The second article of the series De maatschappelijke jaarrekening van de CFO – The CFO’s impact reporting is out now. Michel Scholte talks about poverty, living wages and living income gaps.

For the original article (in Dutch) click on the link.

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Making a profit from poverty? Does a business that grows thanks to poverty still have a right to exist?

Oxfam recently calculated that the income of the ten richest men has doubled during the corona pandemic. At the same time, 160 million people fell into poverty.

Quite apart from the negative consequences of this blatant financial inequality, absolute poverty in the workplace and among suppliers is a growing problem for companies. Is a living wage paid, for hired employees, or a living income for the self-employed and entrepreneurs? Is the amount one receives sufficient for a household to meet the basic need?

230,000 working poor in the Netherlands

Let’s zoom in on the problem. About 9.2% of the world, or 711 million people, live for less than $1.90 a day. Globally, the rural poverty rate is 17.2%, more than 3 times higher than in urban areas. The world is committed to eradicating extreme poverty by 2030 through the Sustainable Development Goals. Forecasts suggest that we are not on the right track. If the trends continue, it is estimated that 500 million people will still be living in extreme poverty in 2030.

In the Netherlands we have about 230,000 working poor. This share of the labour force has increased in recent years. 24% of Dutch households are financially unhealthy. There is also great inequality – one in thirteen children grows up in poverty and one in thirteen adults is a wealth millionaire in dollar terms.

Financial risk for companies

The living wage and living income gaps are not only undesirable but also a financial risk for companies. The Dutch government is currently developing human rights legislation, where a contribution to poverty in value chains is very likely to be seen as illegal. Germany has already taken such a step, where large companies will have to pay 2% of their turnover in fines from 2023. That will be done for companies such as Volkswagen, Siemens and Aldi. And the European Parliament has overwhelmingly approved continental legislation.

In the Netherlands, the Labour Inspectorate supervises underpayment and earning. Hundreds of thousands of people from Eastern and Central Europe work in the Netherlands, mainly in warehouses, greenhouses and fields. From Poland alone, 180 thousand people often receive the minimum wage. In addition, it is possible that labour legislation will change. Think of the lawsuit of the Hungarian truck drivers against a Dutch transport company to receive retroactive wages according to a Dutch collective labour agreement. Or that of FNV against under-earning of Uber drivers who – just like in other European countries – can also be seen here as employees and no longer as self-employed.

Measure the impact of your value chain on poverty

Companies need a way to measure, monitor and communicate their impact on poverty and poverty reduction, for their immediate activities and their value chain.

How can you play a role as a CFO?

1. Incorporate poverty performance into control and reporting systems. Look at the current underpayment and underpayment, formulate a clear vision to bring this back to zero. Look at both your business operations and your supply chain. Who is at the bottom of the income distribution? Do they get enough to support themselves? Are there young people working full-time for the minimum wage in big cities, where rents are high? Small farmers who can’t make ends meet while working full-time? For data, in addition to HR information, you can collect local data on costs for housing, transport and food, for example via statistical offices. If it is a larger company in several countries, then the data is more difficult to collect. Identify the knowledge gaps for both business operations and supply chain. For this purpose, there is a wide availability of data sources, for example: country-specific data from the World Bank, area-specific estimates from the Global Living Wage Coalition, sector-specific estimates of different countries of True Price, and validated data from the Impact Institute Global Impact Database. Examples of reports in which poverty contributions have been reported can be found in the Impact Report of ABN AMRO (p.21) and the report on the True Price of cocoa by Tony Chocolonely.

2. Translating findings to the business. Companies can contribute to eradicating poverty in several ways: by responding to wages and working conditions in the supply chain (e.g. promotion of labour rights), in the market (e.g. inclusive products and services) and in the external working environment (e.g. transparent tax payment and impact investing). In addition, you can build awareness and understanding among consumers, both internally and externally, about how they contribute to a better livelihood. Tony Chocolonely is a good example of this and knew how to communicate the added value and price premium to pay a higher price to cocoa farmers.

3. Show industry-wide leadership. Companies have the power to use practical solutions to remove barriers, close the gap to the living wage, and distribute costs fairly. They must ensure that the value created reaches the employees. Through transparent reporting, they can share information about progress and create opportunities for common learning, while finding new ways to achieve a living wage. Whether you are a corporate or a small company, your organization can play a role in this. Look, for example, at Unilever setting a new target in its value chain, namely 100% living wage or income by 2030. Or small companies around the world that become Fairtrade certified and thus commit themselves to paying a living wage to their employees.

Businesses can help eradicate poverty. Globally, this can lead to stronger economies and stable societies, providing huge opportunities for growth in existing and new markets.

Former DSM CEO Feike Sijbesma said that a company cannot be successful in a world that is failing. Soon this could literally become the case: a company with poverty no longer has a right to exist.

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Michel Scholte is an entrepreneur, director and cofounder of True Price and Impact Institute. True Price focuses on calculating and improving the true price of products, including social and environmental costs. Impact Institute provides data, software, (digital) education and advice on impact measurement and management. In addition, he is a founding board member of Impact Economy Foundation. He is a frequently asked key-note speaker and frequently publishes columns on the daily news and sustainability via LinkedIn. He holds a master degree in Sociology from VU University Amsterdam, where he specialized in social research, agent-based modelling and living wages.

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