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CONTENTS Acronyms & abbreviations 5 Executive Summary 6

1. Introduction 8 1.1 Decent Work and job quality in the international development agenda 8 1.2 RationaleforthisBriefing 9 1.3 Methodology 11

2. Developmentfinance&whatitmeansforjobs 12 2.1 Overview 12 2.2 How EDFIs support job creation 13 2.3 Developmentfinanceinstruments 14 2.4 CharacteristicsofEDFIportfolios 14

3. TheDecentWorkAgenda,andhowitrelatestodevelopmentfinance 16 3.1 The Decent Work Agenda 17 3.2 Job quality 18 3.3 TherelevanceofDecentWorktodevelopmentfinance 19 3.4 Thebusinesscaseforincreasedjobquality 20

4. HowEDFIspromoteDecentWork&jobqualityoutcomesintheirinvestments 23 4.1 Keychallenges&constraintsininfluencingDecentWorkoutcomes 24 4.1.1 Challenginggeographies 24 4.1.2 Limitedvisibilityoflabourrisks 25 4.1.3 Limitsonleverageandsphereofinfluence 25 4.1.4 Tensionsbetweenjobqualityandjobquantity 25 4.2 Facingthechallenges:ensuringlabourstandardsforsustainabledevelopmentininvestment 26 4.2.1 Shiftingbusinessculture:changingtherulesofthegame 26 4.2.2 Attentiontolabourrisksacrosstheprojectlifecycle 27 4.2.3 AssessingprogressondecentworkinEDFIclientworkplaces 29 4.3 Goodpracticesbeyondcompliance:additionalsupportofferedtoclients 30 4.3.1 Engagingwithclients 31 4.3.2 Engagingwithfinancialmarkets 35 4.3.3 Partnershipsanddialogue 37

5. Conclusion 38

AnnexA: FMOandDIFrontier/VSHydro,Uganda–construction 41 AnnexB: SwedfundandElgonRoad/Radisson,Kenya–hotel 47 AnnexC: CDCandRFLElectronicsLtd.(REL),Bangladesh-manufacturing 53

Sources 58

March2019

Contactinformation

EDFI Soren Andreasenedfi@edfi.eu

FMO CoriannevanVeeninfo@fmo.nl

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BIO BelgianInvestmentCompanyforDevelopingCountriesCDC CDCGroupCOFIDES CompañíaEspañoladeFinanciacióndelDesarrolloDEG DeutscheInvestitions-undEntwicklungsgesellschaftDFI Development Finance InstitutionEDFIs European Development Finance InstitutionsE&S Environmental and SocialEDFI Association of European Development Finance InstitutionsESAP EnvironmentalandSocialActionPlanESG Environmental,SocialandGovernanceESMS Environmental and Social Management SystemETUC EuropeanTradeUnionConfederationFI Financial InstitutionFinnfund FinnishFundforIndustrialCooperationFMO NederlandseFinancierings-MaatschappijvoorOntwikkelingslandenHR Human ResourcesIFC InternationalFinanceCorporationIFU InvesteringsfondenforUdviklingslandeILO InternationalLabourOrganisationITUC InternationalTradeUnionConfederationLDCs LeastDevelopedCountriesMSI Multi Stakeholder InitiativeNGO Non-GovernmentalOrganisationNorfund NorwegianInvestmentFundforDevelopingCountriesODA OfficialDevelopmentAssistanceOeEB Oesterreichische EntwicklungsbankOHS Occupational Health and SafetyProparco SociétédePromotionetdeParticipationpourlaCoopérationEconomiquePS2 PerformanceStandard2onLabourandWorkingConditionsSDGs SustainableDevelopmentGoalsSIFEM Swiss Investment Fund for Emerging MarketsSIMEST Società Italiana per le Imprese all’EsteroSME Small to Medium Sized EnterpriseSOFID Sociedade para o Financiamento do DesenvolvimentoUN UnitedNationsUNGPs UnitedNationsGuidingPrinciplesonBusinessandHumanRights

ACRONYMS & ABBREVIATIONS

ACKNOWLEDGMENTS This publication was produced by Ergon Associates under the direction of FMO for theAssociationofbilateralEuropeanDevelopmentFinanceInstitutions(EDFI).

Thereportbenefitedfromvaluableinsightsprovidedbyenvironmentalandsocial(E&S)specialistsanddevelopmenteffectiveness(DE)specialistsfromFMO,DEG,CDC,ProparcoandSwedfund.FurtherinputswereprovidedbythewiderEDFIE&SandDEcommunityduringameetinginBrusselsinApril2018.AseriesofinterviewswasconductedwithrepresentativesoftheTradeUnionDevelopmentCooperationNetworkoftheInternationalTradeConfederation(TUDCN-ITUC),theInternationalLabourOrganisation(ILO),theDutchMinistryofForeignAffairsandtheUK’sDepartmentforInternationalDevelopment(DFID).

ThisreportwaspreparedinthecontextoftheLet’sWorkPartnership,whichisagroupof28IFIsfocusedonprivate-sectordevelopmentwhichhaveagreedtoworktogethertocreatemoreandbetterprivate-sectorjobs,promotetheinclu-sion of vulnerable groups and help the private sector strengthen its value chains.

DISCLAIMERThe views represented in this publication are those of the authors and do not necessarilyrepresenttheofficialviewsorpolicypositionsofFMOortheEDFIsnorthe interviewed organizations’ representatives.

DECENT WORK AND DEVELOPMENT FINANCE

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EXECUTIVE SUMMARY

…andchangethe‘rulesofthegame’,bymainstreamingcompliancewithinterna-tionallyagreedlabourstandards.

One of the main channels by which EDFIs promote job qualityisthroughafirmcommitmenttotheInternationalFinanceCorporation’sPerformanceStandardsonEnviron-mentalandSocialSustainability,particularlyPerformanceStandard2(PS2)onLabourandWorkingConditions.ThePerformanceStandardsrepresentaninternationallyrecognisedbenchmarkonsustainabilityininvestments,and are based on the premise that the most constructive andsustainableapproachtoenvironmentandsocial(E&S)complianceistoputinplaceeffectivemanagementsystems,including those that relate to people management.

PS2istheprimarystandardthatguidesEDFIrelationshipswith clients on Decent Work and job quality. It is aligned withtheILOcoreconventionsonchildlabour,forcedlabour,non-discriminationandfreedomofassociation,whichhave been recognised by the international community as universal human rights that apply to all people in all coun-tries.PS2alsoprovidesrequirementsinrelationtointeraliaworkingconditionsandtermsofemployment,collectivedismissals,grievancemechanismsandworkeraccommo-dation.EDFIclientsarerequiredtoapplyPS2totheirdirectworkforces,andensurethattheircontractorshavesystemsinplacetoapplyPS2totheirownworkers.WherenationallegislationdiffersfromPS2,clientsarerequiredtoapplywhichever standard is more stringent.

All EDFIs have processes for assessing E&S risks and impacts relatedtotheirinvestments,includingthosethatrelatetolabour and working conditions. Identifying and mitigating theriskofnon-compliancewithlabourstandardsiskeyforEDFIs,asnearlyeverytransactionwillentailsomeimpactonjobs.Labourrightsabusescanconstituterestrictionsonfundamental,internationally-recognisedhumanrights,and labour risks can threaten operational continuity and the reputation of both EDFIs and their clients.

EDFIsaddvaluebysupportingthedevel-opmentofpeoplemanagementsystemsincliententerprisesandraisingawarenessandknowledgeoflabourstandardsinthemarketsinwhichtheyoperate…

AlongsideE&Scomplianceframeworks,EDFIshaveadopteda range of practical measures to catalyse positive change within their clients and the markets in which they operate. Thesemeasurestargetchangesindifferentways:

• Engagingwithclients:AnumberofEDFIsprovideadvisory support and technical assistance to their clients tointroduceand/orstrengthentheimplementationofmodernandprofessionalmanagementsystems,includingthose required to manage their workforce.

• Engagingwithfinancialmarkets:GiventhesignificantvolumeofEDFIfinancethatisintermediatedthroughprivateequityfundsandfinancialinstitutions,EDFIsincreasingly engage with these actors to raise awareness oflabourrightsconcerns,offeringtrainingandguidancematerials to boost the capacity of fund managers and FIs to manage labour compliance risks.

• Engagingwithpartners:The Association of bilateral EDFIs itselfoffersanimportantplatformfordialogueandcoop-erationonDecentWorkbetweenEDFIs,aswellaswithother(multilateralandbilateral)developmentfinanceinsti-tutions. Dialogue with trade unions is another means used by some EDFIs to increase their contribution to the Decent WorkAgenda,whileanumberofEDFIshavesoughttoestablishpartnershipswithprivatesectoractors,expertsor civil society organisations to increase their impact.

…andthereispotentialfordevelopmentfinancetocontributefurthertothereal-isationofDecentWorkinemerginganddevelopingeconomiesworldwide.

There is an important role for EDFIs to strengthen and enhanceexistingeffortstodemonstratethatdecentjobsarecompatiblewithcompetitivebusinessmodels-leadingtomarkettransformation,andimprovingmutualunder-standingofchallenges,objectivesandareasofcommoninterest between EDFIs and key stakeholders. This includes normalising respect for labour rights as standard terms of businessinemerginganddevelopingmarkets,guidinganddeveloping the people management systems and capacity ofclients,anddrivingenhancementstojobqualitymeasure-mentframeworks,whichenableconsistentandstreamlinedassessment of job quality throughout EDFI portfolios.

 

DevelopmentisattheheartoftheEDFIs’mandates…andjobsmatterfordevelop-ment

EuropeanDevelopmentFinanceInstitutions(EDFIs)sharean explicit development mandate underpinning their investmentstrategy,withastrongfocusoneconomicgrowth and job creation as a pathway to poverty reduction. EDFI-financedbusinessesemployovertwomillionworkersdirectly,withatleastafurtherthreemillionjobssupportedindirectly. There is increasing recognition that the quality of thesejobsmattersfordevelopment:whereproductivityislow,conditionsinsecureandincomesinadequate,theposi-tive development impact of creating and sustaining employ-mentisconstrained,andevenundermined.

Collectively,EDFIshavemadestronginsti-tutionalcommitmentstosupportDecentWork…

Support for Decent Work has emerged as a prominent element of EDFIs’ commitment to progress on the Sustain-ableDevelopmentGoals(SDGs),withparticularemphasisonSDG8onDecentWorkandEconomicGrowth.TheconceptofDecentWork,developedbytheInternationalLabourOrganisation(ILO),impliesanintegratedapproachtodevel-opment and economic growth that takes into account both quantity and quality of jobs. It addresses the generation of employment opportunities for the poor that are accompa-niedbyrights,representationandprotection.

ComplementarytotheconceptofDecentWork,‘jobquality’is a distinct concept that can assist EDFIs to pay greater attention to the characteristics of jobs in the workplaces of EDFIinvestmentandlendingportfolios,andunderstandtheimpact of their investments in this respect. Whilst there is no formallyagreeddefinitionof‘jobquality’attheinternationallevel,theconcepthasbeenthesubjectofenhancedfocusinrecentyears,andcanbeunderstoodtocoverinteraliapayandotherrewards,intrinsiccharacteristicsofwork,termsofemployment,healthandsafety,work-lifebalance,andvoiceand agency.

…whilefacingparticularchallengesinpromotingjobqualityintheirportfolios

EDFIs often make investments in the most challenging and riskyenvironments,whereothersarereluctantorunabletogo.Duetothenatureoftheirmandatesandfinancingactivities,EDFIsfacebydesignseveralsignificantchallengesinseekingtopromoteDecentWorkandjobquality:

• EDFIsfocustheirinvestmentonthepoorestcountries,where there are typically weaker governance and enforce-mentmechanisms,andwheretheremaybegapsinthetranspositionofILOconventionsintonationallegislation.Formaljobsintheseeconomiesareoftenintheminority,andtherearechallengesineffectinginclusiveformalisa-tion.

• EDFIinvestmentisattheenterpriselevel,whichmakesitdifficulttoeffectchangewherepoorworkingconditionsarerelatedtobroadersystemicissuesthataffectawholesector;forinstance,endemiclongworkinghoursorlowwages.

• Businessesandpolicy-makersinlow-incomecountriesmayhaveconcernsabouttheemploymentimpactsofa‘jobquality’ agenda in the context of fragile labour markets.

• EDFIs may have limited visibility of labour risks in their portfolio,byvirtueofthestructureofbothprojectactivities–e.g.whereinfrastructureisconstructedbycontractorsandsub-contractors–andthestructureoftransactionsthemselves–e.g.wheredebtorequityis‘intermediated’byfundsorfinancialinstitutions(FIs).Thereare a range of reasons for EDFIs to invest in infrastructure orviafundsandFIs(notleasttoenhancetheirabilitytoreachSMEswhichcanboostjobgrowth)butitconstrainstheir ability to identify labour risks and promote job quality directly.

EDFIscanestablishademonstrationeffectinandthroughtheirportfoliobusinesses,showingthatsupportforDecentWorkandjobqualitycangohandinhandwithstrongbusinessperformance…

Inthefaceofthesechallenges,EDFIscanofferaninformedperspective on business practice in the poorest countries that seeks to identify what sort of jobs can do most to stimulate andmaintaininclusivegrowth,andcombat‘in-workpoverty’.Also,byworkingwithhigh-potentialenterprisestodevelopmorerobustpeoplemanagementsystemsandtomakejudi-ciousinvestmentinhumancapital,EDFIscandemonstratethatafocuson‘jobquality’cangohandinhandwith–andindeedboostdemandfor–jobcreationandskillsdevelopment.

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1. INTRODUCTION

1.1 DECENT WORK AND JOB QUALITY IN THE INTERNATIONAL DEVELOPMENT AGENDA

1 LDCsarelow-incomecountriesconfrontingseverestructuralimpedimentstosustainabledevelopment.ForthecurrentlistofLDCsasdefinedbytheCommitteefortheDevelopment,asubsidiarybodyoftheUnitedNationsEconomicandSocialCouncil,see:https://www.un.org/development/desa/dpad/least-developed-country-category.html

Labourmarketsserveasadynamiclinkbetween economic growth and poverty reduction. Jobs connect improvements in livingstandards,productivitygainsandsocialcohesion.Thatistosay,developmenthappens throughjobs(seee.g.WorldBank,2012).

For most poor people in the developing world,workistheirmainroutetoescapingpoverty:labouristypicallytheprincipalasset that the poor have at their disposal. But there is increasing recognition that some jobsdomorefordevelopmentthanothers:job quality matters. Where productivity is low,orconditionsareinsecureandincomesinadequate,thewell-beingofworkersandhouseholdsiscompromised,andtheposi-tive development impact of employment is constrained.Ofcourse,themajorityofpoorpeopleinLeast-DevelopedCountries(LDCs)1 alreadyhavejobs,bynecessity,butthesearemostlyfoundintheinformaleconomy,with poor terms and conditions of employ-ment(ILO,2018).Thechallengeistocreatemore productive and inclusive employment.

Eradicating poverty is therefore not solely a question of generating economic growth and employment opportunities but also ensuring that both the quantity and quality of avail-able work is such that it can lead to poverty reduction and inclusive development. For this,privatesectordevelopmentiskey.

