Workers Need Sustainability, Too

Thomas Lee, Bloomberg / Getty Images

Apple's recent release of its iPhone 5 resulted in record-breaking sales—more than 5 million phones sold in the first weekend alone and a backlog of orders. Yet according to independent labor groups, peak sales are continuing to take their toll on workers at Apple`s largest supplier, Foxconn, despite elevated public scrutiny.

Egregious working conditions at Foxconn, including at least 22 attempted worker suicides since January 2010, were brought to the forefront earlier this year, despite the reality that labor violations have long persisted. Now Foxconn workers, who have been toiling around the clock to bring iPhone 5 to market, are struggling to keep up with increased pressure from Apple, triggered by both heavy consumer demand and emerging quality concerns. Labor disputes have escalated, including several work stoppages, which are slowing production and jeopardizing Apple’s ability to meet market demands.

The fact that Apple’s supply-chain challenges have not affected iPhone sales is telling. Growing public concern over environmental issues does not yet fully extend to social issues, particularly worker treatment. Likewise, while many companies compete over environmental leadership, social issues are often critically overlooked. This is an important issue to keep in mind when assessing the sustainability commitment of companies in the Green Rankings.

Take Walmart. This company has articulated an ambitious set of environmental commitments toward greening its vast network of direct operations and suppliers. With revenue of more than $400 billion, Walmart’s commitment to renewable energy, waste reduction, and sustainable products and services bodes well for the planet. If the company channeled comparable efforts towards enhancing working conditions for employees and suppliers, the results would be far-reaching. But instead it has taken a very different approach. More than any firm in the world, Walmart has been accused of driving a low-wage strategy throughout the economy.

The problem is that Walmart’s environmental leadership masks its underlying social problems. While its environmental commitment is substantive and credible, the trickle-down effect has been minimal; Walmart's approach to labor issues has not wavered. Over 70 labor-related class-action lawsuits have been filed over the past decade, alleging violations of wage and hour laws, employees forced to work off the clock, discrimination, and illegal compensation. Even as these suits have resulted in more than $640 million in settlements, Walmart continues to systematically prevent its employees from unionizing, with tactics including intimidation of union supporters and store closures where unionization efforts have succeeded.

Admittedly, Walmart’s unparalleled market power leads it to be singled out by its critics for its poor labor-relations track record. Yet the tendency to overlook critical social issues alongside environmental initiatives is prevalent across other industries, from tech hardware to extractives, due in part to the misperception that such costly investments do not have tangible impacts on the bottom line. A forthcoming report by Sustainalytics and Tellus Institute—Worker Equity in Food and Agriculture—will demonstrate an overarching tendency among the 100 largest food and agriculture companies and consumers in the U.S. to prioritize health concerns, environmental impact, and animal welfare over worker welfare. The crux of the problem is a narrowly defined characterization of what it means to be “sustainable.”

Now that environmental leadership has been widely embraced by companies as a competitive advantage, it’s time to redefine sustainability to include social impact. This entails a departure from the traditional cost-cutting model towards a triple-bottom-line approach, embracing economic, environmental, and social performance as measures of corporate success.

Forward-looking companies are recognizing the need to secure a “social license” to operate, through engaging their employees, suppliers, and other key stakeholders. Depending on the nature of the industry, such initiatives could include policies and management systems promoting human rights, indigenous relations, health and safety, compensation, and supply-chain management. The benefits of this approach may be less tangible in the short term, yet preliminary findings suggest long-term value, including enhanced productivity, employee attraction and retention, improved customer service, and even product quality.

The crux of the problem is a narrowly defined characterization of what it means to be “sustainable.”

A social license to operate also acts as insurance against potential controversies, which can have a damaging impact on a company’s reputation and profitability. A recent strike at mining company Lonmin PLC resulted in a violent outbreak where police opened fire, killing 34 South African striking workers and injuring at least 78 miners, triggering labor unrest throughout the region. With this site accounting for 92 percent of Lonmin’s platinum production, it also decreased the company’s market value by $610 million. Such incidents should serve as a wake-up call for companies to better prepare themselves to mitigate social risks through the development and effective implementation of social policies, management systems, and relevant certifications.

The good news is that there are some forward-looking companies in the Green Rankings that are proactively addressing both their social and environmental footprints. One company that stands out is Intel, where every employee's compensation is linked to the company's environmental, social, and governance (ESG) performance. Along with other leading auto companies, Volkswagen stands out for its strong oversight of labor relations, while Fiat and Ford take the lead for supply-chain management. Philips Electronics is a leader in stakeholder engagement and robust disclosure via integrated reporting, a best practice of combining both financial and ESG reporting. And these are just a few noteworthy examples of best practices. It is time for more companies to follow suit, resetting the bar for what it means to be sustainable.