The world had barely begun to recover from the devastating human and economic effects of Covid-19 before the conflict in Ukraine triggered soaring prices for raw materials, fuel and food.
As a result, more than 70 million people worldwide could be pushed back into poverty, the UN has estimated. Inflation in major economies is at its highest level in three decades, putting disproportionate pressure on the poorest in society. This is reflected in the markets, with investors acknowledging that governments have little fiscal room to manoeuvre.
In this context, the pressure on companies to support vulnerable or lower-paid workers has intensified. At the same time, their financial leeway to do so has been reduced.
However, companies are increasingly recognizing the importance of supporting their greatest assets – the employees – during these difficult times. Many have chosen to take a long-term view of their business by investing in their people.
To better understand the challenges facing businesses and the choices they face, we recently engaged with leading organizations in the field, with some of these conversations preserved through podcasts.s.
Thanks to these commitments and the weight of academic research, it is clear that investing in workers’ wages can bring significant business benefits. Lower employee turnover and more productive workers make businesses more profitable and more sustainable. Businesses need to be sensitive to the competitive pressures of their industries, and blanket demands or approaches can be counterproductive if they lead to workforce reductions or increased product costs, for example. But we see long-term benefits as an important goal that all businesses should strive for.
The investment benefits of paying a living wage are also clear. The chart below plots the returns of UK-listed companies, separated into those that have paid higher wages than the average of their industry peers over the past five years and those that have paid less. Higher-paying companies have outperformed their lower-paying competitors by more than 3% per year over the past five years.
More and more companies seem to agree. In the UK, our analysis shows that more companies have become Living Wage Accredited Employers in the last year than in the previous five years combined.
For many years, we have worked with our portfolio companies to encourage fair wages. Our Engagement Blueprint, released earlier this year, laid out this expectation in detail. We will continue to use our voice and influence to encourage companies to continue investing in their most important assets.