TheUnitedNations(UN)SustainableDevelopmentGoals(SDGs)announcedin2015sawtheadoptionofthe17undeniablyambitious goals which set the international developmentagendaforthenextfifteenyears.Reflectingtheresultsoftheworld’slargest-everconsultationexercise,findingthat‘betterjobopportunities’werethethirdmostsignificantconcernofallrespondentsworldwide,theSDGsgaveacentralroletodecentjobs.SDG8(DecentWorkandEconomicGrowth)setstheobjectiveofpromoting“sustained,inclusiveandsustain-ableeconomicgrowth,fullandproductiveemployment and Decent Work for all” and is accompaniedbytenspecifictargets.

1.2 RATIONALE FOR THIS BRIEFING Developmentfinanceisbecominganincreasinglyimportantleverininterna-tionaldevelopmentassistance,andthemostcitedgovernmentpolicygoalsfor increased investment in European Development Finance Institutions (EDFIs)arejobcreation,growthandprivatesectordevelopment(EDFI,2017).MuchofthegrowthinEDFIportfolioshasbeenfinancedbyagrowthinshareholderequity;i.e.retainedprofitsandreplenishmentsfromgovern-ments(EDFI,2017).

All EDFIs have an explicit development mandate as part of their invest-mentstrategy,typicallywithastrongfocusonjobcreationasapathwaytopovertyreduction.Asagroup,EDFIshaveexpresslystatedtheirintentiontostepuptothesustainabilitychallengessetbytheSDGFramework,along-sidetheAddisAgendaonFinancingforDevelopmentandtheParisClimateAgreement(EDFI,2016).Aspartofthisdevelopmentmandate,EDFIsaimto target investment towards some of the least developed countries in the world,insectorswiththepotentialtostimulateeconomicgrowth.

Againstthisbackground,DecentWorkhasemergedasanimportantframingconceptforEDFIs,asitisseenasoneofthemainwaysinwhichDFIs(andotherprivatesectoractors)cancontributetoprogressontheSDGs.SeveralEDFIsnowexplicitlyincorporatereferencestoSDG8intotheirinstitutionalpolicy frameworks.2(SeeBox1foranoutlineofhowFMOhasintegratedtheSDGsintoitsinvestmentstrategy.)

Inthiscontext,thisBriefingaimstoprovideguidancetodevelopmentfinanceinstitutions(DFIs)andotherprivateinvestorsoperatingindevel-opingeconomiesbasedonexistinggoodpracticesfromEDFIs,particularlyinlightofsomeofthespecificchallengesfacedbyEDFIsinrelationtolabourand working conditions in their investments. It also aims to inform and encouragefurtherEDFIgoodpracticeonDecentWork,andmayprovidea useful reference point for other actors with an interest in development finance,includingpolicy-makers,tradeunions,andcivilsocietyorganisa-tions.

Thisreportisstructuredinthreemainsections:

1.Whatisdevelopmentfinanceandwhatdoesitmeanforjobs? Thissectiondescribeshowdevelopmentfinancecansupportjobcreation,thedifferenttypesoffinanceinstrumentsusedbyEDFIsandtheimplica-tionsforDecentWork,andthemaincharacteristicsofEDFIportfolios.

2.DecentWorkandhowitrelatestodevelopmentfinance. ThissectionoutlinesthecontentoftheILO’sDecentWorkAgenda,anditsrelevance to DFIs and their clients.

3.HowEDFIspromoteDecent Workandjobqualityintheirinvestments. ThissectionoutlinesthespecificchallengesfacedbyEDFIswithrespecttopromotingDecentWorkandjobquality,andthekeymechanismsbywhichEDFIs respond to these challenges and support Decent Work in their invest-ments.

2 OtherSDGsthatdifferentEDFIshaveidentifiedasrelevanttotheirworkincludeSDG1(PovertyReduction),SDG5(GenderEquality),SDG7(AffordableandCleanEnergy),SDG10(ReducedInequalities),SDG12(ResponsibleConsumptionandProduction),SDG13(ClimateAction),SDG16(Peace,JusticeandStrongInstitutions)andSDG17(PartnershipfortheGoals).

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1.3 METHODOLOGYThe research methodology for this report was based on a focused literature review,interviewswithEDFIrepresentativesandselectedstakeholders,andfieldvisitstothreeDFIclients.

InFebruary2018,theresearchteamheldinterviewswithFMOrepresentativesinTheHagueandrepresentativesoftheInternationalTradeUnionConfedera-tion(ITUC)andtheInternationalLabourOrganization(ILO)inBrussels.FurthertelephoneinterviewswereheldwithE&SspecialistsandDevelopmentEffec-tivenessspecialistsfromCDC,DEG,SwedfundandProparco.ThepreliminaryfindingsoftheresearchwerepresentedanddiscussedatanEDFIworkshopinBrusselsinApril2018.

The research team gratefully acknowledges the participation of the three EDFI clients3 who agreed to share their experiences and are the subject of extended casestudies(seeAnnexes).Thefollowingcompanieswereselectedonthebasisthattheyrepresentacross-sectionofsectorsandgeographies,andshowcasesomeofthedifferentpracticesadoptedbyEDFIstostrengthenjobqualityoutcomes:

• FMO:DIFrontierandVSHydro,developmentofhydropowerinfrastructureinUganda;

• Swedfund:RadissonBluUpperHill,ahotelinKenya;and

• CDC: RFLElectronicsLtd(REL),amanufacturingfacilityinBangladesh(partofthePran-RFLGroup).

InApril-May2018,researcherscarriedoutsitevisitsand,ineachcase,spenttwodaysconductinginterviewsandfocusgroupdiscussionswithmanagers,super-visors and employees in order to understand the kinds of initiatives taken by EDFIclientstopromoteDecentWork,andthekindofsupportofferedbyEDFIsthemselves.

3 Thisreportusestheterm‘clients’ascommonshorthandtodescribetherangeof‘end-user’businessessupportedbyEDFIfunds–includingbothborrowersandinvesteeenterprises,whetherfinancialrelationshipsaredirectorintermediatedbyafundorfinancialinstitution.

FMO: INTEGRATING SDGS INTO INVESTMENT STRATEGY

FMOhasexpresseditsfullcommitmenttotheSDGframework,andhasidentifiedSDG8asbeingofparticularrelevance.FMOaimstocontributedirectlytoprogressontheSDGsatthreemainlevels:

1.Corebusinessandgoals:Acrossitsportfolio,FMOcontributestoSDG8viaitsgoalonthenumberofjobssupported.FMOalsohasportfolio-widegoalsonclimatechange(SDG13)andreducinginequalities(SDG10).

2.Sectorfocus:AlongsidetheportfoliowideSDGs,FMOsectorportfolioscontributetoadditionalSDGsthatareofparticularrelevancetotheirinvestments,andtheseadditionalSDGgoalsmaybecomplementarytotheDecentWorkAgenda.Forinstance,FMOisworkingtopromotegenderequality(SDG5)throughanumberofitsdeals,withaparticularfocusonimprovedaccesstofinancefor women entrepreneurs.

3.Environmental,SocialandGovernance(ESG)standards:FMO considers that it paves the way to SDGdelivery,includingSDG8,byensuringthatinvestmentsadheretointernationalstandardsonESGriskmanagement(includingPS2)andbyactivelyengagingclientsonthesestandards.

FMO GOALS – At corporate level

E

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O ESG FRAMEWORK – international standards, internal policies

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Source:FMOwebsite;FMO,2017.

BOX 1

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2. DEVELOPMENT FINANCE & WHAT IT MEANS FOR JOBS

2.1 OVERVIEWDevelopmentfinanceaimstobridgethegapbetweencommercialfinance(providedbybanksorotherprivatesectorinvestors)andofficialdevelopmentassistance(providedbygovernments).

EDFIsareagroupof15publicly-ownedenti-ties each with a mandate to invest in private sector enterprises in developing countries to promote development. Not all EDFIs arealike:somehaveprivatesectorshare-holdersandpaydividends,andsomehaveamandatetosupportdomesticfirmsintheiroverseas activities.

The resources that EDFIs provide are intended to be additional to what the market can provide and to catalyse further investment.Forinstance,FMOtestsallofitsinvestmentsagainstthreemaindimensions:

4 See:https://www.fmo.nl/policies-and-position-statements

• Financialadditionality:Providingfinancialservicesonlywherethemarketcannotordoesnotdothesame,orother-wise does not provide on an adequate scale or on reasonable terms.

• ESGadditionality:Providingadditional,non-financialvalue(suchasgreenandinclusivedevelopmentimpact,E&Sriskmanagement and governance improve-ments).

• Catalyticrole:MaximizingtheflowoffinancetoFMO’sclient(s)bymobilizingthird-partyfunds.4

2.2 HOW EDFIS SUPPORT JOB CREATIONEDFIspromoteemploymentgenerationthroughfourmainchannels:

1. Additionalityandcatalyticeffect:byfocusingontheirmandateto‘gobeyondthemarket’andto‘crowd-in’commercialinvestors,EDFIshelpincreasethevolumeofeconomicactivityinacountry,andasaconsequencesupportemploymentcreation.

2. Demonstrationeffects: EDFIs’ projects can demonstrate the potential of new types of investment,thusleadingtofurtherinvestmentsbytheprivatesector,whichinturnleadto more economic activities and more employment creation.

3. Skillsandtechnologytransferandupgrading:EDFIs contribute to human capital formationthroughcapacity-buildingandtechnicalassistance,changesinbusinessregulatoryenvironmentsandtheuptakeofbetterbusinesspractices,includingbetteremployment practices. Such support can foster better managerial and innovation capabil-ities,increasingfirms’potentialtogrowandinvestintechnologyandskills,withpossibleconsequentemploymentopportunities(albeitwithattendantrisksofjobdestructionwheretechnologysupplantslabourandthereislimitedscopeforlabourre-allocation).

4. Forwardandbackwardlinkages:EDFIscansupportfirmswhichhavebothforwardandbackwardlinkagesinaneconomy–thatis,manufacturersneedinginputsfromsuppliers(backwardlinkages)butalsosellingtheirproductstodistributorsandretailers(forwardlinkages),bothofwhichcangenerateandsustainemployment.

TYPICAL FORMS OF DEVELOPMENT FINANCE INSTRUMENTS (IDB, 2017)

DEBT DFIdebtinstrumentscantaketheformofloans(non-tradable)anddebtsecurities(trad-able).DFIsmaylenddirectlyor,morecommonly,offerfundingtoaFIfor‘on-lending’.SomeDFIsmayoffer‘concessionalloans’loanstode-riskorencouragecertaininvestments–providingbetter-than-market-rateterms,eitherthroughlongerrepaymentterms,lowinterestrates,orboth.MostDFIsenjoypreferredcreditorstatus,enablingthemtoissue‘syndicatedloans’inwhichtheyactasabrokerbetweenborrowersandcommerciallenders.

EQUITY WhenaDFIacquiresequityinacompanyorsharesinaninvestmentfund,thismeanstheDFI owns a residual claim on the assets and earnings of that company or the companies the fundsubsequentlyinvestsin.WhenaDFIdecidestoacquireequity,thefirstkeydecisioniswhethertoinvestdirectlyorinvestthrough(privateequity)funds(delegatingtheprocesstoexperiencedmanagers).DFIsusuallyusedirectinvestmentswhentheycanlevewragesomecomparativeadvantage.Forexample,DEGpreferstousedirectinvestmentswhereithasalocalpresence.‘Investmentfunds’arecollectiveinvestmentundertakingswhereinvestorspool funds that issue shares.

QUASI-EQUITY Quasi-equityusuallyreferstohybridfinancialinstrumentsthatliebetweenequityanddebt,dependingontheircharacteristics–includingsubordinatedloans,convertibledebtandpreferred stock.

RISKMITIGATION A loan guarantee is a promise by a DFI guarantor to pay back a borrower’s debt if a borrower defaultsonaloan.Guaranteesmaybeusedtode-riskinvestmentsforcommercialinves-tors.Aparticularformofguarantee–‘tradefinance’–isusedfortrade-relatedtransactionsby local banks.

Table 1

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2.3 DEVELOPMENT FINANCE INSTRUMENTS

Developmentfinancecantakedifferentformsandeachformcanbedeployedthroughspecificfinancialprod-ucts(seeTable1).EDFIsmaylendorinvest,directlyorthroughanintermediaryfinancialinstitution(FI)orfund,andmayoperatealoneorwithotherpublicorcommercial lenders or investors. The structure of the financialproductsofferedbyEDFIswillreflecttheirmandateandobjectives;inmanycases,therangeandformofproductsofferedhasdevelopedinrecentyearsinordertoreachspecificsegmentsoftheprivatesectorin particular countries or regions.

The way in which each transaction is structured is important,asithasaninfluenceontheextenttowhicheachEDFIcaninfluencejobs,andhow:

• Thegreatestlevelofinfluenceonjobscomesthroughdirectequitytransactions,whereEDFIstakeonanownership stake in a company and may be able to effectdirectinfluenceonstrategicpeoplemanagementquestions(seeBox2foranexampleofhowSwedfundhasuseditsboardpresencetosupportDecentWork).However,whereequityinvestmentsaremadeviaaprivateequityfund,therelationshipwiththecompanyisindirectandEDFIinfluenceoverjobqualityoutcomesmay be reduced.

• Similarly,EDFIsmaintaincloseroversightoflabourriskswheretheyprovidedebtfinancetoclientsdirectly,whereaswhentheylendtofinancialinstitutions(FIs)foron-lending,thereissignificantlydecreasedvisibilityofend-use–notleastwhereanFIportfoliomaybecomposed of a high volume of lower value transactions –andhencereducedinfluenceonjobqualityoutcomes.

There are important reasons for EDFIs to invest via collectivefundsandFIs,asitallowsEDFIstoincreaseaccesstofinanceforSMEs,whicharedifficultforEDFIsto engage directly yet tend to be the wellspring of job creationinlow-incomeeconomies.(ThechallengesassociatedwithdifferentkindsofinvestmentsarediscussedfurtherinSection4.)

Some EDFIs are also able to mobilise funds for tech-nicalassistance,whichcanbedeployedtosupportclients to develop or strengthen their management systems,includingthosethatrelatetopeoplemanage-ment.(SeeSection4forfurtherdiscussionandexam-plesoftechnicalassistance.)

SWEDFUND: USING BOARD INFLUENCE TO PROMOTE JOB QUALITY

TheRadissonBluUpperHillinNairobiisoneofKenya’stopfive-starhotels.ItisownedbyElgonRoadDevelopmentsLtd(ERDL),aspecialpurposevehicleco-ownedbySwedfund(27.18%),IFU(27.18%),Finnfund(27.18%),andalocalshareholder(18.47%).Asanequityinvestment,eachoftheEDFIshasaseatontheboard.

