Would you rate company CSR practices?

Labour rights article written on the 14 Sep 2011

From Walmart’s Sustainability Index to Labour Behind the Label’s Let’s Clean Up Fashion reports, there has been a proliferation of company rating schemes in the past few years. But when it comes to improving workers’ rights are they really such a good thing?

Can CSR ratings help improve labour practices in global supply chains? is the new report prepared by Maquila Solidarity Network (MSN) and the Project on Organising Development, Education and Research (PODER) to inform the debate about ratings and rankings.

Labour rights groups have a wide range of opinions on whether Corporate Social Responsibility (CSR) ratings can help improve companies’ respect for workers’ rights. Supporters argue that although more effective government regulation is critical, voluntary efforts can by play some role in boosting company compliance with labour standards and ratings systems are a good way to encourage companies to continuously improve.

According to Tim Connor, former Oxfam Australia labour rights advocate, company self-reporting is not sufficient, more independent and sophisticated methods must be adopted to capture the realities on the ground for workers in factories. Sam Maher, of Labour Behind the Label, adds that “[a] rating system is not a panacea. Ratings can only be effective within the framework of a specific campaign that puts pressure on the companies.”

WRC Executive director, Scott Nova, is not a fan of ratings systems. Nova believes that rating systems are inherently risky and create a “moral hazard” because they give audiences a false sense of security regarding company progress on key CSR issues. He believes that rating schemes focus too much on technical solutions—rather than the implementation of substantive structural change.

The CSR ratings report explores these viewpoints, focusing on what factors make these schemes more or less credible and effective in strengthening the implementation of workplace rights. The report finds that it is difficult to compare individual rating systems because they often have quite different agendas and target different audiences. However it does identify a number of more innovative methodologies. These include measuring whether the company:

– engages in multi-stakeholder projects, based on the recognition that labour rights issues are multi-faceted and for the most part are not resolvable in isolation;
– establishes long-term, stable supplier relationships;
– establishes terms of trade – including prices – that allow suppliers to meet labour standards (e.g. purchasing practices that support workers’ rights) rather than only rewarding good CSR managing systems (e.g. simply having a code of conduct); and
– where the company works with local stakeholders to ensure workers are given training on their rights at work;

The study also found that ratings schemes were more likely to help improve labour rights performance where:

– Ratings are weighted to assign priority to practices that have the most benefit for workers on the ground.
– Ratings offer clear incentives that encourage companies to improve their performance.
– Rating provide enough transparency so that consumers and companies know on what criteria the brand achieved its rating and what this really means for its labour polices and practices.

The study acknowledges there are many challenges and risks inherent in CSR ranking systems, such as:
– Obtaining accurate and up-to-date information about the realities for workers in factories (Disney alone has 24,000 active suppliers— evaluating performance on the ground could prove a logistical nightmare).
– Problems with the reliability of publicly available data (company audits can be flawed, measuring performance via media reports can lead to bias because media will tend to focus on only the juicer stories and better known brands). Reliance on publicly available reporting means that companies that have a greater focus and capacity to report their CSR work will perform better in ratings.
– Companies may strategically ‘play’ rating systems, gaining points through relatively easy steps whilst avoiding making any real, systematic change to labour practices.

All these factors point to the fact that designing a credible ratings scheme is no simple task. There is also the issue of presenting the ratings—to be effective a ratings scheme needs to communicate its findings in a way that it’s audience (whether investors or consumers) can easily digest, without being misleading, non-transparent or overly simplifying complex issues.

So is the development of CSR ranking and ratings a strategic investment for labour activists trying to support effective and lasting change?

The report authors argue that overall ratings systems can help to promote an agenda for change by highlighting the most significant issues that need to be addressed to achieve that agenda. The authors recommend that CSR rating systems need to prioritize systemic issues that are blocking progress toward sustainable compliance in the industries rated. Importantly ratings need to ensure that the experiences and voices of workers making the goods are reflected and form a key part of the assessment.

But the issue of whether it is really worth spending the significant time and resources required to improve ratings systems so that they can provide incentives for systematic change remains to be debated.

Whatever side of the fence you sit one thing is clear—these systems are in popular demand and aren’t going to disappear any time soon. A critical understanding of the strengths and weaknesses of different rating systems, and how to strategically engage with these ratings systems is important for those seeking to influence the corporate sector to uphold workers’ rights.

Read the full report