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Category: Sustainability reporting

The Analysis of ESG Criteria - A Trade Union View

Posted: May 29, 2012   By: Mario Enrique Sánchez Richter Category: Sustainability reporting,

This post is co-authored by Carlos Bravo Fernández from the Confederal Secretary of Social Security and Private Pensions of CCOO (Trade Union Confederation of Comisiones Obreras- Spain) and Mario Sánchez Richter, Economist at the Social Security and Private Pensions Department of the CCOO.

The socially responsible investor understands the need for information on social, environmental and governance (ESG) criteria for the various assets in which they invest. For this and other reasons, the reports done by sustainability agencies on companies are needed, as is the financial analysis done by financial analysts. Institutional investors and asset managers rely on the information provided by these agencies, even in cases where they have internal analysis teams. It is important, therefore, to understand what kind of indicators are being analyzed by the agencies, the stakeholders considered in the agencies’ reports, and the various stages of CSR policy that are covered in their research, so that socially responsible investors can know whether the indicators analyzed, the sources of information consulted and the assessment of CSR policies are suited to their demands and needs.

The forthcoming report by the Trade Union Confederation of Comisiones Obreras, seeks to answer these preliminary questions and to propose a number of improvements, where it was found that these demands were not met. This is why we have analyzed 5 global sustainability agencies (EIRIS, GES Investment Services, MSCI, Sustainalytics and Vigeo) and 3 of these in more detail (EIRIS, Sustainalytics and Vigeo).

As far as corporate governance or environment indicators are concerned, these agencies generally have a more consistent approach than in the case of social and labour issues.

The sustainability agencies tend to value the different stages of the environmental or corporate governance policies (commitment, implementation, monitoring, supervision, verification, accountability and sometimes they also include a comparison with the sector figures). However, in the case of some key labour indicators, such as freedom of association or the percentage of workers covered by collective agreements, they usually do not go beyond the formal commitment of the company and the global aggregate data of workers covered by collective agreements or represented by unions in the company.

 In our view, the sustainability agencies should analyze, in a separate section, the way the companies implement these key rights in those countries where legislation does not cover these rights.

They usually do not report on:

  • The implementation of these key rights within the company (that means that there is no report on the participation of workers´ legal representation in the different areas of the company (local, national, supranational councils).
  • The change in the percentage of workers covered by collective agreements or represented by unions (with figures from previous years). There is no comparison with the industry average.
  • The participation of the unions (the stakeholders on these issues) in the verification or audit of labour indicators.
  • Health and safety: there are key indicators that are taken into account by relevant international initiatives such as health and safety issues covered in formal agreements with trade unions and percentage of workers represented in health and safety committees formed by company and workers representatives. However, one of the agencies tends to give more importance to an award won by the company, rather than looking at the above.
  • T​​he existence of an International Framework Agreement (IFA) and the issues covered in it is not analyzed with the same level of detail as the Code of Conduct, though sometimes, they include comments on the existence of an IFA and descriptions of some specific items contained in it.
  • Union involvement in labour audits (monitoring systems of the supply chain) is omitted. In the controversies, they sometimes include complaints of labour activists in their analysis. Though the labour activists have a say, as an external stakeholder, it seems illogical not to observe, systematically, the existence of some kind of union participation in the processes of auditing the supply chain. Audits of working conditions should be open to opinion and also to the presence of trade unions (at a local, national and international level).

Sustainability agencies should also go deeper into key elements of labour relations, such as the minimum wage and work time control. These issues are addressed by the agencies, but in an incomplete manner.

Worker satisfaction is usually assessed from surveys carried out by companies on employees and, in one of the cases analyzed there is a specific indicator that assesses the appearance of the company in a Top Employer List. This way of assessing labour relations has very limited value, which can only be complementary to the observations made by the representation of workers. Without the views of trade unions, the value of these surveys is very low. Consequently, we believe that the trade union opinion should be included in an indicator and presently it is not.

Only one agency offers more information about the role played by the union in the company (in indicators other than the usual indicators of freedom of association and percentage of workers covered by collective bargaining).

Agencies focus mainly on performance indicators on social, environmental and governance issues, but pay less attention to stakeholder dialogue and participation in the different stages of a CSR policy. Only one agency has dedicated a specific section to stakeholders. However, this section does not address the dialogue with stakeholders. Rather, it mentions relations with certain stakeholders (suppliers and consumers) and consultation processes in the case of workers. If we analyze these relationships and consultation processes, we come to the conclusion that the only channel that is evaluated systematically in the company is the employee satisfaction survey and customers and suppliers' surveys. 

The CSR dialogue with trade unions or consumer organizations is only considered in a few specific cases (e.g. the signing of a CSR protocol with trade unions) and an independent third party is only required in the verification process (not the presence, opinion or participation of the stakeholders).

In general, all agencies that have been analyzed, consult information from stakeholders. However, NGOs have a privileged position with respect to other organizations that interact with the company, such as trade unions or consumer organizations, except in the case of one agency in which the unions also appear significantly in the analysis. There were mentions, in all cases, about trade unions, but while in the one agency it is part of the structure of the report, in the other two, you can only find specific information relating to trade unions (e.g. due to the signing of a CSR protocol or an International Framework Agreement).

In brief, we can conclude that corporate governance (G) and environmental (E) issues are measured in a more consistent way in comparison with social and labour (S) issues, where we found a greater disparity in approach and methodology. Consequently, improvement is needed in the analysis of the implementation of policies relating to freedom of association and collective bargaining as well as the participation of stakeholders -each one in its area -, in the various stages of a CSR policy carried out in the company. Especially important is union involvement in health and safety committees, labour audits in the supply and distribution chain and verification of the indicators of the sustainability report.