Environmental Social Governance (ESG)

Supply chain and sustainable development goals

By Rebekah Swan
ESG Investment Specialist, NZ / Client Advocate / Head of Product New Zealand

The United Nations’ 17 Sustainable Development Goals (SDGs) are a call to action for all countries to promote prosperity while protecting the planet. They recognise that ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs, including education, health, social protection, and job opportunities, while tackling climate change and environmental protection.

At AMP Capital we’re thinking about the SDGs and how the investments that we make are impacting on SDG outcomes. Human rights and supply chain are some of our key ESG engagement themes and below I outline some of the initiatives we are taking.

Supply chain

Did you know China has seven per cent of water reserves and 20 per cent of the world’s population?

It is also the world’s largest textile manufacturer and uses significant quantities of water to make these garments. For instance, one kilogram of cotton requires 10,000 litres of water to produce1.

How much water do you think it takes to produce one T-shirt? According to IHE Delft Institute for Water Education, a T-shirt’s water footprint is 2,720 litres. The waste water that is produced from the process is also extensive, coming from chemicals, dyes and pollutants, which has a big impact on China’s under-pressure water resources.

So what are we doing?

We are asking some of the world’s largest companies to close the loop on water efficiency and pollution. At AMP Capital key engagement activities include:

  • Mapping the supply chain, even if it is outsourced, including waste.
  • Ensuring that companies publish what factories they use and encouraging the consolidation of supply chains where possible. The fewer companies a manufacturer uses, the better the voice they will have regarding conditions for factory workers.
  • Encouraging companies to work with their peers to find solutions for wages and poor conditions, and to pay a living wage to their workers (ie. an amount which covers food and rent).
  • Asking for ethical sourcing policy to be aligned across all brands of a listed company.
  • Recommending companies do spot checks and increase their presence on the ground with their manufacturers.

As a result of our engagement, what action do we take?

We take an ethical stance against companies that exploit their workforce so they can make profits. It will not be possible to eradicate poverty unless fair and just conditions of work, including remuneration, are established. This supports SDG one, target 1.1 – by 2030 eradicating extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day1.

Goal one: no poverty

Goal one - poverty

Any form of child labour and forced labour must be prohibited, and workers should expect to be paid a living wage. Poor working conditions are not only unethical, they also carry significant investment risks over the longer term to brands and business operations. We believe that a business model that relies on underpaid workers to deliver on its goods and services and does not account for its true environmental or social cost, will not be sustainable in the long-term.
Therefore, our ongoing engagement has focused on encouraging companies to sign up to and implement credible and robust ethical sourcing frameworks, which, in turn, supports goal eight: decent work and economic growth.

Goal eight: decent work and economic growth

goal eight: decent work and economic growth

The aim of this goal is to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.
The way a company deals with its suppliers or factory workers can provide valuable insights as to how the company operates generally and whether it will flourish longer term. Companies with better governance and practices tend to have a high correlation with stronger financial results1.

We engage with companies with a specific focus on a sustainable supply chain, packaging, waste recycling, and provision of e-commerce services, especially in developing countries. This supports goal 12: responsible consumption and production.

Goal twelve: responsible consumption and production
 

Goal twelve: responsible consumption and production

The focus of this goal is around supporting sustainable consumption and production patterns.

Achieving economic growth and sustainable development requires that we urgently reduce our ecological footprint by changing the way we produce and consume goods and resources. The efficient management of our shared natural resources, and the way we dispose of toxic waste and pollutants, are important targets to achieve this goal. Encouraging industries, businesses and consumers to recycle and reduce waste and move towards more sustainable patterns of consumption is also important.

The role of business

AMP Capital believes there is a role for business to play in achieving these goals and that we have an opportunity to make a real difference. Large corporates can wield an enormous amount of influence over their suppliers, even those much further down the supply chain, to implement systemic reforms that will help ensure worker safety and welfare, and to adopt zero tolerance policies on global supply chain abuses.

It’s not just about doing the right thing. There’s an economic reason for it as well. Business cannot succeed in a world of increasing inequality, poverty and climate change. Investor engagement with companies on supply chain management will ultimately help businesses secure resilient supply chains and sustainable markets for future growth.

 

1 AMP Capital Responsible Investment Leaders 2018 Engagement Report

  • Environmental Social Governance (ESG)
  • Opinion
  • Responsible Investment
  • Sustainable Investment Insights

Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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