Written evidence submitted by TUC
INTRODUCTION
1. The TUC welcomes the opportunity to submit its
views to the International Development Committee's (IDC) inquiry
into the future of CDC. As DFID's wholly owned Development Finance
Institution (DFI), CDC has the mandate, resources, and potential
to drive significant pro-poor private sector growth in the developing
world, yet as this submission outlines it is falling well short
of this potential. It has a set of development standards that
are weak and arguably not in compliance with international conventions.
It fails to systematically target and reach the poor through its
investments. And unlike leading private sector development initiatives,
it lacks the systems or programmes to support companies, workers
and other stakeholders to drive sustainable improvements in development.
Finally, CDC could greatly improve its civil society engagement,
transparency and accountability.
2. The TUC therefore concurs with, and welcomes the
view of Andrew Mitchell, DFID Secretary of State that CDC needs
a "major overhaul", particularly to "rebalance"
the organisation "towards both development and financial
gains".
ABOUT THE
TUC
3. The TUC is the voice of Britain at work, representing
58 affiliated unions with a total of 6.3 million members. The
TUC is also part of the larger global trade union family that
will have members working in the companies that CDC funds are
invested in. It works in partnership with many developing country
trade unions to alleviate poverty and secure decent work.
4. The TUC has extensive experience in developing
private sector standards to improve conditions at work, particularly
in the context of international development. This includes:
- developing international standards of corporate
behaviour through the International Labour Organisation, the International
Standards Organisation, and the OECD;
- working with multinational enterprises to improve
labour rights in supply chains, particularly through the UK-based
Ethical Trading Initiative;
- working with government over developing best
practice systems on ethical procurement (e.g. the London Organising
Committee for the Olympic Games, the NHS); and
- assisting worker representatives on pension funds.
5. This submission is adapted from an earlier TUC
submission to the IDC's inquiry into DFID's annual report 2008-09.
It focuses on the TUC's core area of expertise: decent work and
development. However the TUC also shares the concerns of others
regarding CDC's practices on expenses and remuneration, use of
tax havens, and other development goals such as environmental
sustainability and combating corruption, as well as DFID's oversight
of CDC.
THE CDC INVESTMENT
CODE AND
LABOUR STANDARDS
1. CDC's Investment Code (the "Code") should
be the basis upon which all of its developmental efforts are directly
towards. It is therefore essential that the Code as good as it
can be. The best code among DFI's is widely recognised to be the
World Bank's International Finance Corporation's "Performance
Standard" (IFC PS). This has been widely adopted by other
DFIs, and CDC claims that its Code is "compatible" with
the IFC PS, but it falls short in three important regards.
2. Firstly, unlike IFC's labour rights provisions
set out in its "Performance Standard 2" (PS 2), the
Code does not include key provisions around fair retrenchment
processes, grievance mechanisms, supply chains, human resources
policies, requirements to provide written terms and conditions
of employment and the requirement that the code covers all workers
engaged by the company, not just "employees". This last
point is critically important because company operations can involve
many "non-employees" - from contract or agency workers
to workers in an outsourced part of the company's operation. These
are typically the most vulnerable and poorest workers in sectors
that CDC invests in including construction, manufacturing and
agriculture. This leads to worrying outcomes: for example, under
the current Code, a company would be free to discriminate against
e.g. migrant agency workers, or home workers engaged on a piece
rate system, where the domestic legal system does not address
the issue.
3. Secondly, the Code's language on labour rights
is much weaker and on several occasions distorts the meaning of
the core conventions of the International Labour Organisation
(ILO), or the Universal Declaration of Human Rights, which it
is claiming to reference. For example the Code states that businesses
in which CDC capital is invested will: "allow consultative
work-place structures and associations which provide employees
with an opportunity to present their views to management".
This language is a watered down definition of freedom of association
typically used in company codes of conduct for operations in countries
where independent trade unions are banned such as China. As such,
it is inconsistent with the definition of freedom of association
and the right to collective bargaining in ILO Convention 87, which
the Code references earlier.
4. Thirdly, while PS2 and other DFI codes requires
companies to adhere to core labour standards, the Code only aims
to, "encourage the businesses in which CDC's capital is invested
to work over time towards full compliance with the International
Labour Organisation (ILO) Fundamental Conventions". While
the TUC recognises the importance of encouraging continuous improvement
in performance over time, it is important for the Code to set
clear baseline of compliance rather than vague aspirations. This
concern is compounded by CDC's lack of transparency over the management
systems, and targets that companies are adopting to drive such
continuous improvement (see also paragraph 29).