2.4 CHARACTERISTICS OF EDFI PORTFOLIOS

ThebiggestEDFIsbyportfoliovalueareFMO(TheNetherlands),DEG(Germany),Proparco(France)andCDC(UK).Bytheendof2015,thecombinedEDFIportfolioofcommittedinvestmentswas€36.3billion,supporting4milliondirectjobs(EDFI,2017).TheannuallevelofnewinvestmentsbyEDFIsreached€6.0billionin2015,equiv-alentto10%ofallbilateralOfficialDevelopmentAssis-tance(ODA)financedbyEuropeanaidagenciesandtheEUinstitutions(upfrom4%in2005)(EDFI,2017). EDFImembersinvestinawidevarietyofsectors,rangingfromfinancetoinfrastructure,agribusiness,industry/manufacturingandservices.Financialservicesand infrastructure are the largest sector for EDFIs as a whole:in2014,50%(€16.3billion)ofthetotalconsol-idatedportfoliowasinvestedinthefinancialsector(mainlyinfundsandFIs);theshareinvestedininfra-structurewasequalto24%(€7.9billion,ofwhich€5.4billionwasinvestedinpower). IndividualEDFIshavedevelopedspecificareasofexper-tise.AmongthebilateralEDFImembers,SIFEM(Switzer-land)investsexclusivelyinthefinancialsector(fundsandFIs),whichisalsothelargestareaofactivityforCDC(UK).(ThesefundsandFIstheninvestand/orlendtoarangeofbusinessesintheirtargetmarkets.)Infrastruc-tureisthemainareaofactivityforCOFIDES(Spain)andNorfund(Norway),whereasSimest(Italy)andSBI(Belgium)operatemainlyinindustryandmanufacturing.

Swedfundtakesanactiveinterestinjobqualitymattersduringboardmeetings,whichareheldatleastquarterlyatthehotel.Accordingtothehotel’sGeneralManager,oneofthemainwaysinwhichSwedfund and the other EDFIs contribute to job quality at the hotel is through their recognition of the connectionbetweenbusinessperformanceandsoundpeoplemanagement:“itisultra-positiveforthehoteltohavethisemphasisonemploymentandgeneralHRpracticesatboardlevel”.TheGMsaysthatEDFIsupporthasbeencrucialinintroducingnewbenefitsforstaff:“IknowthatifIwanttogototheboardtoproposeanadditionalmonth’smaternityleaveforwomen,theywillbackit100%…Idon’tthink I would get the same level of support for these kinds of initiatives from other owners.”

Duringboardmeetings,boardmembersalsoraisequestionsrelatedtocompliancewithnationallegislation,thecollectiveagreementorPS2.LegalcomplianceisimportantforSwedfundnotonlyasamatterofPS2compliance,butalsobecauseERDListhedirectemployerofallworkersatthehotel,theyhavedirectexposuretoliabilityfornon-compliancewithKenyanlabourlaws.Inthiscontext,Swedfundsays that its investment and E&S functions work together closely to scrutinise reporting on workforce developments.AccordingtotheGM,EDFIboardmembersshowastrongawarenessoflabourandworkingconditions:“Assoonaswesayanythingthatmightnotseeminlinewith[PS2]duringboardmeetings,theywillpickitupstraightaway”.Thisisthenfollowedupwiththehotel’sHRmanagerafterthe board meeting by Swedfund’s E&S specialist. Asafivestarhotel,theRadissonBluUpperHillreliesonallofitsstafftoconsistentlydeliverthehighestpossiblelevelsofservicetoguests,anditiscrucialthatstafffeelvaluedandmotivated,aswellasempoweredtorespondtoguests’needs.Inthiscontext,afocusonjobqualityhasledtohigherstaffengagementandsatisfactionandthishasbeenshrewdcommercialpractice.Bykeepingstaffhappy,thehotelalsokeepsstaffturnoververylow(0.02%in2017)andmakesitdifficultforcompetitorstopoachitsbestworkers.Attheendof2016,theRadissonUpperHillwasranked18thoutof36RadissonhotelsinAfricaonguestsatisfactionscoresand186intheEuropean,MiddleEastandNorthAfricaandAfrica(EMENA)region;bytheendof2017,itwasrankedfirstinAfricaandfourthinEMEA.Thehotelhasalsoincreaseditsprofitability,withaGrossOperatingProfit(GOP)of26%in2016,growingto38%bytheendof2017.

BOX2

(Anextendedversionofthiscasestudy–basedoninterviewsandasitevisitcarriedoutin2018–issetoutinAnnexB.Thistext

focusesprimarilyontheroleofSwedfund,whichsupportedthepreparationofthecasestudy.)

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3. THE DECENT WORK AGENDA, AND HOW IT RELATES TO DEVELOPMENT FINANCE

‘Decent Work’ has gained currency among EDFIs as a core concept underpinning SDG8. While it covers a very broad agenda, Decent Work has the greatest operational relevance for EDFIs in its normative dimension of ‘Rights at Work’ – highlighting the central role of internationally-recognised labour standards at the core of rights-based, inclusive development. This is reflected in the individual and common policy commitments of the EDFIs, which recognise the status of the ILO Core Conventions on child labour, forced labour, non-discrimination and freedom of association and collective bargaining, and require the development of sound people management systems and worker-management dialogue to promote Decent Work. While Decent Work has become a policy objective for EDFIs, practical measures to monitor and evaluate job quality outcomes at enterprise level in DFI portfolios are at an earlier stage of development.

3.1 THE DECENT WORK AGENDAFromitsoriginasaninternalorganisingprinciplefortheInternationalLabourOrganisation(ILO),DecentWorkhasemergedasaconceptwithwidecurrency,mostsignificantlythroughSDG8onDecentWorkandEconomicGrowth.DecentWorkstartsfromtheinsightthatdevelopmentdependsonpeopleworking,andthenature of jobs matters as well as the number of jobs.

The question of how work contributes to sustainable development is encapsulated inthe‘fourpillars’oftheILODecentWorkAgenda,(seeFigure1,focussingparticu-larlyontheILOCoreLabourStandards),withgenderequalityandnon-discrimi-nationseenasacross-cuttingobjective.Thepillarsareunderstoodtobeinterde-pendent and mutually reinforcing.

PRODUCTIVE AND FREELY CHOSEN

WORK This covers access to productivework,andopportunities for skills upgrading and develop-ment,includingvoca-tional training.

RIGHTS AT WORK

This focuses on the rights and principles setoutinthe1998ILODeclaration on Funda-mentalPrinciplesandRightsatWork,whichincludetheeffectiveabolition of child labour; elimination of discrimi-nation in employment; elimination of all forms of forced labour; and freedom of association and the right to collec-tive bargaining.

SOCIAL PROTECTION

This encompasses accesstosocialsecurity,occupational health andsafety(OHS),andpolicies with respect towages,earningsandhours.

SOCIAL DIALOGUE

This covers negotia-tion,consultationorexchange of information between,oramong,representatives of governments,employersandworkers,onissuesof common interest. Social dialogue is under-stood as an objective in itself,butalsoinstru-mentaltotheeffectiveachievement of the three other objectives.

GENDER EQUALITY

Figure 1 THE FOUR PILLARS OF DECENT WORK

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3.2 JOB QUALITY

5 ThemostrecentversionoftheILODecentWorkindicatorswaspublishedin2013(ILO,2013).6 Theserightshavebeenrecognisedbytheinternationalcommunityasuniversalhumanrightsthatapplytoallpeopleinallcountries,regardlessofthelevel

ofeconomicdevelopment,throughthe1998ILODeclarationonFundamentalPrinciplesandRightsatWork.7 Indeed,theILOitselfhasappliedtheframeworkformeasuringjobqualitysetoutinUNECE(2015)asameansofunderstandingthequantitativeaspectsof

jobqualityinSMEs(seeILO2015and2017).

DecentWorkisanexpansiveconcept,initiallydevel-opedtosupportholisticthinkingonjobswithintheILOandamongstnationalpolicy-makers(seeILO,2008),and can be challenging to apply and measure at the leveloftheindividualworkerandtheenterprise.GiventhebreadthoftheDecentWorkagenda,theconceptof‘jobquality’hasemergedinrecentyearsasameansofoperationalising the concept of Decent Work to under-stand impact at the level of the individual workplace. WhereastheILOhasdevelopedacomprehensivesetof Decent Work Indicators5,thesearefocusedatthenationallevel–reflectingILO’smandatetoworkwithitstripartiteconstituents(i.e.governments,tradeunions,andemployers)tocreateapolicyandlegalenviron-mentwhichcanenableDecentWork.Focusingon‘jobquality’ can help EDFIs to understand and monitor what DecentWorklookslikeinaspecificworkplace.

Whilstthereisnoformallyagreeddefinitionof‘jobquality’attheinternationallevel,therehavebeenseveral attempts in recent years to create a framework of indicators to measure the quality of employment (seee.g.UNECE,2015,withILOparticipation;Cazesetal,2015,settingouttheOECDframework;Euro-found,2012).Whileeachefforttodefine‘jobquality’hasresultedinadiverserangeofindicators,somekeythemescanbeidentified(seeTable2).

DIMENSIONS OF JOB QUALITY EMERGING FROM AN INTERNATIONAL REVIEW (CIPD, 2018)

PAY AND OTHER REWARDS

Includingobjectiveaspectssuchaswagelevel,typeofpayment (e.g.fixedsalary,performancepay)andnon-wagefringebenefits (e.g.employer-providedpension,healthcover)andsubjectiveaspects(e.g.satisfactionwithpay)

INTRINSIC CHARACTERISTICS OF WORK

Includingobjectiveaspects(suchasskills,autonomy,control,variety,workeffort)andsubjectiveaspects(suchasmeaningfulness,fulfil-ment)

TERMS OF EMPLOYMENTIncludingobjectiveaspects(e.g.contractualstabilityandopportu-nitiesfortraining,developmentandprogression)andsubjectiveaspects(e.g.perceptionofjobsecurity)

HEALTH AND SAFETY Includingphysicalandpsycho-socialrisks

WORK-LIFE BALANCE Includingworkingtimearrangementssuchasduration,schedulingandflexibility,aswellasworkintensity

REPRESENTATION AND VOICE Includingemployeeconsultation,tradeunionrepresentationandemployeeinvolvementindecision-making

Despite a lack of formal consensus on what constitutes ‘jobquality’,itshouldbeunderstoodtoincorporatetherightspillaroftheDecentWorkAgenda,recognisingthatthecorelabourstandardsarenon-negotiableandirreducible for all.6 The overlap between the pillars represented in Figure 1 and the dimensions of Table 1showsthatdrawingontheconceptof‘jobquality’does not mean displacing or diminishing the concept ofDecentWork,7 but rather provides a means for its practicalapplication(andmeasurement)attheleveloftheindividualworkplace.ForEDFIs,itprovidesatooltoenable increased focus on aspects of Decent Work that are relevant to their operations and on which progress can be measured. It can be seen to incorporate the normative elements of the Decent Work Agenda (i.e.thecorelabourstandards),aswellasadditionalelementsofotherpillars(socialprotection,training,wages,socialdialogue).Importantly,jobqualityprovidesaconceptthatalignswithIFCPerformanceStandards(seebelow)andprovidesopportunitiesformeasurementattheleveloftheindividualworker,opening up possibilities for EDFIs to understand their impactonDecentWorkinenterprises(seeSection4)

3.3 THE RELEVANCE OF DECENT WORK TODEVELOPMENT FINANCE

The relevance of Decent Work to EDFI operations canbeunderstoodviathreemaintracks:

1. TheEDFImandatetodeliversustainabledevelopmentimpactsthroughtheirdebtandequityoperations: Decent Work can be taken into account in EDFI frameworks for understanding and assessing the development impact of their invest-ments. This could involve analysing the labour market impacts of job creation linked to investment (lookingathowjobscontributetolocallivelihoods,inclusionandhumancapitaldevelopment).(Pros-pects for measuring job quality are explored further inSection4.2.

2. E&SStandardsrelatingtoemploymentandlabourpractices:Decent Work contains a normative aspect:thelabourstandardscomponent.Oneofthe principal mechanisms by which EDFIs promote Decent Work and job quality in their investments isbyrequiringclientstocomplywiththeIFCPerformanceStandardsonEnvironmentalandSocial Sustainability8,aninternationallyrecognisedbenchmarkonsustainabilityininvestments,whichprovides EDFI clients with guidance on how to iden-tify and manage a range of environmental and social risks.PerformanceStandard2(PS2)onLabourandWorkingConditionsisthemainreferencepointonDecentWorkandjobquality,andisguidedinpartbytheILOcoreconventionsonchildlabour,forcedlabour,discriminationandfreedomofassociation.PS2alsoprovidesrequirementsinrelationtointer aliaworkingconditionsandtermsofemployment,collectivedismissals,grievancemechanisms,andworker accommodation. Where national legislation differsfromPS2,clientsarerequiredtoapplywhich-everstandardismorestringent.(ThisaspectoftheEDFIs’workisexploredinmoredetailinSection4.)

3. ThedevelopmentofEDFIsectorandcountrystrategies: A closer focus on what sorts of jobs will resultfromEDFIfinancecaninformEDFIcountryand sector strategies. This may also entail closer coordinationwithrelevantagencies–suchasILOorbilateraltechnicalassistanceagencies–aswellasnationalactorsworkingonhumanrights,skills,youth employment and women’s economic empow-erment,forinstance.

8 ThereareeightPerformanceStandardswhichcover:AssessmentandManagementofEnvironmentalandSocialRisksandImpacts;LabourandWorkingConditions;ResourceEfficiencyandPollutionPrevention;CommunityHealth,SafetyandSecurity;LandAcquisitionandInvoluntaryResettlement;Biodiver-sity,ConservationandSustainableManagementofLivingNaturalResources;IndigenousPeoples;andCulturalHeritage.

9 OtherDFISandorganisationsinvolvedintheinitiativeinclude:theOverseasPrivateInvestmentCorporation(USA),theDevelopmentFinanceInstituteCanada,theJapanBankforInternationalCooperation,andtheJapanInternationalCooperationAgency.Formoreinformation,see:https://www.2xchallenge.org/.

Importantly,DecentWorkalsooverlapswithothercommitmentsmadebyDFIs:

• Genderequality:This has become a priority focus formanyEDFIs(includingFMO,CDC,SwedfundandProparco),oftenexpressedasacommitmenttoSDG5(seeBox3).EDFIcommitmentstogenderequalityusually include a component on equal opportunity for womenandmenintheworkplace,butalsoencompassabroaderrangeofsubjects,includingaccesstofinancefor female entrepreneurs and access to services (includinghealthandeducation)forwomen.Forinstance,FMOhasastand-alonepositionstatementongender,framingitsactionswithinthecontextofSDG5 and committing FMO to “proactively seek invest-mentsthatsupportwomenasentrepreneurs,reachwomenasend-usersofgoodsandservicesandincludewomen in the labour market”. FMO is also directing someofitseffortsinternallyinordertobetterunder-standthepositionofwomenwithinitsoperations:in2017,itbecamethefirstEDFItobecomecertifiedundertheEDGE(EconomicDividendsforGenderEquality)scheme,whichinvolvedarigorousexternalassessment of the workplace environment through an employeesurvey,workforcedataanalysis,andreviewof company policy and practice against best interna-tionalpractice.InJune2018,aninternationalgroupofDFIs-includingCDC,Proparco,CassadepositieprestitiGroup(CDP-Italy)andDEG-launchedtheambitious2XChallenge,a$3billioncommitmentby2020tosupport investments that enhance women’s economic advancement(EDFI,2018).9

• Humanrights:AnumberofDFIs(includingFMOandCDC)havealsoissuedpositionstatementsonhumanrights,whichtakelabourstandardsintoaccount.

