“ I see it [living wage] as crucial for building resilience in local communities. If people can't make ends meet, it's hard to plan for the future, leading to reliance on aid. Neglecting social issues can worsen climate impacts, causing damage to communities and ecosystems.,” says Petter Forslund, Sustainability Analyst at the Swedish Buffer Fund, AP2. In a recent interview with WageIndicator, Petter Forslund of AP2 elaborated on his organisation's sustainability agenda. He underscored the significance of adopting a living wage and highlighted the connection between climate issues and social issues.
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Could you briefly explain what buffer funds are in the Swedish pension system and the role of an AP fund overall?
Essentially, Sweden has five buffer funds for our national pension system. These funds serve as safeguards, aimed at mitigating the effects of long-term fluctuations such as birth rates, life expectancy, and economic shocks like low employment or crises. Without such buffers, future pensioners could face uncertainties. Hence, our focus is on smoothing out these fluctuations within the pension system. I'd like to emphasise the dual nature of our goal. While generating returns is essential for the system's sustainability, we also prioritise sustainability itself. We don't view sustainability as a trade-off for returns; rather, it's a strategy for securing favourable long-term outcomes.
Could you elaborate on AP2’s sustainability agenda?
Broadly speaking, from an ESG perspective we have integrated climate issues, biodiversity issues, and human rights issues. We also work with diversity, equity and inclusion as well as corporate governance. So we are a full-spectrum sustainability investor/organisation.
We are aware of how climate, biodiversity and human rights issues are interconnected but up until now, generally speaking, climate issues have had most of the spotlight. Before joining AP2 I worked with climate investments, and if you zoom out and look back ten years, you can really see that those issues have been gaining momentum and made great strides. We´re nowhere near being done, but I believe that lessons learned working with climate issues can translate to human rights and speed up the process. Part of the trick is finding a common denominator that is easily understood and quantifiable, and that's where living wages come in.
Seeing how the payment of a living wage is seen as an enabling right—meaning that payment of a living wage enables paying for/providing for shelter, food security, sanitary conditions, etc. which makes it all the more crucial.
Based on your experience, ultimately, is addressing social issues easier than addressing environmental ones?
No, on the contrary. While CO2 can be measured on an aggregated scale, social issues are inherently harder to track. That's where the concept of living wages comes in. It's measurable and comparable, unlike many social variables. For instance, checking if companies have a human rights policy is a start, but it often ends up being a mere check-the-box exercise. Scrutinising these policies is crucial to ensure they're effective, but it's a complex process. Living wages, however, provide a clear and quantifiable metric. Unlike subjective text-based policies, a living wage is a number that can be graphed and tracked over time, similar to CO2 levels. This clarity is essential for tackling social issues effectively, just as our net zero goal guides our environmental efforts.
How do you envision the concept of living wages being realised?
Currently, we've started incorporating living wages into our social investing approach. We use it as a tool to discuss companies' views on their supply chains.
Historically, we´ve screened countries and sectors for human rights challenges and engaged in dialogue and initiatives based on a combined country and sector score. Based on this approach however, people may take a laxed view of companies operating in countries or within sectors not deemed as being in “the risk zone” - and this is something we wish to see changes to as human rights issues can be found in all companies, no matter their geographical location or industry in which they operate. We'll keep screening countries and sectors with human rights challenges and engaging in dialogues and initiatives in those areas. By including the supply chain and living wage concept, we can have meaningful discussions on human rights with companies, no matter where they're based. I believe every company's supply chain affects regions where living wages are essential.
How does AP2 reconcile its Human Rights work with its focus on Living Wages?
Compliance with human rights standards and conventions is crucial. However, broadening our scope involves thinking about living wages. Even in high-risk sectors and countries, we engage in dialogue on topics such as standards and conventions, while at the same time incorporating the concept of living wages. These dialogues usually involve discussions between our fund and the company, but they can also include supranational organisations and similar entities.
We’re recognising how supply chain concerns intersect with our integration of various asset classes within our human rights initiatives. For example, if one of our fund portfolios heavily invests in renewable energy companies based in the US, our methodology might suggest the renewable energy sector to be relatively sound, especially if the company is located in a “low risk area”. However, a deeper examination of the supply chain for solar PVs might reveal instances of forced labour in China.
This illustrates that upon closer inspection of supply chains, high-risk issues are often present across all companies, regardless of their headquarters' location or industry sector.
Should there be a time limit for companies to achieve living wages?
