Towards performance-based engagement on human rights

PGGM kicked off a new human rights engagement program
PGGM immersed ourselves in the international standards for responsible business conduct, including the UN Guiding Principles on Business and Human Rights and we applied the principles to structure a proactive human rights engagement program. This new program builds upon PGGM’s controversy-based OECD engagement and takes a proactive approach in engaging with high risk companies identified through various data sources such as Corporate Human Rights Benchmark and KnowTheChain.

Determine expectations on human rights outcomes for land and labour rights
One of the key exercises in this process is to identify a set of outcome-based indicators that guide our engagement targets. The aim is to look beyond companies’ policy commitment and to focus on actual human rights results. Now, when it comes to land and labour rights, it is clear for us what the key performance metrics are for engagement.

For example, on forced labour, we expect companies to quantify the extent of forced labour identified in its own workforce and supply chains. In addition, if there is non-compliance of the Employer Pays Principle (in which employers rather than employees bear the expenses associated with gaining employment), we ask for the percentage of workers who have paid recruitment fees and who have been reimbursed within 120 days. With inputs from multiple stakeholders, we are able to identify these key metrics across various sub-themes such as child labour, living wage, indigenous community rights, and forced eviction.

Challenges and continuous improvements
The indicator identification process was not easy. An important consideration was to avoid perverse incentives. For instance, we started off setting indicators that represent a ‘clean’ value chain such as ‘zero child labour.’ However, after extensive discussion, we decided to change this type of indicators because zero child labour could also reflect an ineffective due diligence process and compromised factory auditing. It remains a challenge on how to strike a balance between simple, clear metrics and comprehensive, nuanced ones. Furthermore, high quality social data are not yet offered at scale. PGGM will continue dialogues with our peers in building consensus on key social metrics and conduct market engagement to accelerate availability of social data.

Advocate for effective measures
While identifying outcome-based metrics, we are also aware that outcomes cannot be achieved overnight. Therefore, PGGM wants to understand how its investee companies act to reach those outcomes over time. For example, PGGM believes that unions play an important role to enhance workers’ rights. Successful examples such as the International Accord for Health and Safety in the Textile and Garment Industry (‘the Accord’) help to establish an effective mechanism to protect labour rights that address some of the shortcomings of social auditing. PGGM will continue engaging with stakeholders such as NGOs, unions to identify effective measures such as the Accord and advocate for adopting these measures to both investee companies and our peers.

Direct engagement with suppliers
In our blog last year, PGGM stated that we would like to explore opportunities in value chain engagement. This year, together with the Platform Living Wage Financials, we kicked off a garment supplier engagement pilot by talking to supplier-oriented organizations such as the Better Buying Initiative and the Sustainable Terms of Trade Initiative and entered into dialogues with garment manufacturers. This not only helped us understand key challenges and considerations of suppliers in implementing human rights standards, but also the dynamics between brands and suppliers that influence responsible purchasing practices.

In comparison to brands, PGGM’s investment exposure to suppliers is far limited. We however see engagement with suppliers providing valuable leverage to enhance the quality of our engagement with brands, not to mention the impact manufacturers have through direct employment relationship with garment workers. Where relevant and possible, PGGM includes manufacturers in our active engagement program.

Looking ahead 2024
In 2024, we aim to focus on three things. First, as we continue with the new and existing human rights engagement, we seek to drive actual outcomes for workers. PGGM’s stance on Nike is an example. Second, we continue advocating the application of effective measures, in particular the role of unions for protecting labour rights. Third, we ask our external managers to embrace the human rights standards PGGM adheres to.

We will communicate our enhanced expectations and benchmark all our managers on their human rights practices in 2024. As our human rights engagement program evolves and matures, PGGM is using its levers of influence to prevent or mitigate the adverse impacts on people associated with our portfolio companies’ business activities.