Table 2

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SWEDFUND: PROMOTING GENDER EQUALITY IN PORTFOLIO COMPANIES

Swedfund’sWomen4Growth(W4G)programmeisdesignedtounlockthepotentialofwomen,byprovidingleadershiptrainingandaplatformforwomentodiscussandaddressbarrierstotheiradvancementintheworkplace.ItisalignedwithSwedfund’scommitmenttopromotinggenderequalityinitsinvestments.Sinceitwaslaunchedin2015,SwedfundhasconductedW4GworkshopswithportfoliocompaniesinKenya,EthiopiaandSouthAfrica.

TheW4GprogrammehashadasignificantimpactonworkingconditionsforwomenandmenalikeattheRadissonBluUpperHillhotelinNairobi(inwhichSwedfundhasa27.18%equitystake).ConductedinNovember-December2016,theprogrammewasinitiallydeliveredthroughthreeworkshops,culmi-natinginafinalworkshopwherewomenpresentedtheirrecommendationstoseniormanagementandowners.(TheW4GprogrammeisalsoalignedwiththeRadissonHotelGroup’sBalancedLeadershipinitiative,whichaimstoencouragemorewomentotakeonleadershiprolesinthecompany.)

FollowingtheW4Gworkshops,severaloftheparticipants’recommendationswereimplemented,andtheprogrammehastakenonalifeofitsown,leadingtoevengreaterchangethanwasoriginallyenvisagedbySwedfundandtheparticipants.Inparticular,someimportantnewbenefitsforstaffwereagreedonasaresultofdiscussionsthatflowedfromtheW4Gworkshops,includinganadditionalmonth’smaternityleave,sickleaveforchildren’sillnessandmedicalinsurancefordependents.Thehotel’sGeneralManagernowmakesapointofmeetingwithsmallgroupsofwomenemployeesonaregularbasistofollowuponprogress:“Iwant[women]toknowthatIcareaboutthisagenda.Thisisalsoabusinessdecision:IneedtoknowwhatIneedtodotogetthebestoutofmystaff.”

(AnextendedversionoftheRadissonUpperHillcasestudy–basedoninterviewsandasitevisitcarriedoutin2018–issetoutinAnnexB.)

3.4 THE BUSINESS CASE FOR INCREASED JOB QUALITY

InmanycontextsinwhichEDFIsoperate,thereisacommonpreconceptionthat investing in improved working conditions leads to higher labour costs thatarenotcompatiblewithbusinesscompetitiveness.However,thereisnow an extensive body of research that links investment in human resource (HR)managementsystemsandtrainingwithbettercorporatefinancialperformance(seee.g.BernsteinandBeeferman,2015;seealsoBox4below).Indeed,modernandprofessionalisedHRmanagementcanbeausefulproxyfor more generally capable and aware management in general.

Thereareseveraldimensionstotheclient-levelbusinesscase,whichmayincludeacombination–orall–ofthefollowing:

• Improvedaccesstoexport-orientedmarkets,andtointernationalfinance:Theadventoflabour‘codesof conduct’ has seen compliance with international labour standards become a condition of business in thehigher-valuesegmentsoftheglobalvaluechains.10 Accesstofinanceisalsorelevant:sustainabilityandreputational risk are starting to work their way into conventional investment analysis undertaken by buy-sideanalystsandassetmanagers.11

• Stemmingskillsshortages,turnoverandabsen-teeism:Attracting and retaining workers is a key factor increatingapositivecycleofcompliance-ledperfor-mance,whichcancontributetocompetitiveadvantage.Scarcity of talent can be a major bottleneck for growth forcompaniesinlow-incomeeconomies(justasinhigh-incomeeconomies).Atthesametime,thecostofhighstaffturnover12 and absenteeism13 is often under-estimatedbycompanies,andcanbesignificant,evenforlower-wageworkforces.

• Improvedproductivityandinnovation:Investments injobquality,includingbetterworkingconditionsandskillsdevelopment,canpayforthemselvesthroughproductivityimprovements–directlybyimprovingworkefficiency(andindirectlythroughreducingstaffturnover)asaresultofincreasedemployeesatisfac-tion and focus14.Companiesarebetterpositionedtoimplement new working practices and technologies as aresultofgreaterworkforceflexibilityandapproachtochange.Channelsforworker-managementengage-ment provide a means for identifying and addressing tensions before they escalate into costly industrial disputes.

• Improvedcomplianceandreputationmanagement:Prioritisationoflegalandregulatorycompliancereducestheriskofexposuretofines,thelegalcostsofaddressing claims and the risk of interruption relation-ships with reputationally sensitive business partners.

10 Arecentreviewof45multi-stakeholderinitiatives(MSIs)(i.e.organisationscomprisedofvariousstakeholders,typicallyincludingrepresentativesofcompanies,governments,civilsocietyorganisations,andtradeunions)thatsettransnationalstandardsforbusinessorgovernment(includingonlabourstandards)revealedtheirwidereach.TheMSIsunderconsiderationoperatedinover170countriesonsixcontinents,andregulatedover9000companiesincluding65FortuneGlobal500businesseswithcombinedannualrevenuesofmorethan$5.4trilliondollars.Theinitiativeswereclusteredinthreesectors:agriculture,forestryandfishing;miningandenergy;andconsumergoods(MSIIntegrityetal,2017).

11 Thereismountingevidenceregardingthelinksbetweensustainabilitypracticesandbusinessperformance.Forinstance,arecentreviewof2000studiesonthelinksbetweenESGperformanceandfinancialperformancefoundthat90%ofthestudiesfoundaneutralorpositiverelationshipbetweenhighESGscoresandfinancialperformance,andthemajorityofstudiesfoundapositiverelationship(Friedeetal,2015).SeealsoKhanetal,2015.

12 OneUSstudyfoundthatitcostbusinessesonaverageabout20%ofaworker’ssalarytoreplaceaworker,butthiscouldbesignificantlyhigherforpositionsthatrequiredspecificqualificationsorskills(BousheyandGlynn,2012).

13 AnIFCstudyofaSolomonIslandstunaprocessingplantestimatedthatthecompanystoodtosave$166,000andearnanadditional$1.58millionperyearbyreducingabsenteeismfrom18%to15%(IFC,2017).

14 EvidencefromthejointILO/IFCBetterWorkprogrammeinVietnamfoundthatbetterworkingconditionsingarmentfactorieswerelinkedtohigherproduc-tivity.Whereworkingconditionswerebetter,particularlythoserelatingtotheworkingenvironment,workersreacheddailyproductiontargetsnearly40minutes faster than workers in factories with worse conditions. Individual worker productivity was also found to decrease as verbal abuse increased in the workenvironment.Whiletheaverageworkertakestenhourstoreachthedailyproductiontargetsetbyhersupervisor,workersconcernedbyverbalabuse–butwiththesameeducation,trainingandexperience–requiredalmostoneadditionalhourperdaytoreachthistarget(BetterWork,2016).

Alongside the business case for increased job quality attheenterpriselevel,thereisanimportantcasefor improved job quality at the macroeconomic level. More and better jobs in private sector enterprises can help to boost productivity and ensure more inclusive growth,ensuringthateconomiesaremakingthemostefficientuseofhumancapital.

Itispossiblethatsomebusinessesandpolicy-makersin countries of EDFI operation may have concerns abouttheemploymentimpactsofa‘jobquality’agendainthecontextoffragilelabourmarkets,particularly where they are marked by high levels of youthunemploymentandbroaderunder-employment,unsure of the implications of new technologies on futureopportunities.Evidently,jobqualityispred-icatedonemployment,andanyefforttopromoteimprovements to working conditions needs to be informedbyanunderstandingofcompetitiveness,productivity and employment security concerns.

BOX 3

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DEG / DBL: THE BUSINESS CASE FOR JOB QUALITY IN BANGLADESH

Todate,muchoftheresearchonthebusinessbenefitsofinvestinginjobqualityisbasedondatafromhigh-incomeeconomies,withlimitedenterprise-levelresearchfromemergingmarkets.InthecontextoftheLet’sWorkpartnership,DEGconductedastudywithDBLGroup,oneoftheleadinggarmentmanufacturersinBangladesh,toexplorethebusinesscaseforcompaniestoprovidebetterworkingconditionsfortheirworkers.

DBLGroupisco-financedbyDEG,FMO,OeEBandotherDFIs,withsixteenfacilitiesforspinning,fabricknitting,dyeingandfinishing,printingandpackaging.Thecompanyoperatesinachallengingcommercialenvironment:Bangladeshdominatestheready-madegarmentsmarketinSouthAsia,butfacesintensecompetitionfromothercountriesintheregion,constantpricepressureandongoingindustryexpansion.Thishasledtoasituationwhereworkingconditionsandsafetyoftenlagbehind,asevidencedbythecollapseofRanaPlazain2013.Nevertheless,theincreasingdemandforhighervaluegarmentsfromBangladeshoffersimportantopportunitiesforcompaniestoupgradetheiroper-ationsandtocreatehigherqualified,betterpaidjobsforworkers,particularlywomen.Thereisalsoincreasingemphasisbyinternationalbuyers,especiallyfromEuropeandNorthAmerica,ondemon-strating sound environmental and social practices.

Inthiscontext,DBLidentifiedsafetyandworkingconditionsasacrucialpreconditionofsecuringitsmarketpositioninthefuture.ThecompanydevelopedaSocialManagementSystem(SMS),includinga comprehensive code of conduct and policies to demonstrate compliance with international labour standards,andhasinvestedheavilyinbuilding,fireandelectricalsafety.Ithasalsoestablishedanon-siteshopwhereemployeescanpurchaseeverydaygoodsatadiscount(effectivelyincreasingdisposableincome),anon-sitemedicalcentrethatprovidesbasicmedicalcareforfreeandsellssubsidisedmedicalproducts,andanon-sitecrecheforworkers’children.Structuredtrainingprogramsensurethatnewemployeesdeveloprequisitetechnicalskills,andtrainingformiddlemanagementhasimprovedleadershipcompetencies.Efficiencieswhichwereimplementedthroughoutthecompany’sbusinessprocesseshavemeantthatemployeesarepaidabovethenationalminimumwage,aswellasabove many comparable companies in the local area.

Thecompany’sinvestmentshavebenefittedworkers,whilealsocontributingtoanumberofsuccessfulbusinessoutcomes.Inparticular,lowerstaffturnoverandabsenteeism,aswellasbettertraining,haveled to productivity improvements. Safer working conditions have been associated with fewer accidents andstaffturnoverandabsenteeismrateshavedecreasedconsiderably.Between2012and2014,theabsenteeismratefellfrom3.35%to1.09%,farbelowtheindustryaverageof10%.Overthesameperiod,averagemonthlystaffturnoverdroppedfrom4.7%to2.99%,comparedtoanindustryaverageof5-10%.

Whilethecompanyiscontemplatingfurtherimprovements,itseffortshavealreadyledtosubstantialbusinessbenefitsandtangibleimprovementsforworkers.Takentogether,DBL’sexperiencehelpssolidify the business case for job quality promotion and Decent Work outcomes.

4. HOW EDFIS PROMOTE DECENT WORK & JOB QUALITY OUTCOMES IN THEIR INVESTMENTSIn many cases, development finance is structurally supporting improvements to job quality in the economy through supporting the development of higher-value, higher-productivity sectors which offer greater formal protections and skills development opportunities to workers, resulting in higher returns to labour. EDFIs typically invest in companies that are better positioned to implement or work towards implementation of the management systems necessary to provide higher quality jobs for workers. The way in which EDFIs choose to operate leads to a series of constraints and challenges in ensuring and strengthening job quality outcomes. This section examines the nature of the unique challenges faced by EDFIs, by virtue of the structure of their operations, and their practical responses.

BOX 4

Source:DEG,2015

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4.1 KEY CHALLENGES & CONSTRAINTS IN INFLUENCING DECENT WORK OUTCOMES

4.1.1 CHALLENGING GEOGRAPHIES EDFIinvestmentisconcentratedonparticulargeographicregions,byvirtueofEDFIs’objectivetoplaythestrategicallyimportantroleof‘catalysing’investmentflowsintolow-incomecountries,wheretheprivatesectorfacesdifficultiesinaccessingfinance.ThelargestregionsintheEDFIportfolioareSub-SaharanAfrica(31%),LatinAmericaandtheCaribbean(20%)andSouthAsia(14%)(EDFI,2016).

ThisgeographicalfocusprovidessignificantopportunitiesforEDFIstocontributetojobcreation;however,EDFIsalsorunintochallengesintermsof ensuring the quality of those jobs. This is because inter alia:

• Developing economies often have weaker governance and enforcement mech-anisms and lower levels of collective organisation amongst workers. Although mostcountrieshavenowratifiedtheILOcoreconventions,thereareoftengaps in the transposition of those conventions into national legislation and theirenforcementbylabourinspectorates,whichareoftenunder-resourced.

• Insomedevelopingeconomies,theremayberesistancetoincreasingwagesand improving working conditions on the grounds that low labour costs are perceived to be a competitive advantage in the global marketplace.15

• EDFIinvestmentisattheenterpriselevel,whichmakesitdifficulttoeffectchange where poor working conditions are related to broader systemic issues thataffectawholesector;forinstance,breakingdownlongworkinghours.

EDFIs’presenceinchallenginggeographiesisnotareasontolowerstandards,ortoexcusebreaches,butitmayimplytheneedforanincremental approach to improvements in some respects. This is not at odds with a recognition thattheILOcorelabourstandardsareinalienablerights;rather,itmarksaconcrete engagement with the practical issue of how to achieve full enjoyment of these rights. This may mean that there is not perfect compliance with all elementsofPS2inallinvestments,particularlyattheoutsetoftherelation-ship,butitmustbeagoalforallEDFIsandtheirclientstoworktowards,byincreasingawarenessoftheimportanceofPS2andsupportingthedevelop-ment of management systems along the way to strengthen better outcomes forworkers.Nevertheless,notallsituationsareamenabletothisapproach,especiallywherethereisariskofimmediateandseriousharm:forinstance,undertheEDFIDeclarationonPrinciplesforResponsibleFinance16(the“RomeConsensus”)-anagreementbetweentheEDFIsthatappliestoco-investmentsandincludesjointE&Srequirements–thereisauniversalExclusionList,whichprohibits investments that involve any form of child labour or forced labour.

15 Hereitisimportanttodistinguishbetweentheinternationally-recognisedlabourrightssetoutintheILOCoreConventions,thebreachofwhichcannotlegit-imatelyformacompetitiveadvantage,andothertermsandconditionsthatarenotsubstantivelydeterminedininternationalinstruments(suchaswagesandworkinghours)andmaylegitimatelyreflectthedevelopmentstatusofthecountryinquestion.

16 https://www.edfi.eu/wp/wp-content/uploads/2017/10/EDFI-Principles-for-Responsible-Financing.pdf

4.1.2 LIMITED VISIBILITY OF LABOUR RISKS

Another challenge for EDFIs is how to identify labour riskswhentheirvisibilityislimited,eitherbyvirtueofhowworkingarrangementsarestructured,orhowtheinvestmentorloanismade.Visibilitymaybelimitedin:

• Investmentswheretherearehighlevelsofsub-con-tractingoroutsourcing:ItcanbedifficulttoidentifyriskortoensurethatPS2requirementsarecascadeddown the contracting chain where contractors are not in a direct relationship with DFIs. This is particularly ariskinprojectswithaconstructionelement,astheconstruction industry is typically organised around primarycontractorsthatsub-contractworkstoseveralsmallercompanies(whomaythensub-contractagain,includingtolabour-onlycontractors).Equally,labourbrokers(orlabouragents)areusedinmanyindustriestosupplytemporarylabour,creatingfurthercomplex-ities.

