”• Mainstream investors integrating ESG risks• Socially Responsible Investors have a long history of addressing labor issues in proxy voting and corporate engagement strategies

NGO LinkagesNGO Linkages

• Business interruption due to work stoppages and strikes

• Low productivity and low quality (high defect rate) due to low skilled workforce and excessive overtime

• High insurance premiums due to unsafe working conditions

• High recruitment costs due to high worker turnover

• Reputational risks due to human rights abuses

• Failure to meet social requirements of buyers and customers

• Liability for land compensation claims

Social Risks = Financial RisksSocial Risks = Financial Risks

CASE IN POINT:

Textile factory with 2500 employees in

Vietnam had a two and a half day strike. The factory management

estimated total downtime losses of

USD$700,000.

CASE IN POINT:

Tata Motors was forced to shut down construction of a Nano factory in which it had invested $350m due to violent protests from

displaced farmers in the eastern state of West Bengal in India.

A random sample of 389 assessments conducted by STR in May 2010 revealed:• 106 (27%) cases of Excessive Working Hours• 72 (19%) cases of 7th Day of Rest violations• 38 (10%) cited for not paying the minimum wage• 60 (15%) cited for not paying overtime wages

Global DevelopmentsGlobal Developments

• IFC Policy Review– Human Rights– Gender– Financial Intermediaries– Grievance mechanisms– Supply Chain– Workers’ Accommodation– Retrenchment– Juvenile workers

• Equator Principles Review– Beyond Project Finance– Transparency & Disclosure

• ISO 26000– Labor Practices– Human Rights

• UN Human Rights Framework– Protect, Respect, Remedy– Guiding Principles

• Principles for Responsible Investment– 800+ members– $22 trillion+

Regional Labor Issues

© 2011 UL - Specialized Technology Resources, Inc. www.STRQuality.com

• Labor shortage• Rising wages• Strikes• Social insurance

ChinaChina

MOST COMMON VIOLATIONS:MOST COMMON VIOLATIONS: • Excessive overtime is still the top concern• Occupational H&S (workfloor and emergency preparedness)• Inaccurate time records

• Fire Safety • Living wage• Strikes• Child labor• Uzbek Cotton

MOST COMMON VIOLATIONS:MOST COMMON VIOLATIONS:

Bangladesh: • Occupational emergency preparedness, • Occupational H&S work floor issues,• Minimum Wage issues

India: • Occupational H&S work floor issues, • Occupational emergency preparedness

South AsiaSouth Asia

Recommendations for Investors

© 2011 UL - Specialized Technology Resources, Inc. www.STRQuality.com

Highlighting Labor Issues Highlighting Labor Issues in ESG Valuationin ESG Valuation

• Addressing labor risks and impactsOccupational health and safety Avoidance of child labor and forced labor Non-discrimination Freedom of associationNon-employee worker

• Policy requirement Human resources policy Rights related to wages and benefits Recruitment process statement Disciplinary and termination procedures Supply chain

Assess labor risks based on:

• Industry• Geography• Number of workers• Types of workers• Supply chain

Recommendations for Recommendations for InvestorsInvestors

With reference to Translating ESG into sustainable business value from UNEP FI and WBCSD

Incorporate labor risks into analysis:• Workforce data• Country risk rating• Research past performance• On-site assessments

Gather data:• Incorporate labor questions into self-assessment questionnaires• Establish criteria to trigger additional data-gathering • Develop scoring system

Gathering DataGathering Data

Source:Translating ESG into sustainable business value from UNEP FI and WBCSD

Bank Sarasin’s sustainability Bank Sarasin’s sustainability ratings for food & beverage ratings for food & beverage

producersproducers

Source: Bank Sarasin, December 2010http://www.sarasin.ch/internet/iech/en/index_iech/news_iech?reference=116147&checkSum=5A782A47BEAF57C3BF91BF9D4854F0F1

Weak spot: working conditions

Project Finance Due DiligenceProject Finance Due Diligence

Assess Risk

Categorization

A, B, C

Loan Agreement

Monitoring

Recommendations

Issue Identification

On-site verification

•Risk Indices•Questionnaires

• Review company

sustainability report

•Industry / Country research

•Third party review

•Internal risk calculator

• Internal committee

•On-site checklist• Third party assessment

• Questionnaires•On-site checklist

• Third party monitoring

© 2011 UL - Specialized Technology Resources, Inc. www.STRQuality.com

Thank You

Kelvin HoHK-Asia Regional Manager

STR Responsible Sourcing – Hong KongUnits 425-427, 4th Floor, Hankow Centre

5-15 Hankow Road, Tsim Sha TsuiKowloon, Hong Kong

E-mail: [email protected] | Tel: +(852) 2979 2500 | Fax: +(852) 2979 2400