Some Institutional Investors
Lobby to Improve Labor Practices

The Wall Street Journal
By Rachel Louise Ensign
May 21, 2013

Nordea is one of the largest institutional investors in Hennes & Mauritz AB , and in 2008 the financial institution sent Sasja Beslik to tour factories it was using to produce clothes in Bangladesh.

Some of the buildings Beslik visited housed multiple factories, a trait they shared with Rana Plaza, the building where more than 1,100 people died when it collapsed. Beslik, a trained auditor who oversees responsible investment and governance at the Scandinavian firm’s asset management unit, noticed that workers were paid very low wages, worked a lot of overtime and often didn’t have proper documentation. [EXPAND Read more]

“The conditions of work in Bangladesh are so far below everything else I’ve seen,”  Beslik said. “If you started to implement changes, you could need four to seven years to implement all of them.”

Beslik says he later met with representatives of H&M and shared his concerns about the factories he’d toured. In 2009, the retailer stopped using factories housed in multi-factory buildings in Bangladesh. Asked about the reason for not using the factories, an H&M spokeswoman said in an e-mail it was “to help ensure building and fire safety at our suppliers’ factories in Bangladesh.”

Some institutional investors like Nordea have been putting pressure on retailers to improve labor practices. Beslik said more collaboration between investors and retailers “could have worked to prevent [the Rana Plaza collapse].”

Another factory collapse occurred Monday, in Cambodia, and the Agence France-Presse quoted the president of the Cambodian Labour Confederation as saying it was making clothes for H&M. The company didn’t respond to a request for comment on the collapse. There were no deaths in the collapse but 23 workers were injured.

Proponents of socially-responsible investing say that monitoring a company’s labor practices is often more of an art than a science. These investors typically evaluate workplace safety holistically, as there’s often not reliable data on the topic. In the ESG acronym often used in socially-responsible investing to refer to the goals of environmental, social and governance standards, it’s often the “social” aims that are least well defined, experts say.

Nordea and other investors try to examine a company’s labor practices before investing and continue to monitor them after investing. At some firms like Nordea, socially-responsible investing is integrated into the broader investing strategy. At others, it’s a niche unit of the asset manager.

Labor practices are a “core risk issue to business these days,” said James Gifford, executive director of the Principles for Responsible Investment, a partnership between the U.N. and the investment community, including many institutional investors.

Calvert Investments Inc., a fund company specializing in sustainable and responsible investing, looks at a code of conduct and policies in place for dealing with workplace safety, among other things, said Mike Lombardo, senior sustainability analyst and manager at Calvert.

In a recent guide on assessing human rights risks within portfolios, the firm advised investors to look for retailers who “train shop floor workers on their rights so that workers, rather than auditors, become the primary watchdog on working conditions.”

The socially-responsible investing unit of Alliance Trust Investments examines the retailer’s code of conduct, and gathers third-party data, as well as data from any corporate social responsibility documents, which can include fatality rates, lost-time injury rates and information about child labor. The fund company is owned by Dundee, Scotland-based Alliance Trust PLC.

But there’s often no standard format for reporting that data, so it’s hard to compare two companies’ labor practices side by side. “The quality of data we get is still very poor,” said Neil Brown, an SRI fund manager at Alliance Trust in London. “What we want is information of a similar quality to the company’s financial information.”

As of now, the socially-responsible funds Brown oversees are only invested in one retailer: Inditex SA , which owns Zara. Wary of much of the data out there, Brown has spoken to Inditex representatives to learn more about their supply chain and he also likes that they produce clothing in or near Europe.

Like all retailers, Brown said Inditex isn’t perfect. “They have had issues, and it’s the way they’ve responded to them that we like.” [/EXPAND]