• Investmentsmadeviaafundmanager. There aregoodreasonsforinvestingviafunds:withDFIbacking,privateequityfundscanpartnerdirectlywith(smaller)high-potentialbusinessesinemergingmarkets,providingthemwithtechnicalexpertise,andintroducinginternationalpractices,includingE&Sstandards.However,italsomeansthatEDFIsrelyonfundmanagerstoidentifyandmitigatelabourrisks,and there can be varied approaches to labour due diligenceamongstfundmanagersanddifferentlevelsof capacity to mitigate the risk.

• InvestmentsmadeviaFIs:Most EDFIs provide loans tolocalfinancialinstitutions(FIs)inemergingmarkets,with a view to increasing access to credit through ‘on-lending’toawiderrangeofbusinesses(e.g.SMEs).Again,thisapproachreliesonFIstoimplementtheirown processes for assessing and managing labour riskintheirinvestments,whichcanvarysubstan-tially,butitmayalsobeunfeasibleforFIstocarryoutdetailed assessments in relation to large numbers of SMEs. Investing via FIs is an important mechanism for reachingSMEs,whichareamongstthegreatestenginesofjobcreationinemergingeconomies,butoftenhaveweakornon-existentmanagementstructuresandprocedures in place to ensure compliance with national legislationandPS2.

4.1.3 LIMITS ON LEVERAGE AND SPHERE OF INFLUENCE

Insomeinstances,EDFIsmayhavelimitedleverageonlabourissues,becausetheirinvestmentcomestoolateforeffectivepre-disbursementremediation(e.g.contracts in a large infrastructure project have already beenlet,andthereisnoprospectforinfluencingtheirterms)orbecausetherisksarelocatedtoofarfromthedirectsphereofinfluenceoftheEDFIinitsrelationshipwithaclient.Bythetimeaprojectbecomes‘bankable’–i.e. meets the minimum investment or lending criteria oftheinstitutioninquestion–certaindecisionskeytojoboutcomesmayhavebeenmade,includingthestruc-ture of employment and procurement of contractors.

Even where the EDFI can work successfully with its client to promote appropriate systems and proce-dures,theremaybelabourrightsconcerns–relatingtonationallegalsystems,orpoliticalcontext–whichremainoutsidethesphereofinfluenceoftheEDFIclient.Intheseinstances,EDFIsarepresentedwitha‘residualrisk’,necessitatingbothclosesupervisionaswellaseffortstoidentifyalternativeformsofremedi-ation,includingpartnershipwithagenciesengagedinpolicy dialogue on labour market governance.

4.1.4 TENSIONS BETWEEN JOB QUALITY AND JOB QUANTITY

Insomecases,companiesmayuseEDFIinvestmenttoincrease their productivity by upgrading their facilities andtechnology.Thismayhelptoimprovejobquality,forinstance,byboostingwageswhilstreducingtheneedforexcessiveovertimehours;however,itmayalso reduce the overall quantity of jobs available in the workplace. The challenge here is therefore a broader policyconcern:howtoensurethedevelopmentofskills,includingre-skilling,tosupporthighervalueadditionwithout broader costs accruing to the most vulnerable participantsinthelabourforceand,wheresuchcostscannotbefullyabsorbed,todevelopbroadersystemsof social protection and active labour market policies to support alternative income generation opportunities.

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4.2 FACING THE CHALLENGES: ENSURING LABOUR STANDARDS FOR SUSTAINABLE DEVELOPMENT IN INVESTMENT

EDFIshavedevelopedasetofpracticalresponsestothesechallenges,whicharegroundedinrespectforinternationallyrecognisedlabourstandards,andconsistentwith approaches to broader E&S risk management. Much of the EDFI approach focusesoncultivatingstronger‘peoplemanagement’systems,whichhelpcompaniestodemonstratecompliancewithnationalandinternationallabourstandards,andtodevelopaneffectiveframeworkforworkers’grievancestobeaddressedandresolvedasquicklyandefficientlyaspossible.

4.2.1 SHIFTING BUSINESS CULTURE: CHANGING THE RULES OF THE GAME

17 Reasonable working terms and conditions may be assessed by reference to conditions established for work of the same character in the trade or industry concernedinthearea/regionwheretheworkiscarriedout,collectiveagreementorotherrecognisednegotiationbetweenotherorganisationsofemployersandworkers’representativesinthetradeorindustryconcerned,arbitrationaward,orconditionsestablishedbynationallaw.

One of the main ways in which EDFIs support Decent Work is by safeguarding and promoting compliance with national labour legislation and respect for interna-tional labour standards in their investments.

DifferentelementsofPS2haveadifferentnormativebasis.Whilsttheprovisionsonchildlabour,forcedlabour,discriminationandfreedomofassociationarebasedonILOcoreconventions,therequirementson working terms and conditions of employment (includingwages,workinghoursovertime,breaksandleave)arelesscloselydefined.Forexample,PS2.10provides that clients must respect collective agree-mentswheretheyexist,andwheretheydonot(ordonot address working conditions and terms of employ-ment),theclientmustprovide“reasonableworkingconditions and terms of employment”17. EDFI clients arerequiredtoapplyPS2totheirdirectworkforces,and ensure that their contractors have systems in place toapplyPS2totheirownworkers.Inaddition,DEGand Swedfund take a particular interest in substantive termsofemploymentrelatedtoworkinghours,over-time,minimumwages,OHSandwrittenparticularsofemployment(referredtoas“BasicTermsandCondi-tions”).

Importantly,theIFCPerformanceStandardsarebased on the premise that the most constructive way toensurecomplianceisthrougheffectivemanage-mentsystems.PerformanceStandard1requiresthatall clients put in place an Environmental and Social ManagementSystem(ESMS)thatprovidesa“methodo-logical approach to managing environmental and social risksandimpactsinastructuredway,onanongoingbasis”. The ESMS is described as a “dynamic and continuousprocess”,thatshouldinvolveengagementbetweentheclient,itsworkers,localcommunitiesand(asappropriate)otherstakeholders.Forlabourissues,the relevant management systems will typically be called‘HumanResource(HR)Management’or‘PeopleManagement’,particularlywithregardtothemanage-ment of direct employees.

Whereappropriate,EDFIsmayrequireorencourageclientstoalignwithotherstandardsortoseekcertifi-cation in addition to or as a means of demonstrating compliancewithPS2.Forinstance,EDFIsmayrequestthatclientsseekSA8000certification,aglobalprivatevoluntary standard which measures performance on socialstandards,andisanchoredbyastrongmanage-ment element that strengthens organisational capacity to address and prevent labour risk.

4.2.2 ATTENTION TO LABOUR RISKS ACROSS THE PROJECT LIFECYCLE

Non-compliancewithPS2andnationallabourstand-ards undermines Decent Work and job quality in EDFI investments and can have a negative impact on busi-ness performance and investment outcomes. At the sametime,managementsystemsthatenableclientstoalignwithPS2canalsoallowcompaniestooptimisetheiruseofhumancapital,leadingtohigherlevelsofproductivityandproductivity(seeaboveSection3.3:“Thebusinesscaseforincreasedjobquality”).ItisthereforecriticalforallEDFIstounderstand,assessand mitigate labour risks throughout the lifecycle of theirinvestments.InlinewiththeUNGuidingPrin-ciplesonBusinessandHumanRights(UNGPs),oneelement of this approach must be to identify the most salientimpactsonlabourrights,inorderstrategicallyto prioritiseeffortstoincreaseleveragetomitigatetheserisks,includingworkinginpartnershipwithothers.

All EDFIs have a process in place for assessing risks andimpactsrelatedtotheirinvestments,includingthose that relate to labour and working conditions. For EDFIs,labourrisks(thatis,risksofnon-compliancewithlabourstandards)are:

• Prevalent: nearly every transaction will entail jobs; • Salient:labour rights abuses can constitute restric-tionsonfundamental,internationally-recognisedhuman rights; and

• Material: labour risks can threaten not only opera-tional continuity but also the reputation of both EDFIs and their clients.

Inthiscontext,earlyidentificationofriskininvest-mentsthrougheffectiveduediligenceenablesmoreeffectivemitigationandmoreefficientallocationofresource. It also creates awareness and opens up channelsofcommunication–internallyandexternally–whichmaybecomecrucialtoeffectiveremedylaterinthe project cycle. It is therefore vital that there is a clear duediligenceprocess,implementedconsistentlyacrossoperations,toidentifyandescalatekeylabourrisksasearly as possible in the project cycle.

Where the E&S due diligence process reveals gaps in complianceand/orclientcapacitytoensurecompliance,these are addressed by EDFIs through an Environ-mentalandSocialActionPlan(ESAP),whichsetsoutatime-boundplanwithpriorities,goalsandtargetsforreaching the necessary standards. This may be accom-paniedbytechnicalassistance(seebelow).TheESAPisthenincorporatedintotheinvestmentagreement,plusany other E&S requirements. Some of the elements of theESAPmaybe“conditionsprecedent”fordisbursingfunds; i.e. actions that need to be taken before funds are disbursed.

Oncecontractinganddisbursementhastakenplace,EDFIs undertake ongoing monitoring and engagement with clients to assess ongoing compliance and identify any new risks as they emerge. Monitoring takes two mainforms:clientsubmissionofanannualmonitoringreport on a range of social and environmental perfor-mancecriteria,likelytailoredbytheESAPrequirements,andsitevisitsbyEDFIs(orathirdpartyactingontheirbehalf)(seeBox5).Thekindandfrequencyofmoni-toring typically depends on the type of investment and theinherentlevelofrisk.Forinstance,anEDFIwouldtypically be more likely to have a higher degree of scrutinyoflargeconstructionsites(e.g.commissioningthirdpartiestoconductindependentlabouraudits),comparedtoagreaterrelianceonclientself-reportinginlowerriskwhite-collarenvironments,suchasbanks.

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LINKING ONGOING RISK MONITORING WITH MANAGEMENT CAPACITY BUILDING: FMO, FRONTIER ENERGY AND VS HYDRO

InUganda,FMOanditsclient,FrontierEnergy,investinseveralrun-of-the-riverhydroprojectsdesignedtomeetUganda’sincreasingdemandforelectricity.ThemainconstructioncontractorforeachisaSriLanka-basedcompany,VSHydro.

Initialmonitoringin2016ofconstructionononeofthesitesineasternUgandaflaggedconcernsoverlabourissues,notablytheabsenceofwrittencontractsandpoorOHSstandards.Tofollowup,FrontierEnergyandFMOcommissionedafocusedlabouraudit,whichthenindicatedwiderissueswithrespecttoHRmanagementsystemsandworkingconditions,includinglackofHRresource,poorrecord-keepingonworkinghours,overtimehoursandpayments,andthenumberofworkersonsite.Prob-lemswereparticularlyacutewithrespecttosub-contractors.ThefindingsofthelabourauditcreatedacatalystforproductivediscussionsbetweenFMO,FrontierEnergyandVSHydro,onaddressingidentifiedgapsandstrengtheningHRandcontractormanagementsystems.KeychangesputinplacebyVSHydrohaveincluded:

• HiringanexperiencedHRManagerforUganda;• Distribution of worker contracts; • Improvedrecordkeepingofhours,wages,overtimeandsocialsecuritypayments;• Closermonitoringofsub-contractorsandsupportforsub-contractorsinimplementingpayrolland

HR processes;• Anewdisciplinarycodetoaddressbullying,andawareness-raisingsessionsformanagersand

supervisors; • Improvementsinwages,anddiscussiononhowtomoveforwardstowardsalivingwage;• A revised approach to worker engagement and grievances;• ArevampedWorkerCommitteetoprovideaforumfordiscussionofworkers’issues;and• AnincreasedemphasisonOHSissuesincludingadherencetosafetyprocedures,PPEandhouse-

keeping.The follow up to the labour audit has been based on a collaborative partnership approach. All parties recognize that problems remain and that maintaining good working conditions and labour standards is an ongoing process that requires constant attention.

Importantly,themonitoringandengagementprocesshasthepotentialtoachievepositiveimpactbeyondtheinvestmentinquestion.Intentonexpandingitsoperationsintheregion,VSHydroiskeento apply the lessons learned in terms of upgraded HR systems and policies to new development sites in WesternUgandaandRwanda.

4.2.3 ASSESSING PROGRESS ON DECENT WORK IN EDFI CLIENT WORKPLACES

One of the principal sources of information for EDFIs on job quality is from theclientintheircapacityasemployer.Thisinformationcanflowfromtheclient’sinitialresponsetoduediligencequestionsregardingPS2compli-ance,aswellasfromcovenantedreportingrequirements,tailoredtotheclientonthebasisoflabourriskanalysis.However,therearelimitstoclientself-reportingasaninformationsourceonjobquality.ManyEDFIclientstypicallyhavepatchyHRdata,andthesetendtobelimitedtostatutoryrecords/payroll.Further,clientself-assessmentmaynotbewhollyreliedon,particularlyinrelationtosensitiveorcontentiousissues,wheretheremaybeaneffectiveconflictofinterest.Anyapproachtojobqualitymeasurementpredicatedonclientself-assessmentastheprimarydatasourceshouldalsoprovidescopeforEDFIorthird-partyvalidationifnecessary.However,by asking a client to describe their capacity and systems to manage people well,itispossibletoachieve‘positiveself-reinforcement’throughfocusingonevidenceofwell-functioningpeoplemanagementsystems–jobqualitydrivers–askeydatapoints.

AlongsidemonitoringPS2compliance,oneoftheprincipalwaysinwhichEDFIs have sought to measure their impact on Decent Work is by under-standingtheirimpactonjobcreation.Forinstance,bothFMOandCDChavedeveloped methodologies for assessing the number of direct and indirect jobsthatarecreated(inCDC’scase)orsupported(inFMO’scase)throughtheirinvestments(see,respectively,FMO,2018b;MacGillivrayetal,2017).However,EDFIsareincreasinglykeentodevelopamoreholisticunder-standing of their contribution to Decent Work and understand the impact oftheirinvestmentsonjobquality.Asnotedabove,thereisstrongoverlapbetweenduediligenceonlabourstandardsandworkingconditions,andtheeffortsofEDFIstogaugetheirimpactthroughmoredetailedassessmentofthesortofjobstheirinvestmentsarecreatingandsustaining.Inthiscontext,DEGhasestablishedasystemformeasuringthequantityandqualityof‘decentjobs’(seeBox6).

There are several challenges associated with developing a robust framework for assessing the qualityofjobsinEDFIinvestments,notallofwhichareunique to the EDFI context. One of the major dilemmas lies in choosing what tomeasure:thereisnointernationallyagreedapproachtomeasuringjobquality,andanumberofdifferentapproacheshavebeenputforward(see,e.g.:UNECE,2015;Cazesetal,2015;CIPD,2017&2018;TheGoodEconomy,2018).Manyapproachesestablishindicatorsatthemacroeconomiclevel,including the framework for measuring Decent Work that has been devel-opedbytheILO(seeDecentWorkIndicatorFramework,2008/2013),withagreaterfocusonthelegal/policyenvironmentthanoutcomesforworkers.

BOX 5

(Anextendedversionofthiscasestudy-basedoninterviewsandasitevisitcarriedoutin2018-issetoutinAnnexA.)