5. The Code's claim to be "compatible"
with the IFC PS therefore seems to be more a mistaken assertion
of fact rather than having the effect of incorporating the terms
of the performance standard into Code.
6. Accordingly, CDC should revise its Investment
Code by:
- consulting publicly with trade unions, and other
civil society organisations, and relevant international institutions;
and
- ensuring that it is fully consistent with internationally
recognised labour, social and environmental standards; and genuinely
builds on best practice instruments including the IFC PS, the
OECD Guidelines for Multinational Enterprises, and the ILO Tripartite
Declaration on Multinational Enterprise.
- Monitoring and demonstrating "development
impact".
7. After reviewing CDC's published material, the
TUC shares the conclusion of the Public Accounts Committee of
the House of Commons: "there is limited evidence of CDC's
effects on poverty reduction." This is for the simple reason
that CDC does not target or measure poverty in its projects.
8. In its 2009 Development Review it reports that
companies it invests in employ some 733,000 people. Have these
jobs been created because of CDC's investment? Has this employment
helped these people leave poverty? Or were they already well off?
The TUC is concerned that many of the sectors that CDC invests
in may not be reaching the poor or creating jobs. Further, if
CDC investments are reaching the poor, there is no data showing
that workers are earning wages good enough to lift them and their
families out of poverty.
9. While DFID has given CDC investment targets for
countries and regions, it does not have targets for reaching the
poor and reducing poverty. As a first step, CDC could adopt indicators
and targets on actual jobs created and wage levels. In selecting
investments, regard should also be had to environmental and governance
concerns, as well as the potential of the investment to lift people
out of poverty. Applying such criteria should help define what
sectors CDC focuses on in the future.
10. CDC investments should also be having a measurable
impact in other areas of development covered in the Code. CDC's
recently published 2009 Development Review attempts to respond
to this criticism, but the data it presents is inadequate. A series
of evaluations of the CDC funds were carried out, concluding that
some funds "had social issues" and some had "reported
social improvements". It also gives each fund a global grade
on its ESG (Environmental Social Governance) performance on a
scale of "excellent", down to "unsatisfactory".
11. Is child labour an issue? Are workers actually
being paid their wages? In what sectors are investments lifting
the most people out of poverty? Unfortunately CDC's reporting
says very little about the developmental impact of its work. Other
private sector initiatives with a development or "social"
component would grade performance on an issue-by-issue basis establishing
baselines to measure each issue, setting benchmarks to strive
towards, and then supporting the company to come up with a plan
of action to drive continuous improvement. The data produced by
this can then be used to analyse trends, and evaluate how interventions
can be better tailored to tackle difficult issues. This is basic
good practice on aid effectiveness, and practice that DFID is
a world leader on. In the absence of such a system, the impacts
of CDC investments are unlikely to be any different from ordinary
private sector activity in developing countries.
12. CDC should:
- amend its mission statement to contain an explicit
reference to its role in alleviating poverty and providing decent
work;
- work with DFID, the ILO (and other relevant UN
agencies) and other key stakeholders to develop clear development
indicators and poverty reduction benchmarks and targets for its
investments. In the employment context this should include "Decent
Work" indicators measuring employment creation, social protection,
labour standards and social dialogue.
SETTING UP
SYSTEMS TO
DRIVE DECENT
WORK AND
DEVELOPMENT
13. Along with developing development indicators
and targets, CDC needs to follow the lead of other DFIs and organisations
in running programmes with companies to make real strides in reducing
poverty and providing decent work. For example, a company member
of the Ethical Trading Initiative (ETI) has recently been able
to show that over the past three years it has turned around 60
"non-complying" factories in Morocco to ensure that
they now all pay at least the minimum wage, and adhere to national
health and safety standards. It achieved this with far fewer resources,
and greater supply chain challenges than CDC. Furthermore, it
has done this as a for-profit outfit, not as an organisation using
public funds with the purported aim of alleviating poverty.
14. Other DFIs are making promising progress in this
area. The IFC-ILO Better Work Programme is working with multinational
enterprises, local suppliers, trade unions and national governments
to improve the livelihoods of workers in manufacturing supply
chains. In Cambodia, for example, the programme has given decent
work and wages to female workers, who have been able to save and
send funds back to their rural communities enabling them to cope
with rice shortages. This is a cost effective programme, well
targeted and measured.
15. Both of these examples represent emerging best
practice in private sector development and labour standards management.
They are moving away from a "compliance" approach -a
flawed "tick box" exercise that has little sustainable
developmental impact - to putting a strong emphasis on developing
systems to enable and ensure sustainable improvements in labour
standards and productivity. This includes working with companies
to develop professional systems of human resource management,
and working with local unions to build functioning systems of
industrial relations - to enable workers to monitor and improve
their own conditions and production processes through mature dialogue
with management.
