Living wage

When you invest money in companies, you also invest in people—both in the company’s employees and those who work for its suppliers. In most cases, those who work in the management of an organisation earn enough to make a decent living. However, this is only self-evident for some employees of an organisation, let alone for the employees in its supply chain. For example, the top of a Western fashion company often earns a generous salary, but a lot of work is outsourced to countries where people are paid little. Approximately 8% of all working people in the world live in extreme poverty, earning less than $2.15 per day.

What is a living wage?

A living wage is a wage that provides for the (primary) needs of an employee and their family. Basic needs are biological needs, such as water, food and housing, and other essential needs, such as education, clothing and medical care. A living wage ensures a dignified existence and an inclusive society. A living wage is defined by the International Labour Organization as follows:

The payment to the employed of a wage adequate to maintain a reasonable standard of life as this is understood in their time and country.

A living wage is not the same as the minimum wage in a country; it is often higher than the minimum wage.

What is a living income?

When people talk about a living wage, they generally speak about employees a company employs. Many companies, for example, in the food sector, work with people who are not employed but have their own business. An example of this is farmers. Farmers are often paid a farmgate price for their products. In other words, the market value of the product minus the costs. This is their income for farmers. Therefore, whether this is a living income depends not only on the farmgate price but also on the farmer’s production, the costs incurred and how many family members and employees the farmer has to support.

Why a living wage or income?

First of all, earning a living wage or income is a human right that is enshrined in the Universal Declaration of Human Rights (Article 23, paragraph 3):

Everyone who works has the right to just and favourable remuneration, which will ensure for himself and his family an existence worthy of human dignity. This remuneration will be supplemented, if necessary, by other means of social protection.

A living wage combats poverty and gives a family better future prospects because children can go to school instead of having to work. In addition, paying a living wage motivates employees and offers opportunities regarding staff retention, quality, and reputation. The VBDO expects companies to check in their operations whether a living wage is paid and to make corrections where necessary. We also ask companies to pursue this in their value or supply chain actively.

If a company guarantees a living wage, it pays its employees well. This gives them more opportunities for personal growth and stimulates the economy simultaneously. An employee who earns more can also spend more.

The theme living wage contributes to the UN Sustainable Development Goals (SDGs): 2, 8 and 10.

How can investors stimulate living wages and incomes?

A structural investor has several instruments to stimulate a living wage or income:

1. Company selection

Companies can be selected for inclusion in the investment universe partly based on their objectives for living wages. Various standards have been investigated for this:

• Corporate Sustainability Reporting Directive (CSRD): The CSRD has been in force since 1 January 2024. This regulation determines which sustainability objectives companies must report on based on the European Sustainability Reporting Standards (ESRS). One of these standards is S2, which refers to employees in the value chain. A living wage or income also falls within this reporting standard.
• Corporate Sustainability Due Diligence Directive (CSDDD): The CSDDD will come into force for large companies in 2027. This regulation from Europe obliges companies to conduct due diligence on their value chain in the field of people and the environment. Living wage is an important theme within the CSDDD.
• UNGC Global Compact Forward Faster Initiative: This initiative was set up by the Global Compact of the United Nations. Companies that are part of the Global Compact are committed to achieving a relatively large number of the goals of the UN Sustainable Development Goals (SDGs) by 2030. There are 5 specific action areas, of which a living wage is one of the themes. Companies can commit to 2 goals:

1. 100 percent of all employees in the organization receive a living income by 2030;
2. Draw up a joint action plan with stakeholders to work towards achieving living wages or living incomes, with measurable and time-bound milestones.

An overview of the committed companies can be found on the initiative’s website.

2. Engagement

Investors can influence companies to implement a living wage or income through engagement. That is, investors have the right to vote at shareholder meetings, can submit proposals on living wages or incomes and have indirect discussions with the company.