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BOX 6

MEASURING JOB QUALITY: DEG’S DEVELOPMENT EFFECTIVENESS RATING SYSTEM (DERA)

Since2017,DEGhasbeendeployingitsDevelopmentEffectivenessRating(DERa)inordertobetterunderstandtheimpactofitsinvestmentsondevelopmentatthelevelofindividualclients,andacrossitsportfolio.

UnderDERa,developmenteffectivenessismeasuredaccordingtofivepillars:“decentjobs”,“localincome”,“marketandsectordevelopment”,“environmentalstewardship”and“communitybenefits”.Thepillarsareweighted,withthe“decentjobs”componentaccountingfor25%outofatotalof150points.

The “decent jobs” pillar seeks to measure both the quantity and quality of jobs of each client.

• Thequantityofjobsismeasuredintermsofthedirectworkforce(employees)and“indirectjobpotential”(basedonbackwardlinkagesinthesector).

• ThequalityofjobsismeasuredintermsofclientcompliancewithIFCPS2andILOBasicTermsandConditions(rangingfromseriousdeviationstofullcomplianceandbestpractice).Inaddition,the quality assessment takes the level and quality of occupational health and safety and human resourcemanagement(rangingfrombasic/notsatisfactorytoinaccordancewithinternationalstandardsandbestpractice)intoaccount.DEGmakesthisdecisionbasedonmonitoringcarriedoutbyitsownsocialspecialistsorexternalconsultants,or–forlowriskprojects–clientself-assess-mentcheckedbyinvestmentofficers.IfclientsdonotcomplywiththeILOcoreconventions,thentheclientautomaticallyscores0forthispillar.

DEGalsocollectsdataonthenumberofwomenintheworkforce,theannualspendingontrainingandthenumberofpeopleinvocationaltrainingaswellasspendingonandtypeofadditionalbenefitsprovidedtoemployees;however,thesearenotincludedintheDERascoringframework.

TheDERaisappliedthroughouttheprojectlifecycle.ThefirstDERaisfilledinpriortotheapprovalofatransaction,providingabaselinefortheinvestment,andaforecastoftheexpectedeffects.Aftercommitment,theDERaisthenupdatedannually,allowingDEGtomeasurechangesintheclient’scontri-bution to development over time.

4.3.1 ENGAGING WITH CLIENTSEDFIsoftenprovideadvisoryservices(alsoknownas‘technicalcooperation’or‘technicalassis-tance’)tobuildthecapacityoftheirclientsindifferentareasinordertocreatemorecommerciallyrobust and productive businesses. These services can vary from putting in place stronger corpo-rate governance systems to establishing more modern and professional HR management systems. (ForanoverviewofCDC’scooperationwithREL,amanufacturingcompanyinBangladesh,seeBox7andAnnexC;foranoutlineofDEG’sBusinessSupportServices(BSS)tostrengthenclient

managementsystems,includingpeoplemanagement,seeBox8.)

Technical assistance can be a crucial milestone in the journey towards ongoing compliance with PS2andtowardsoverallimprovedjobquality:inmanyofthemarketsinwhichDFIsoperate,clientsdo not always have the systems or capacity in place at the outset to ensure full compliance with PS2.(ForanexampleofhowFMOworkedwithoneofitsclientsinSub-SaharanAfricatostrengthenmanagementsystems,seeBox9.)

SomeEDFIshavedevelopedtargetedprogrammestooffertoclients.Forexample,SwedfundhasdevelopedWomen4Growth,a“talentprogramme”forclientstosupportactionongenderequalityfortheirworkforcesandtoempowerhigh-potentialwomenemployees(previouslydescribedinBox3).Similarly,IFUhasdevelopedaprogrammetoencourageitsclientstoputhealth(includingsexualandreproductivehealth)andgenderequalityontheirbusinessagenda(see:IFU,2016).

Source:https://www.deginvest.de/DEG-Documents-in-English/About-us/What-is-our-impact/Policy-brief_EN_

final.pdf;interviewwithDEG,March,2018.

4.3 GOOD PRACTICES BEYOND COMPLIANCE: ADDITIONAL SUPPORT OFFERED TO CLIENTS

Alongsidetheirfocusonidentifying,mitigatingandmonitoringlabourrisksandnon-compliance,EDFIsworkwithclientsandothersinarangeofdifferentwaysinorder to shift practices within individual companies and markets more generally to maintain higher levels of E&S performance.Inthisway,EDFIsaimtoactasacatalyst,stimulating positive change and development outcomes inarangeofareas,includingjobquality.

Overtime,theworkofEDFIsinsupportinglarger-scale,higher-valueeconomicactivitiescanusefullyservetostimulateandfulfildemandforhigher-productivity,‘better’jobs.Intheimmediateterm,however,oneofthe challenges for EDFIs is to work with enterprises to develop more robust people management systems and tomakejudiciousinvestmentinhumancapital,toshowthatafocuson‘jobquality’cangohandinhandwith–andindeedboostdemandfor–sustainablejobcreationand skills development necessary for enterprise growth. Inotherwords,andasnotedinSection3above,thismeansdelineatingmoreclearlythecontoursofthe‘busi-ness case’ for investing in quality jobs in emerging and developingeconomyworkplaces(seee.g.DEG,2016).

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BOX 7 BOX 8

HANDS-ON SUPPORT TO ALIGN MANAGEMENT PRACTICES WITH INTERNATIONAL STANDARDS: CDC AND RFL ELECTRONICS LTD (REL)

InFebruary2018,CDCprovideddebtfinancingtoRFLElectronicsLtd(REL),acompanywhichproducesconsumerelectronicsandwhitegoodsdestinedforBangladeshiconsumersandwhichhasfirmambitionstoexpandintointernationalmarkets.AsofMay2018,thecompanyhad311employees,butwaspoisedtoexpand.RELispartofalargerandhighlysuccessfulgroup,PRAN-RFL.

Duringappraisal,CDCidentifiedcertaingapsrelatingtolabourandworkingconditions,manyofwhichwere linked to broader endemic issues in Bangladesh’s manufacturing sector. Some of the challenges relatedtolongworkinghours,formalisationofexistinggenderequalitypolicies,occupationalhealthandsafety(OHS)capacity,andcontractormanagement(particularlywithrespecttoensuringovertimepaymentsinlinewithnationallaw).

Priortosigningtheloanagreement,CDCprovidedsignificantsupporttoREL-viaexternalconsultantsanditsowninhouseresources-sothatthecompanycouldstrengthenitsinternalmanagementsystemsandcapacity,includingwithrespecttopeoplemanagementandhealthandsafety.Throughoutthisprocess,RELdemonstratedastrongcommitmenttoaligningitsmanagementpracticeswithinternationalstand-ards. This engagement was rooted in an understanding that aligning management practices with interna-tionalstandardscanbringsubstantialbenefits,includinggreateraccesstofinanceandmarkets.RELmadeanumberofchangeswithCDCsupport,including:

• Introducing breaks in production and reducing daily working hours while maintaining workers’ pay;• Implementinggender-relatedpoliciesandprocedures,conductinganumberoftrainingsonsexual

harassment,andexploringtheintroductionofcompanyprogrammestosupporttheadvancementofwomen;

• ImprovingOHSsystems,training,andknowledgewhileactivelypromotingastrongOHSculture;• IntroducingapaymentsystemwhereinRELpayssub-contractedworkersdirectlyfromitspayrollto

ensure that overtime is paid correctly.

Theprocessofaligningmanagementpracticeswithinternationalstandardsisongoing;however,strongcommitmentsbybothRELandCDChaveyieldedearlysuccesseswhichsetthegroundworkforfurtherprogress.Bangladeshremainsachallengingcontextwithrespecttolabourandworkingconditions,butRELhasmadesignificantprogresstowardsinternationalstandardsandinterventionsthusfarhaveledtotangiblebenefitsforworkersandthebusiness.CDC’scapacity-buildingeffortsatRELhavealsoinfluencedmanagementpracticesinotherpartsofthePRAN-RFLgroup,particularlythenon-foodsideofthebusi-ness,therebywideningCDC’simpact.

DEG BUSINESS SUPPORT SERVICES: BUILDING PEOPLE MANAGEMENT SYSTEMS

DEGactivelycontributestothepromotionofdecentjobsthroughitsBusinessSupportServices(BSS).ThebusinesssupportservicesisbasedonthefindingsonathestudyBridgingtheskillsgapsindevelopingcountries:apracticalguideforprivatesectorcompanies,whichDEGhasconductedwithTheBostonConsultingGrouponbehalfoftheEDFI’sascontributiontoLet’sWork.Theseservicesareco-fundedorgrantfunded,typicallyinvolvingajointfinancialcontributionfromDEGanditsclientinordertopromoteownershipandbuy-in.Businesssupportmayinvolveadviceonenvironmentalandsocialriskmanagementaswellascorporategovernance.Morerecently,atech-nicalserviceknownasPeopleManagementwasdevelopedinresponsetodifficultiesinaddressingtheskillsgapindevelopingcountries.ThesegapswereidentifiedfollowingDEG-ledresearchandcase-studies.

UnderthePeopleManagementprogram,DEGassistscompaniesinimplementingpeoplemanagementpractices which aim to overcome skills gaps and other HR challenges. Technical support involves the use of HRconsultantswhoidentifytherootcausesofgaps,andultimatelycreateatailor-madeplanwithspecificsolutionsbasedoninternationalgoodpractice.Theproposedplanandsolutionsareincremental,andDEGofferssupportthroughouttheimplementationprocess.

PeopleManagementhasmetwithsuccessinawiderangeofgeographiesandoperatingcontexts.InNamibia,DEGprovidedsupporttoanexpandingfrozengoodsdistributorinneedoftrainedandqualifiedstaff.Thecompanywasabletoidentifyqualificationrequirements,addressgaps,anddeveloptrainingprogramswhichledtothesystematisationofrecruitment,improvedretention,andbetterjobsatisfaction.

SimilarlypositiveresultswereachievedfollowingDEGadvisoryworkinvolvingameatprocessingcompanyinSouthAfrica.Inresponsetochallengesrelatedtoalackofwell-qualifiedrecruits,highturnover,andlowemployeeengagement,DEGidentifiedanumberofgapsaswellassolutionstoexistingHRprocesses.Solutionswereaimedatreconcilingthecompany’sinterestswiththoseofitsworkforce,andencouraginga culture shift by demonstrating that workers are an important part of the company. The end result was higheremployeesatisfaction,aswellasbetteroverallperformance.

Source:DEGwebsite

(Anextendedversionofthiscasestudy–basedoninterviewsandasitevisitcarriedoutin2018–issetoutinAnnexC.)

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BOX 9

FMO AND J&J AFRICA: SUPPORTING THE TRANSPORT SECTOR IN SUB-SAHARAN AFRICA

Foundedasafamily-runenterprisein1995,J&JAfricahasgrowntobecomealeadingtransporta-tionandlogisticsproviderinSouthEastAfrica.J&Jnowhasafleetofover1500trucksthatprovideservicestoandfromMozambique,Zimbabwe,Malawi,Zambia,SouthAfricaandEasternDRC,andemploysover3000workersdirectly,infunctionsrangingfromdriving,warehousestorageandpacking,workshop,managementandadministration.J&Jisalsoresponsibleforindirectemploy-mentthroughanetworkoflong-termcontractorpartners.ThecompanyplaysakeyroleinlinkingAfricanproducersandconsumerswithglobalmarkets.

FMOacquiredastakeinJ&Jin2013,alongsideInvestec(anFMOclient)andCarlyleGroup.Fromtheoutset,FMO has played a role in developing an ESMS to help the company achieve best practice. As part of its E&Sduediligenceprocess,investorsidentifiedgapsinmanagementsystems,includingtheneedforadedicatedHealth,Safety,EnvironmentandSecurity(HSES)Manager,whichwasidentifiedasaprerequisiteforstrengtheningcompanypracticesonworkingconditions,OHSandfiresafety.Tocreateablueprintforchange,FMOandInvestecdevelopedanESAPwithactionstodevelopmoremodern,professionalisedgovernance structures and management systems that would support improvements in working condi-tionsandjobquality.Sincemakingtheinvestment,FMOhasvisitedthecompanyonseveraloccasionstodiscussprogresswiththecompany’sseniormanagement,whoseengagementanddrivehasbeenpivotalin rolling out improvements and building a management driven system.

Enhancements to HR management capacity have been crucial to J&J’s ability to improve working condi-tionsandsafetyforstaff.J&J’smanagementhasincreasedthesizeandcapacityofitsHRdepartment,bothrecruitingnewstaff,includinganexperiencedHRdirector,andprovidingtrainingtonewandoldstaff.ThenewHRdepartmentusesstateoftheartHRsystemsforrecruitmentandisbetterpositionedtointroduceandimplementnewpoliciesandprocedures,enhancerecruitmentprocessesandconductinductiontrainingofnewstaff.Trainingandmonitoringofsub-contractorshasalsobeenstrengthened:thecompanynowensuresthatallnewsub-contractors(includinglabourbrokers)areprovidedwithintro-ductorytrainingonitsinternalregulations,andregularlyauditssub-contractorsforcompliance.Wherepossible,thecompanyaimstosharebestpracticebetweencontractors.

WithFMO’sencouragementandInvestec’sinvolvement,J&JhastargetedOHSasanareaforimprovementand has introduced sophisticated new management systems integrating OHS into many other facets of the organisation.Safetyoutcomeshaveimprovedconsiderablyasaresultofwell-maintainedvehiclesandPPE,butalsoasaresultofmanagementinitiativessuchasregulartrainingsessions,toolboxtalksandbriefingsforemployeesanddriversonOHS(withsupportfrommanagementatalllevels),fatiguemanagement,handlingofhazardoussubstances,firesafety,firstaidandothersafety-relatedmatters.AsaresultofitsimprovedOHSsystems,theSpecializedTransportdivisionofthecompanyandGreendoorGrouphavebeenabletoachievecertificationtorigorousinternationalstandards,includingOHS8000andISO45000.GreendoorGroupisalsoSQASaccredited.TheJ&JGroupcontinuestopassstringentauditsthatarebothclient-andinternallydriven.

J&Jhasalsotakenaproactiveroleinimprovingthesexualhealthofdrivers,launchingHIVawarenessraising,testingandcounsellingservicesinpartnershipwithinternationalNGOsandimprovingaccesstohealthservicesandcondoms.Asaresultofallofthesechanges,J&Jhasseentangibleimprovementsonanumberofworkforce-relatedindicators,includingstaffretention,aswellasimprovementsincustomersatisfactionlevels.ForJ&J,thereisasignificantincentiveinimprovingjobqualitytokeepemployeeturn-overlow:itscustomerstrustJ&Jwiththeirfreight(includingflammablesubstances)becausetheyknowthatitsdriversarewelltrainedandwillkeeptheirproductssafe.Bettermanagement,stronghealthandsafetyprocesses,goodworkingconditions,excellentsystemsandwell-maintainedvehiclesareallfactorsinhelpingtokeepJ&Jan‘employerofchoice’.

