Is mounting social inequality as urgent as the climate crisis?

According to Griet Cattaert, Head of Labour Rights at the UN Global Compact, the answer is yes. “We are living in a challenging time right now. Wage inequality is increasing globally, and many more people are now considered to be ‘working poor’.” Cattaert, however, gives credit to UPM, which in her opinion is currently a global corporate frontrunner when it comes to delivering social responsibility actions related to the 2030 SDG8 and its strong focus on inclusivity and fair rewarding.

We welcome the focus on people

UPM is a multinational company with around 17,000 employees in 46 countries and 20,000 B2B suppliers in 80 countries. As a global operator ensuring respect for human rights and promoting decent work play a key role in all company operations. “Stakeholders are increasingly looking for strong social commitments from global companies like us. Also, the corporate responsibility regulation is evolving fast, especially in Europe,” says Kaisa Vainikka, Director, Social Responsibility at UPM. “The regulation mandates companies to be more transparent and to demonstrate progress in promoting respect for human rights and decent work. We welcome the focus on people and acknowledge the need to be able to demonstrate that we understand our business context and impact on people.”

Focusing strongly on diversity, inclusion and fair rewarding

In line with the UN’s Sustainable Development Goal 8 to ‘Promote inclusive and sustainable economic growth, employment and decent work for all’, UPM has renewed and published new 2030 social responsibility targets in 2022 (Annual Report, page 32) with a strong focus on diversity, inclusion and fair rewarding.

The new targets for fair rewarding are related to living wage and gender pay equity. Concerning living wage, UPM is committed to ensure that employees’ pay meets at least a local living wage and that the situation is reviewed annually. The company is also committed to ensure the gender pay equity to all employees by implementing a yearly review process to identify and close unexplained pay gaps.

An annual review of both targets is needed, as no society or company is static. The company hires new people, some people leave, inside the company existing employees get promoted, or move to different jobs or to different countries. And all this needs to be considered every year when the data is analysed.

Understanding living wage

“Living wage is a complicated concept that currently does not have a single, globally uniform definition that we can all conform to and use,” says Riikka Ahola, Vice President, HR Rewards, UPM.

UPM has summarised the essence of what a living wage means: it is the remuneration received for standard work by a worker in a particular time and place sufficient to afford a decent standard of living. Elements required for a decent standard of living include food, water, housing, education, healthcare, transport, clothing, and other essential needs including provision for unexpected events for the worker. These are the elements also included by the Global Living Wage Coalition.

Living wage, however, is a voluntary construct and typically it is value-wise higher than minimum wage.

“Let’s be clear too, that quite often people use the terms ‘living wage’ and ‘minimum wage’ interchangeably, but these are two very different concepts”, Ahola continues. “They may both have the same objective - that people can earn enough to provide a decent living and don’t live in poverty. That said, minimum wage is required by law and of course, companies like us comply with this law in all the countries we operate in. Living wage, however, is a voluntary construct and typically it is value-wise higher than minimum wage. Very few countries set these to be equal.”

The UN Global Compact Think Lab promotes living wage to companies and policy makers

According to Griet Cattaert, the focus must be on all three sustainability aspects of ESG (Environmental, Social, Governance). “The focus is often on the ‘E’, but we really have to look into the ‘S’. In addition, the challenge for all sustainability initiatives is about reporting. There are detailed assessment methods and tools for E’ but for ‘S’ there is a lack of consensus about what it constitutes, and it is very difficult to measure social impact in general. There is no universally accepted monetary amount that defines a living wage so it can be confusing for companies to understand the issue,” Cattaert explains.

The UN Global Compact Think Lab on Living Wage is where companies discuss issues about how they can convince more companies to engage in the living wage discussion, so more companies make bold commitments and send a signal to policymakers to adopt living wage policies. “In essence, it’s really about strong thought leadership with a very small group of companies, Cattaert says.

The UNGC has been working with UPM since 2019 on the topic of decent work in general, and how to improve working conditions in the company and its global supply chains. “We decided in a working group of 25 companies to start working specifically on the topic of living wage.”

UPM will analyse and correct living wages annually

UPM’s commitment in terms of living wage is to do an annual analysis, and if the global assessment shows unexpected wage gaps, they are corrected. UPM works with an independent third party to develop its understanding of living wage. “They provide us with an external objective source of benchmark for each of our operating countries to conduct our annual assessment. We will continue to develop the methodology to ensure that we continue to pay our employees as fairly as possible,” Ahola confirms.

Correcting the gender pay gaps

UPM’s commitment to ensure the gender pay equity to all employees and to review it annually is exceptional on both a national and global scale. Until today, there are only a few companies who have published the target, the annual review process and also the results of the review. The company-wide pay equity review was made in 2021. The results showed that UPM salaries and wages are mostly equitable. However, unexplained pay gaps were identified for approximately 2.3% of UPM employees (400 UPMers) in 10 countries. All of them received a pay adjustment as of 1 January 2022.

The annual review enables the monitoring of possible gender pay gaps and to make pay adjustments respectively. “There can, however, be pay differences if the reason is legitimate,” Ahola notes. “So, you explain the difference by the type or the level of the work, the experience, the performance, the location and more. These differences are fair if they are explained and understood by transparent criteria, but if there are unexplained differences, that’s wrong.”

The road to 2030

“In terms of social responsibility, UPM is ahead because they really want to look into their own business operations and supply chains and understand the issues. This is something major: if companies are reflecting themselves on how they are performing and are collecting data, that is the first thing you need to understand the issue. UPM is also committed to speak up on these critical social responsibility topics and are, therefore, definitely one of the frontrunners globally,” Cattaert concludes.

As UPM moves forward, expectations from stakeholders, including investors, are increasing. An open and honest dialogue is the key. “UPM is a large employer and committing with ambitious social responsibility targets regarding its own people. The next step for us is to start promoting living wages also with our suppliers. There are a lot of people employed across our supply chain, so this will be an even more important part of our work impact-wise,” concludes Vainikka.

Text: Dan Rider, Miltton