· 6 min read
This article is part of a trilogy on employment and the future of work. You can find Part 1 on the global search of job quality here.
The impact investment industry has created millions of jobs in developing countries over the last several decades. A recent survey sample of impact investors found that 79% primarily targeted impact through employment, and had particular sectors of interest with agriculture and food receiving the highest proportion of investments (36%). Yet global structural transformation patterns coupled with increasing demands and goals to foster more sustainable growth and development have renewed focus on the types of jobs that are created by impact investment, not only the number. Financial investment and capital allocation are clear drivers of job creation, which means that there is also a role to be played in relation to job quality. Part of the issue relates to reliable impact measurement and rigorous data methods that are necessary to adequately clarify the role of impact investors in this area.
What types of roles can impact investment have in creating good jobs?
With such a large percentage of impact investors focused on job creation in developing countries that tend to have lower job quality, this provides additional opportunities to make investments that also improve quality standards. According to IRIS+ strategic goals related to job quality, some key targets for impact investment could be improving earnings and wealth through employment and entrepreneurship, improving health and well-being across the workforce, increasing job security and stability for those in precarious employment, improving job skills for the future, and improving rights, respect, and cooperation in the workplace.
Patricia Richter from the ILO explains that there are pathways for investors to pursue better job quality. “It’s about the thinking behind and developing a strategy for the investment, for how you want to allocate capital so that it contributes to creating quality jobs.” A potential goal for investors could be to “transform these informal labor relationships in the supply chain into regular employment relationships where workers are covered by benefits.”
Yet there are other approaches in the field that also can help to tackle this issue of job quality. David Simms, founder and managing partner of Talanton, prefers to focus on a capabilities-oriented approach. This means creating the type of investments and support structure that helps medium and small businesses thrive such that they are able to provide better jobs and live better quality lives for their workers. Some of this is focused on the eco-system within which the business operates. As David told us, being “in a supportive ecosystem is another really important part of the good job. You could be a great farmer, but if you have no way to get your crops to market, that’s not going to be a good job because they’re going to be spoiled or you’re not going to get fair value or a middleman’s going to take the value out of the value chain. So we want to know, is there an ecosystem? So the ecosystem includes training and equipping.”
Delilah Rothenberg, Co-founder and Executive Director of Predistribution Initiative (PDI), who works with institutional investors to improve investment decision-making processes in ways that more adequately value workers, communities, and nature, explains that the capital structure and governance of a company can have a considerable impact on the quality of the jobs it creates due to competing interests of investors and the company’s stewardship team. As she told us, “if a company is overburdened with too much debt, for instance, it might not be in a financial position to offer quality jobs because of its debt servicing. People often don’t think about the importance of the capital structure when it comes to job quality.”
Living wages, worker ownership, and collective bargaining
This year, the International Labor Organization’s (ILO) Governing Body reached an agreement on a growing trend in the development community – the concept of a living wage. As part of the agreement, the ILO recognises the need for living wage policies and standards that are based on robust evidence and adapted to regional contexts but ultimately provide a level of pay that gives workers and their families a decent standard of living to provide for their basic needs. Yet according to research by the World Economic Forum, just 24% of employers globally currently pay a living wage. However, 54% of those not yet committing to a living wage expect to pay a living wage in the next five years.
As Patricia Richter of the ILO explains, “Everybody knows that minimum wages are not enough to provide for a living. A lot of discussion has happened amongst investors and they are moving to this concept of of living wages. There are entry points and this somehow can be done. We need to be realistic, yes, but this can be about creating wealth as part of investment strategies.” The World Economic Forum estimates that a globally implemented living wage could generate $4.6 trillion in additional GDP each year through increased productivity and spending.
Additional strategies for improved job quality focus on creating opportunities for worker ownership of companies. As Delilah Rothenberg explains, this can shrink wealth inequality but also help the long-term prospects of the business: “One of the main reasons for rising vast socioeconomic inequality globally is that corporate executives and investors are compensated in equity, while workers are typically compensated with salaries and wages. Sharing equity ownership with workers can narrow that divide. In an age where corporate executives are incentivised to maximise returns in relatively shorter time-frames, having workers counterbalance that concentration of power and incentives can help keep companies focused on long-term value and accountability.”
But workers don’t have to be partial owners of a company to positively influence better job quality standards. Collective bargaining, freedom of association, and grievance mechanisms can cultivate more responsibility by providing workers a voice within the company and supply chain. Worker representation, whether through unions or representation on the board of directors of companies can ensure that quality jobs are a key part of the conversation. The Labor Rights Investor Network, who advocate for investor support of labor rights, has garnered support from investors and fiduciaries representing 46 institutions and over $3.7 trillion in combined assets under management.
What is the policy path forward?
As job quality evaluation and policy evolve, there is clearly more room for regulatory reform and guidance for areas such as contract types, employment conditions, and organising rights. Yet these policies may require a larger transformation of social security systems to help attract workers to the formal economy, which requires resources, strong institutions, and political will.
However, there are also other ways governments can create enabling environments for good-quality jobs. Governments can help establish frameworks that support employers boost job quality. Data availability remains a key precondition to accurately measure and evaluate job quality, but policymakers can develop thresholds for job characteristics that meet standards, similar to the way thresholds are set for environmental standards. For example, living wage thresholds have been adopted in many countries.
No matter the policy lever, job quality is so multi-dimensional that it will require collaboration across a range of stakeholders, especially the private sector. Partnerships across industry sectors, investors, government, and non-governmental organisations can help guide job creation to better meet the job quality standards sought in society.
As Delilah Rothenberg told us, “The most effective and lasting interventions are co-created by diverse stakeholders across investors, businesses, workers, communities, academics, and other specialists. The focus is on co-creating forums for these stakeholders to come together, incubate solutions, test them, and prime them for uptake by policymakers and regulators.”
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