Source:FMO

4.3.2 ENGAGING WITH FINANCIAL MARKETS

18 See:www.edfi.eu/wp/wp-content/uploads/2017/10/EDFI-Principles-for-Responsible-Financing.pdf19 See:http://toolkit.cdcgroup.com/20 ForboththeFMOtoolkitande-learningtool,see:https://www.fmo.nl/estoolkit

GiventhesignificantproportionoffundsthatmanyEDFIsinvestviaprivatefundsandinlightofthespecificchallengesinvolved(seesection4.1.2),EDFIshavecommittedtoacommonapproach:“When investing through intermediaries such as financial institutions or funds, we require these to implement systems to ensure adherence to our standards” 18. As the proportion of intermediated transactions in many EDFI portfolios is substantial,thisremainsanimportantareaforcontin-uous improvement.

Several EDFIs have worked to develop products to raise the awareness and capacity of fund managers and FIs onPS2.Forinstance,CDChasdevelopedanonlineE&Stoolkit for fund managers19,basedontheIFCPerfor-manceStandards,whichincludesbriefingnotesonspecifictopics(includinglabour),E&Ssectorprofiles,andchecklists.Similarly,FMOhasdevelopedasustain-abilitytoolkitforprivateequityfirms,andane-learningtoolonsustainabilityformicrofinanceinstitutionsandbanksthatfinanceSMEs.20(SeealsoBox10forasector-wide approach to strengthening E&S awareness and expertiseinthefinancialsectorinBangladesh,andBox11foranoverviewofCDC’sguidanceandtrainingforfunds.)

FMO: TAKING A SECTOR-WIDE APPROACH TO E&S STANDARDS IN FINANCIAL INSTITUTIONS IN BANGLADESH

BangladeshrepresentsoneofFMO’smostsignificantcountriesofinvestment,andfinancialinsti-tutionsareanimportantfocusofitsportfolio.(AcrossFMO’stotalportfolio,financialinstitutionsrepresentjustoverathird(37%)ofallinvestment.)Assuch,FMO–alongwithotherEDFIs–havetakenanactiveinterestinstrengtheningawarenessofE&Sstandardsinthesector.

Localdevelopmentshelped:Bangladesh’sCentralBankintroducedEnvironmentalRiskManagementGuidelinesforthebankingandfinancialinstitutionsin2011,whichledtogreaterawarenessofE&SriskinthefinancialsectorinBangladesh.Consequently,banksandotherfinancialinstitutionsinBangladesharenow taking proactive steps to address E&S risks within their business operations and are developing or strengtheningtheirin-houseenvironmentalandsocialmanagementsystemsframeworkstomanagekeyrisks.

However,thereareongoinggapsinlocalexpertiseandknowledgeonE&SstandardsandriskmitigationinFIsectorsofinvestment.Toaddressthesegapsandbuildlocalcapacity,FMO,OeEB,DEG,andProparco,partneredwithfourlocalFIsin2016toprovidetrainingto150bankersonE&SstandardsincludingPS2requirements,therebycreatinganewnetworkofE&SspecialistsandanewpoolofE&Sknowledgeinthesector.Followingthesuccessofthe2016pilot,afurthertrainingsessiontookplaceinearly2018,part-neringupwithninelocalFIs,totrainapproximately250bankingofficialsacrosseighttrainingsessionsbetweenFebruaryandApril2018.

Formoreinformation,seeFMOStories-Bangladesh

Source:FMO,2018a;GCPF,2018

BOX 10

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CDC: BUILDING THE CAPACITY OF FUNDS TO PROMOTE JOB QUALITY

CDCoffersguidancetoprivateequityfundmanagersonhowtomanageESGrisksinemergingmarketsthroughablendoftraining,advisorysupportandonlinetools.

Since2010,CDChasbeenrunningannualESGtrainingprogrammesforfundmanagersandtheirport-foliocompanies(co-fundedbyNorfundforpasttwoyears).Portfoliocompanieshaveattendedalong-sideinvestorsforthepastthreeyears,providinganadditionallevelofcontextandricherdiscussionsofconditionsandchallengesinportfoliocompanies.In2018alone,fiveprogrammeshavebeendeliveredinLondon,Lagos,Mumbai,NairobiandJohannesburg,reachingover400people,includingmorethan100fundmanagers/portfoliocompanies.

TheESGtrainingprogrammerunsoverfourdays,andcovers12stand-alonemodules,deliveredbyacombinationofCDCandspecialistconsultants.ThemoduleonLabourandWorkingConditionscoversallaspectsofIFCPS2andissubjecttoongoingrefinement:itsfocusforthe2017/18programmewasonmodernslavery(particularlythroughasupplychainlens),aswellasaspectsofjobqualitythatarenotalwayscoveredcomprehensivelybynationallegislation,includinghours,wagesandgrievancemech-anisms.ThemoduleonOHShasalsoevolvedovertime,fromabeginners’module(focussedonriskmanagementinSMEs)toamoreadvancedmodulefor2017/18thatnowincludesdiscussionofinteralia,contractormanagement,occupationalhealthandexposure,andfiresafetymanagement.

The training programme is interactive and designed to encourage participants to learn through case studiesandfirst-handexperiencesonhowtoidentifyandmanageESGrisk.Throughoutthetraining,participantsbuildrelationshipswiththeirpeerswhilegainingpracticalinsightsintoriskidentificationandriskmanagement.Workshopshavebeenwellreceived,andparticipantfeedbackconsistentlyindicatesthatthetrainingandguidanceisappreciatedbyportfoliocompanies.CDCmaintainscommu-nication with workshop attendees on good practice via regular E&S newsletters.

Alongsidethetraining,CDC’sonlineESGToolkitprovidesadviceforfundmanagersoneffectiveESGintegration,includingapracticalbriefingnoteonlabourstandards.TheToolkitisregularlyupdated,andaimstobebothabuildingblockforthedevelopmentofacustomisedESGmanagementsystem,andaneasy-to-usereferenceguideforassessingandmanagingESGrisks,impactsandopportunities.

Source:InformationprovidedbyCDC,2018;UNPRI,2018;toolkit.cdcgroup.com

4.3.3 PARTNERSHIPS AND DIALOGUE

Working in partnerships with others can help EDFIs to increase their understanding of Decent Work challenges in their countries of investment anddeepentheirdevelopmentimpact:

• WorkingwithotherEDFIs:Giventhatoneofthefounding objectives of EDFI was to strengthen coopera-tionandfacilitateknowledgesharingandlearning,theAssociationofbilateralEDFIsitselfoffersanimportantplatform for dialogue and cooperation on Decent Work betweenEDFIs,aswellaswithother(multilateralandbilateral)DFIs.Thereisahighlevelofco-investmentbetweenbilateral,regionalandmultilateralDFIs,andmultiple DFIs often invest in the same projects. In this context,itmakessensethattoincreaseinformationsharingbetweenEDFIs–intermsofE&Scompliance,aswellasgoodpractices–inordertomaximiseimpactand ensure that there is a common language and vision on labour requirements that is communicated to clients. EDFIs do not have a mandate to engage in policydialogueondecentworkandjobquality,thoughthere is potentially scope for EDFIs to partner with other national and international institutions whose role includes legal and policy dialogue.

• Workingwithprivatesectoractors:Some EDFIs are working in partnership with multinational companies tobolstertheirsustainabilityofferingandimpact.Swedfund is working in partnership with H&M to supportDBLIndustries,aninternationaltextilemanu-facturerheadquarteredinBangladesh(seealsoBox2aboveregardingDEG’sworkwithDBLinBangladesh)to expand its operations into Ethiopia and build a new textilefactorythatwillemploy4000workers(atfullcapacity).Swedfundisprovidingtheloanforthenewfacility,whileH&Mhassignedalong-termsourcingagreementwithDBL(Swedfund,2016a).Thestructureof this deal provides both commercial and sustaina-bilitybenefitsforallparties,andasthefactorygrows,itisexpectedtohavepositiveeconomicspill-overstothe local economy.

• WorkingwithNGOs: EDFIs also seek advice and expertinputsfromNGOs.Forinstance,FMOhasappointedsomeonein-housefromtheGenderteam atanNGOtounderstandhowtoincreaseitsimpact ongenderequalitythroughitsinvestments,includinghow to support women’s leadership and talent devel-opment,andsupportwomen-ledSMEs.IFUworkswiththeFamilyPlanningAssociationtoencourageIFU’sproject companies to promote women’s rights and healthintheworkplace(IFU,2016).CDCisworkingwithTheBoardroomAfrica,anorganisationthathascreatedadatabaseofC-suiteandseniorexecutivewomen across Africa to address misperceptions that thereisaninsufficientpoolofwomenwhoareinter-estedinorcapableoftakingupboard-levelpositions.

• Workingwithtradeunions: Dialogue with trade unions can help EDFIs to better understand potential labourrisksandimpactsintheirinvestments,whilstalso reinforcing EDFI commitment to the social dialogue pillar of the Decent Work Agenda. Several EDFIs already have contacts in place with their national trade unions; forinstance,SwedfundhasputinplacecommunicationchannelsforscheduledandadhocdialoguewithLOandIFMetal,Swedishtradeunionconfederations(seeBox12.)(Swedfund,2015).Thiskindofdialoguecouldprovide an entry point for engaging with trade unions intheircountriesofinvestment.However,whilstthereis an existing web of contacts between EDFIs and trade unionsandNGOs,thereisscopeforfurtherandmoreregular engagement amongst a wider range of EDFIs.

Source:InformationprovidedbyCDC,2018;UNPRI,2018;toolkit.cdcgroup.com

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5. CONCLUSION

EDFIs are increasingly important actors in promoting the decent work dimensions of private sectordevelopmentinLDCs.Theirinvestmentscreateandsustainasignificantnumberofjobs,and they are committed to ensuring that their clients’businessesarerunresponsibly,inlinewith national and international labour standards.

Giventheirmandatestobeadditionaltocommer-cialfinance,EDFIsoperateinpoorer,higherrisk,countriesandsectors,togrowmarketsandimprovetheinvestmentclimate,andtodemon-strate positive investment experiences. They are alsorequiredtomobiliseprivatecapital,priceproducts to generate commercial returns and build companies able to attract private capital in the future. This poses a series of challenges for EDFIs when it comes to promoting job quality.

This report seeks to capture existing good prac-tices and plot a trajectory forward developing clear and fair people management systems that respect labour standards and promote develop-ment.Thechallengesareincreasinglyunderstood,andtranslatedintoconstructive,practicalopera-tional questions by EDFIs. There is an important opportunityforEDFIstooptimisetheirimpact,andrefinetheirunderstandingofthisimpact,throughprogressivelysupportingdecentworkby:

• Reinforcingpublicrules(the‘rulesofthegame’)throughprivatecontracts(loancovenantsandequity)andnormalisinglabour rights as standard terms of business in emerging and developing markets;

• Guidinganddevelopingthepeoplemanagement systems and capacity oftheirclients(e.g.throughtechnicalassistance),andtherebyraisingawarenessof the centrality of people management in emerging markets;

• Driving and gauging enhancements to job quality through developing and implementing a range of tailored approaches togaugingjobquality,balancingbothjobquality‘drivers’andoutcomes,whichenableconsistent and streamlined assessment of job quality throughout EDFI portfolios;

• Generatingandcommunicatingdemonstrationeffects–thatdecentjobsarecompatiblewith–indeednecessaryfor–long-termcompetitivebusiness-leadingtomarkettransformation,andinparticularthatequalopportunityforalltalentsisaself-sustaining business driver; and

• Improving mutual understanding of challenges,objectivesandareasofcommoninterestbetweenEDFIs,NGOsandkeylabourstakeholders,andtradeunionsinparticular.

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ANNEX A: FMO AND DI FRONTIER / VS HYDRO Uganda – construction

This case study shows how a partner-ship between development finance institution (DFI), client and leading contractor can lead to improved labour and working conditions on construction sites and generate positive spill-over effects beyond DFI-financed projects.

THE INVESTMENTTheFMOinvestmentrelatestoseveralrun-of-theriverhydroelectricitysitesinUganda,allinrelativelyremotelocations.InWesternUganda,Lubiliahasrecentlybeencommissioned and currently generating power while Nyama-gasani 1 & 2 is undergoing construction. In the Eastern regionofUganda,ontheSitiriverneartheKenyanborder,Siti1isgeneratingpower,whileSiti2,thelargerofthetwoisduetobecompletedinSeptember2018.TheLubilia,Sitiand Nyamagasani projects are being developed by Frontier Energy,aspecialistfundintheAfricanrenewableenergymarket.FMOhasinvestmentsbothintheFund,andalsolinesofcredittotheprojectsthemselves,makingitbothanequity investor and lender.

TheEngineering,ProcurementandConstruction(EPC)contractorforeachprojectisaSriLankancompany,VSHydro,whichisalsoashareholderintheSiti1&2andNyamagasani1projects,alongsideFrontierEnergy.VSHydroisanexperiencedhydro-powerengineeringcompanyestablishedinSriLanka,whichhasexpandedinrecentyearsintoEastAfrica.Theseinvestmentinter-relationshipspotentiallycreatesomedifferentinterestsbetweentheparties but in practice have contributed to creating shorter lines of communication and a common understanding of the challengesandrequirements.ForFMO,equityandcreditrelationships have created a greater degree of leverage.

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THE WORKFORCEInitsEastAfricanprojects,VSHydrodirectlyemploysSriLankanseniormanagersandtechnicalstaff,andalsolocalUgandanandKenyanmanagersandadministrativestaff.Duringconstruction,itusesspecialistsub-contractorsforsomecivilandtechnicalworks,thatsourceskilledstafffromSriLanka,anditalsouseslocallabourprovidersforsemi-skilledandunskilledworkers.Atpeaklabourdeployment,therearearound350workersoneachproject,ofwhichapproximately80%areemployedbysub-contractors,eitherfor specialist tasks or as unskilled labour.

LABOUR AUDIT AS A CATALYST FOR POSITIVE CHANGEInitial monitoring of the Siti 1 project by the lender’s tech-nicaladvisersin2016flaggedconcernsoverlabourissues,notably absence of contracts and poor OHS standards. To followup,FrontierEnergypreparedastandardlabourcontracttobeusedbyVSHydroandworkedtogetherwithFMO to devise a ToR for a specialist labour audit. The audit wasconductedonSiti1,Siti2andLubiliainMarch2017.These projects were in various stages of construction.

ThesubsequentauditconfirmedweaknessesinOHSmeasuresandtraining,butalsoindicatedwiderissueswith respect to HR management systems and working conditions.Inparticular,itfoundthattherewasalackofHRresource(withnodedicatedHRofficersonsite),whichwascontributingtopoorrecord-keepingonworkinghours,overtimehoursandpayments,andthenumberofworkersonsite.Ageverificationsystems–fordocumentingabsenceofchildlabour-werelimited,andrandomchecksfoundthat employment contracts contained legal language that was not easily understood by workers. These problems wereparticularlyacutewithrespecttosub-contractors,withlimitedsystemsformonitoringsub-contractors’HRprocesses and actions. Management gaps were exacerbated by a gap in linguistic understanding and cultural practices betweenpredominantlySriLankanmanagementandsuper-visors,andthemostlyUgandanworkforce.

ThefindingsofthelabourauditcreatedacatalystforproductivediscussionsbetweenFMO,itsclientFrontierEnergyandVSHydro,notonlyregardinghowtoaddresstheidentifiedgaps,butalsohowtostrengthenHRandcontractor management systems on site more generally. As oneVSHydromanagerputit“ifwehadn’tbeenaudited,wewould not have been challenged on our practices and we might have been reluctant to make changes”.