16. CDC should be learning and applying this best
practice, but will face challenges in doing so because its funder
of funds model makes it too detached from the actual companies
using its funds to be able to influence them.
17. CDC could explore two complementary approaches
to overcome this problem. Firstly, the TUC supports the Secretary
of State's views that the CDC portfolio should limit its indirect
investments and begin to make direct investments again, to ensure
it has real influence over companies. Secondly, to roll out the
support and programmes described above, CDC should consider engaging
local specialist staff in priority investing countries to work
with companies to develop and carrying out time-bound, target-driven
improvement plans. Such efforts could be carried out in conjunction
with DFID country offices, with other DFIs and development actors.
Such support could apply to companies using CDC funds both directly
and indirectly.
18. CDC's current staffing structures would not be
able to deliver this. At present CDC only has two staff covering
its "ESG" (or Environmental, Social and Governance)
work across an incredibly large and broad portfolio. Instead it
mainly relies on its fund managers to drive development, supported
"through a comprehensive training programme backed up by
the new Toolkit". However, such fund managers are unlikely
to have the right skills to perform the necessary tasks (e.g.
could a fund manager design a programme to identify and address
caste discrimination?), nor may they necessarily want to. Instead,
CDC needs put in place qualified in-country specialists and the
resources to help deliver such a programme. It could begin by
piloting this approach in a range of priority investing countries.
19. Bringing CDC within DFID's proposed Private Sector
Department could be a great opportunity to enable it to learn
from best practice with other DFID-supported initiatives such
as the Ethical Trading Initiative.
20. CDC should:
- Draw on best practice in private sector development
initiatives by running programmes in priority investing countries
with companies to drive sustainable improvements in labour standards
and productivity; and
- Establish a balanced portfolio by limiting its
funder of funds-style investments and increasing its direct investment.
CIVIL SOCIETY
ENGAGEMENT
21. Contrary to good practice among other DFIs, the
CDC has no formal consultative processes or governance positions
for trade unions or other representative civil society organisations.
For example, the IFC and the European Bank for Reconstruction
and Development (EBRD) have been able to achieve best practice
in developing and applying labour standards to their investments
through drawing on the expertise and experience of the Global
Union Federations and the International Trade Union Confederation
(ITUC) through formal consultative structures. Further, DFIs such
as the Netherland's FMO and Germany's DEG include trade union
representation on their boards.
22. Other UK bodies dealing with the private sector
and international development (among other things), such as the
UK National Contact Point (NCP) to the OECD Guidelines have benefitted
from having social partners (TUC, CBI and NGO representatives)
sit on its oversight body. These external members have greatly
aided in improving accountability and oversight of performance,
building consensus on strategic direction and bringing in a wide
range of expertise. Among the 42 NCPs globally, the UK is now
recognised as a world leader.
23. CDC needs to conduct public consultations. Aside
from ensuring that CDC is accountable and consultative, consultation
is simply common sense: CDC's Investment Code would have greatly
benefitted from external feedback and advice.
24. CDC claims in its Freedom of Information statement
that it "discloses aggregate summary results of its evaluation
work and produces development impact reports annually". Yet
as discussed earlier, this information says very little about
actual development impact. Instead CDC should disclose all information
relevant to assessing development impact including, but not limited
to, all information generated under section 4 of the Code concerning
management systems for CDC fund managers, especially initial impact
assessments, remedial action plans, targets for continual improvement,
corrective actions, and any evaluations.
25. Surprisingly, unlike other DFIs such as the IFC
or the Asian Development Bank, CDC has no complaints mechanism
for workers or communities potentially affected by CDC investments
to seek redress. Such mechanisms can help identify and resolve
problems at an early stage, rather than cause them to escalate
and cause huge reputational damage.
26. Trade unions most probably represent workers
engaged by the companies that CDC invests in. However, it is not
at all clear that these unions have been consulted, as part of
any impact assessment or in any ongoing monitoring and evaluation
work.
27. Accordingly CDC should:
- include trade unions and other civil society
partners on its Board. As a first step CDC should develop formal
consultative structures with trade unions and representative civil
society organisations;
- hold public consultations as part of developing
policy and strategy;
- Disclose all information relevant to assessing
development impact;
- Establish a complaints mechanism allowing parties
to file complaints to address potential breaches of the standards
and secure appropriate remedies; and
- For all proposed investments, conduct impact
assessments that consult with potentially affected parties and
civil society organisations, and include binding recommendations
for avoiding or mitigating negative impacts.
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