We encourage companies to begin implementing the concept of a living wage into their practices. However, we haven't set a firm deadline as its implementation depends on various factors. As a large organisation and significant investor, we acknowledge our influence, but we recognize that collective action is necessary.
Moreover, we engage in partnerships with initiatives like the Platform Living Wage Financials (PLWF), which I highly encourage other investors to participate in or seek advice from, to enhance our procedures. Furthermore, we have made substantial progress in understanding the fundamental factors that contribute to the implementation of a living wage.
Rather than simply asking whether a living wage is paid, the PLWF assessment methodology is comprehensive and considers a broad range of factors. Over time, this approach will contribute to the realisation of a living wage.
Our clients at WageIndicator typically take three to five years to fully implement a living wage policy across their locations, supply chain can be more complex. The key question then becomes: Should this be achieved by 2030 or even earlier, say by 2027?
We haven't established a definitive target yet. Declaring that we'll completely avoid investing in companies not paying a living wage by a specific year isn't feasible. This issue is still in its early stages, with variations among companies and within the global dialogue context. Additionally, the background of ESG team members within companies also influences this matter. However, considering the progress made in climate investments, we don't have to start from scratch in terms of how investors can contribute. We can adopt a similar trajectory and targeted approach. The enforcement of such standards as a hard deadline by law ultimately depends on policymakers. Once investors recognize that it's a measurable metric, especially given our focus on numbers, it can smoothly integrate into existing systems, including the global financial system.
Similar to addressing climate issues, setting a goal for living wages signifies the beginning of a refinement process, envisioning it as a journey. However, there's a concern that if companies commit to paying living wages, they may seek other areas to cut costs, potentially affecting employees. This introduces complexities into the system. Therefore, we must ensure that the wage increase genuinely benefits workers rather than merely shift the burden elsewhere. It's akin to peeling back layers to reveal the truth. As we uncover these tactics and their effects, we become more proficient at monitoring and achieving the desired outcomes.
In what way does paying a living wage enable you as investors to evaluate true company performance?
One of my favourite ways to put the value of living wages into long-term perspective is by using the term "false profits." If companies don't pay their workers a living wage, it fundamentally challenges fair competition. We advocate for using living wages rather than terms like 'decent' or 'fair,' which are vague.
When you transition to paying a living wage, I've conducted basic comparisons between living wages and minimum wages, revealing potential shifts in the competitive landscape among countries. The implications of using a living wage could be significant, particularly in global politics, where countries often leverage their minimum wage policies to attract foreign production and investment. This underscores the geopolitical considerations when implementing a living wage requirement for companies.
The concept of false profits shifts the conversation by exposing the exploitation of underpaid workers. While blatant human rights violations provoke public outrage and boycotts, the widespread acceptance of low wages often escapes notice. Labelling it as false profits reveals the unsustainable nature of these earnings, which depend on underpaid labour.
What difficulties are associated with social reporting?
Reporting on social metrics can be detailed and precise, but the challenge lies in comparing these diverse measures and issues. Different companies may prioritise various social initiatives, such as empowering women or improving workplace safety, making it difficult to assess their overall social impact. This lack of standardised measurement hinders effective comparison and evaluation. However, implementing living wages can help address this challenge by providing a common goal and metric for companies to focus on, facilitating meaningful comparisons and progress tracking.
How many organisations do you have in Sweden, the Nordics, and globally who share similar policies or approaches, particularly in the realm of buffer funds?
There are approximately 21 organisations within the Living Wage Financials platform. Additionally, I recently spoke with a representative from an organisation in the United States with similar objectives, particularly in the automotive industry, specifically focusing on electric vehicle battery manufacturing. This demonstrates that the concept of the living wage is expanding across various sectors and organisations. Furthermore, there is accessible open-source data and emerging best practices that can guide others in adopting similar approaches. Highlighting such initiatives could encourage wider adoption.
How do labour rights and climate change intersect, and why do you perceive them as inherently connected, if at all?
Yes, that's one of our core beliefs—that social issues and climate issues are interconnected. That's why I shifted focus from climate to social issues. Paying a living wage can lead to more spending and possibly more CO2 emissions, but it's not an excuse not to pay it. I see it as crucial for building resilience in local communities. If people can't make ends meet, it's hard to plan for the future, leading to reliance on aid. Neglecting social issues can worsen climate impacts, causing damage to communities and ecosystems. I believe in improving our immediate surroundings and enabling people to care for themselves and their communities through a living wage.
April, 2024