Labour relations - Why do labour relations matter

ESG Investment Team

Good employee relations and sound human capital management practices are critical to corporate success. Regulators and consumers are focusing more intently on labour issues. Companies need to be aware of their exposure to existing labour risks and also anticipate and plan for change.

Research shows that firms with strong labour relations and a high degree of commitment to staff outperform both operationally and financially over the longer term. Conversely, the consequences of poor labour standards can be catastrophic. A thorough assessment of a firm’s labour risks should form a critical part of the investment process.

Globalisation and new methods of working facilitated by technology advances make it ever-harder for companies and investors to assess labour risk across the whole supply chain. While international labour regulations and standards have been established, the degree to which these are adopted and enforced varies across the globe. This places much of the onus on firms themselves to enforce standards throughout their supply chain, with consideration given to such issues as working conditions, discrimination, child labour and slavery.

Industry sector and geography can give a broad indication of the types of labour risk a company might face. However, we believe fundamental analysis of individual companies yields a more accurate profile of a company’s labour risks. We identify the main ones as regulatory risk, operational risk and reputational risk.

Despite different patterns of labour management between companies, sectors and geographies, there are basic requirements which investors should expect all companies to fulfil.

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Risk warning

Risk Warning

The value of investments, and the income from them, can go down as well as up and you may get back less than the amount invested.