Immediatelyfollowingtheaudit,theFMOE&SspecialistidentifiedtheimportanceofswiftanddirectdialoguebetweenseniorrepresentativesofFrontierEnergy(FMOclient)andVSHydro,flyingtoNairobitomeetwiththeminperson and agreeing to a phased roadmap for meaningful change. Ongoing communication and follow up has also beenkey,withFMOmakingmonthlyphonecallstocheckin on steps taken. All three parties emphasise that this hasbeenacollaborativeprocess.VSHydroexplainsthat

“Frontier Energy and FMO share ideas and give input and this allows us to come to an informed decision”.

CHANGES SO FAR Asafirststep,aseniormanageratVSHydrowastaskedwith overseeing the company’s response and development of its HR capacity. The company then hired a specialist HR consultant to review its internal systems and resources andproduceanactionplanwithtimelines.Inlinewiththis,VSHydrohasbeeninstitutingarangeofpolicychangesand allocating considerable new resource to supporting enhancedHRmanagementprocesses.Theseinclude:

• ExpansionofHRcapacity: Although it was initially difficulttofindanHRprofessionalwillingtoworkontheremotesiteswherethehydroprojectsarelocated,VSHydro was able to recruit an experienced HR Manager for Ugandawhosplitshertimebetweenthevariousprojects.Thereisalsoapart-timetrainedHROfficerlocatedateachsite.

• Newworkerregistrationsystem:Thecompanycompleted a worker registration exercise to ensure that all workers on site were counted and documented.

• Newpolicesandworkercontracts:TheVSHydroexternal HR consultant drafted appropriate policies and procedures for the new HR team to review and implement. Standardworkercontracts,definingtermsandconditionsinlinewithUgandanlaw,werereviewedandthelanguagewassimplifiedtobebetterunderstoodbyworkers.

• Improvedrecordkeeping:VSHydrohasworkedhardto ensure that hours are now recorded accurately by supervisors enabling calculation of normal hours and overtimeattheappropriaterate,andaccuratepaymentofsocial security contributions. This has also created trans-parencyovertotalworkinghours,enablingthesetobemonitored in line with legal limits. The company is looking to purchase a more integrated payroll system for all its Ugandanoperations.

• Workinghourswithinlegallimits:As with all remote constructionprojects,maintainingweeklyhourswithinlegal limits remains a challenge. Delays due to poor weather or late delivery of materials can require overtime tocompletetasksontime.ManylocalandSriLankanworkers are also keen to work longer hours in order to earnhigherwages.However,VSHydrohasworkedtoexplain the legal situation and the OHS implications of working overly long hours. It is committed to taking on more workers to complete jobs rather than expect exces-sive hours from the existing workforce.

• Closermonitoringofsub-contractors:With so many workersemployedbysub-contractors,itisvitaltoensure

that project standards are clearly communicated to and implementedbysub-contractors.Withthisinmind,VSHydro has negotiated a new contract with the main labour-onlysub-contractorwhichspecifieshigherHRstandards and greater responsibility for delivering these standards.WithassistancefromFrontierEnergy,sub-con-tractors’ standard contracts with their workers have been reviewed and changes are ongoing to make sure that they meetlegalrequirementsandgoodpractice(forexample,inrelationtogrievanceprocesses).Additionally,VSHydrohasworkedwithitssub-contractorsonpracticalmethodsfor implementing its requirements for recording hours and making accurate payments. The requirement to institute proper payroll and HR processes has been just as muchachallengeforthesub-contractorsasforVSHydro.Whilethisworkisyettobecompleted,VSHydrofeelsthattheseeffortswillbenefitworkersemployedbythesubcontractors on other projects.

• Aworkplacecultureofgreaterrespect:VSHydrorecog-nisedthatworkingrelationshipsbetweenSriLankantech-niciansandsupervisorsandthelargelyUgandanunskilledworkforce needed to be improved. Top management took the lead in communicating the need for mutual respect. A newdisciplinarycodewasinstitutedtoaddressbullying,andawareness-raisingsessionswereheldformanagersandsupervisors.Additionally,moreUgandansupervisorswereappointed,andEnglish-speakingSriLankanswereidentifiedtoactasintermediaries.VSHydroacceptsthatchanging attitudes and behaviours can take time and that issuesremain,butitnowfeelsthatthereiscommitmentto and a framework for addressing the problem.

• Wages:The labour audit raised the question of whether wageswereadequate,particularlyintheabsenceofaneffectivestatutoryminimumwageinUganda,althoughVSHydrobelievedthatwagelevelswereinlinewithsimilar projects in the local area. Frontier Energy and FMO have provided input on methods of calculating living wages,andVSHydrohasbeendiscussingwaystomoveforward.Intheshortterm,opportunitiestoincreasewagesontheexistingprojectsarelimited,asthebudgetsarelongestablished,andthelabourcontractshavebeenlet.However,thecompanyhasintroducedhigherwagesforSiti2(comparedtoSiti1)andinstituteda10%annualincrementforlonger-standingstaffandaperformancebonusofuptoanother5%.Inthelongerterm,VSHydroislooking to allow for higher labour costs within its tenders onnewprojects,andtostructurecontractsfornewsub-contractors’sothatwagescanbeincreasedwithoutsqueezing contractors’ margins.

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CONCLUSION• Revisedapproachtoworkerengagementandgriev-

ances:To improve communications and capture worker issuesatanearlystage,thecompanysetuparevampedWorkerCommittee,comprisedofrepresentativesfromboththedirectworkforceandsub-contractors.TheCommitteemeetswithmanagementweeklytodiscussarangeofwork-relatedissues,andmonitorsandlogscomplaints either from individual workers or from repre-sentatives.AccordingtoHRstaff,complaintshavereducedsincetheWorkerCommitteestartedmeetingregularly.

• OHS:Sincethelabouraudit,staffreportanincreasedemphasis on OHS issues including adherence to safety proceduresandhousekeeping,deliveredthroughinduc-tions,ongoingspecialisttrainingandtoolboxmeetings.Regularrenewalofpersonalprotectiveequipment(PPE)remains a problem but workers have been sensitised to theneedtowearappropriatePPEatalltimes.

ONGOING CHALLENGES AND LESSONS LEARNEDAllpartiesrecognizethatnotallproblemshavebeenfixed.All agree that meeting and maintaining good working conditions and labour standards is an ongoing process that requires constant attention. All share a mutual under-standing of the challenging context. The projects are in remoteareas,wherethereislimitedregulatoryoversight,andheavyrelianceonsub-contractedlabourtomeetfluctu-ating labour demand.

Monitoringsub-contractorperformanceonworkinghoursandregularwagepaymentsremainsachallenge,asdoescontinuingadherencetoOHSstandards.Additionally,keeping working hours within legal limits is problematic in a sectorwherelonghoursarethenorm,asdoesinfluencingsub-contractorpracticeswherechangeshavecostimplica-tions(e.g.discussionsaroundwages).Maintainingsoundrelationsbetweenex-patriatestaffandlocalworkersisalsoa work in progress.

Inlightoftheseongoingchallenges,backingandleadershipfrom the top management team is emphasised as a key lesson.AccordingtooneVSHydromanager“weneededthatwill and zeal from top management who were keen to see the company do better”. The early intervention and collab-orative approach adopted by FMO and Frontier Energy was critical to securing and maintaining this backing.

The strength of this transformative process is the collab-orativeworkingrelationshipthatFMO,FrontierEnergyandVSHydrohavedeveloped,workingalongsideeachother as partners. The senior management commit-mentofFrontierEnergyandVSHydroandthehonestattitude of the parties laid the foundation for a trusted partnership. Trust enabled the complementary business interests to converge and to lead to change. FMO’s role was catalytic in this process.

Changetakestime.Buildingupinstitutionalcapacity-investinginpeopleandHRsystems,improvingplan-ning,bettersub-contractormanagementandachievingcontractpricesthatbetterreflectthelabourcosts-alongsidemanagingabusiness-iscomplexandslowattimes. This is remains an ongoing process.

The transformation process reached beyond the scope oftheindividualinvestment.VSHydrostatesthattheyhave drawn on the lessons learned in this case and applied upgraded HR systems to new sites in Western UgandaandRwanda.(OneofthelessonsforVSHydrowas that it is easier to build in the right systems from theoutset,ratherthanretrofitoncecontractshavebeenlet).Theyareincreasingtheirinvestmentinlocalprofessionalcapacity,includingHRandE&Sfunctions,sothattherewillbeanHRofficeronsiteatallprojects.Their investment in upgraded policies and HR processes willalsoberolledoutinotherprojects.Additionally,they say that discussions around living wage will have implications for wage levels on new projects.

THE BUSINESS BENEFITSFostering change in challenging environments is part of FMO’s mandate as a development bank. FMO recognizes that achieving decent work can be complex but it is of key importance. It is so important because the impact of improving labour and working conditions reaches beyond thewell-beingofanindividualworker.Itisconnectedtothewell-beingoftheentirefamilyandtheircapacitytoescapefrom poverty.

Toachievedecentwork,FMOengageswithclientsandotherpartners.Inthiscase,FMO,FrontierEnergyandVSHydroenjoy a relationship that goes beyond the investments subjecttothelabouraudit.Thus,workingtogethertowardsimprovements in labour and working conditions may generateaspill-overeffecttootherinvestments.

Frontier Energy is keen to be perceived as a leader in the energysectorintheregion,includingwithrespecttoE&Sperformance.Suchaprofilecanbeanattractivepropositiontoprospectiveinvestorsinitsfunds,aswellasbeingtherightthingtodo.ForFMOandFrontierEnergytogether,VSHydro’s willingness to engage in open discussions provided an opportunity to tackle some typical labour issues found on manyprojectsinsub-SaharanAfrica.

ForVSHydro,thelabourauditfindingsdemonstratedthatits previous focus on engineering and project delivery was inadequate to meet the requirements of international investors.Accordingtoonemanager,“Wesawweneededbetter compliance with international standards to satisfy lenderdemands”.Alongsideinvestorexpectations,VSHydro accepts that changes were necessary to keep pace with its expansion in Africa and its greater exposure to potentialsocialandlabourrisks.VSHydrohasseveralpipeline projects in the region and believes that boosting HR management systems and enhancing its local HR under-standing and capacity is consistent with its growth as a company and its ambition as a favoured contractor in the region.Asstatedbyoneseniormanager,“we’venowprovenwe can deliver on these issues and can use the lessons to go onto bigger projects”.

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ANNEX B: SWEDFUND AND ELGON ROAD / RADISSON Kenya –hotel

This case study provides an example of how development finance institu-tions can have a positive impact on job quality through their influence at board level in equity investments, and through targeted capacity building programmes to promote strengthen aspects of job quality (e.g. gender equality).

21 TheCarlsonRezidorHotelGrouprebrandedastheRadissonHotelGroupinFebruary2018.

THE INVESTMENTHotelscontributetoavarietyofdevelopmenteffects.Aninvestment in a hotels help establish the local economy by supportingtourism,businessrelationsandmoneyspentinthecountry.Hotelsprovidedirectjobs,includingcareerpathsforwomen.Additionally,hotelsrequireservicesandinfrastructurefromlocalcompanies,suchastransport,wastecollection,foodsuppliesandlaundry,supportingregional development.

Likeinaeveryworkplace,managementofjobqualityisimportanttoensureasafeworkspace,withfaircompensa-tion and working hours and equal opportunities.

TheRadissonBluUpperHillinNairobiisoneofKenya’stopfive-starhotels.ItisownedbyElgonRoadDevelopmentsLtd(ERDL),aspecialpurposevehicleco-ownedbySwed-fund(27.18%),IFU(27.18%),Finnfund(27.18%),andalocalshareholder(18.47%).Asanequityinvestment,eachoftheEuropeanDFIshasaseatontheboard.(ThiscasestudyfocusesprimarilyontheroleofSwedfund,whichsupportedthepreparationofthiscasestudy.)

HoteloperationsaremanagedbytheRadissonHotelGroup(RHG)21,undertheRadissonbrand,inaccordancewithanInternationalManagementAgreementwithERDL.RHGisoneofthelargesthotelgroupsintheworld,andtheRadissonBluUpperHillrepresentsanimportantpartofRHG’sexpansioninAfrica.Ithas271roomsforguestaccom-modation,andrunsabusyprogrammeofmeetingsandevents for international and local organisations. It has two restaurants,offeringanall-daymealservice,andonebar.

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THE WORKFORCETheRadissonBluUpperHillisstaffedby287employees,allofwhomaredirectlyemployedandpaidbyERDL,butwhosedaytodayworkismanagedbyRHG.Allfull-timedirectemployeesareonpermanentcontracts,withuseoftempo-rarycontractsconfinedtothehotel’smeetingsandeventsfunction,whichcanbesubjecttosomeunpredictablefluc-tuations. A small number of workers are engaged through thirdpartiesforsecurity(upto35workers)andcleaningofpublicareas(12workers).Thereisatradeunionpresentatthehotel,withnearlyfullmembership(98%)amongstnon-managerialstaff.

Overall,womenrepresent36%oftheworkforce,and40%ofseniormanagement(HeadsofDepartmentandabove).ThelargestdepartmentbynumberofstaffisFoodandDrinks,representing26%ofthetotalworkforce,witharelativelyevenbalanceofwomenandmen(53%and47%respec-tively).ThisisfollowedbyHousekeeping(45employees,71%menand29%women)andKitchen(40employees,78%menand22%women).

HOW THE HOTEL SUPPORTS JOB QUALITYIngeneral,RadissonBluUpperHillaimstocreateameri-tocratic workplace where there is equal opportunity for all workers,regardlessofgender,nationalityorethnicity.ThehotelismanagedinaccordancewithRHG’sstandardoper-ating procedures that apply across all hotels operating under theRadissonbrand;however,thisstillprovidesscopeforflexibilityandinnovationonpeoplemanagementpractices.In2017,thehoteldevotedconsiderabletimeandefforttodeveloping fairer and more transparent people manage-mentsystems,includingcarvingoutagreaterrolefortheHR department in recruitment processes and performance appraisalsalongsidemiddlemanagement.Allstaffmembersnowhaveadevelopmentplan,withfivekeyperformanceindicatorstailoredtotheirposition,andundergoquarterlyperformancereviewswiththeHotelManager,HRManagerand their Head of Department.

Inaddition,anewseriesofemployeeincentiveshavebeenintroduced,includingan“employeestockexchange”,whereworkersearnpointsonthebasisoffixedmeasuresofperformance(e.g.outstandingcustomerservice)andguestfeedback,andcanwinafullypaid-forinternationaltriptoanother Radisson hotel. This is seen as more democratic and subject to less bias than the previous “employee of the month”system,whichwasbasedonthenominationandfeedback of managers only.

Senior management has prioritised the development of channels for engaging with workers at the hotel in order to understand employee needs and concerns. There is a posi-tiverelationshipbetweenmanagementandthetradeunion,including through regular formal meetings of the Joint ConsultativeCommittee,whichiscomprisedofunionandmanagementrepresentatives.TheGeneralManagerandtheHRManageralsohavean“open-doorpolicy”inorderto foster an environment of openness and transparency with employees in the hotel. This way individual employees canapproachmanagementdirectlywithanyquestions,concerns or suggestions. There are also quarterly “town hall meetings”,whichallstaffattend,andwhicharehostedbydifferentdepartmentsonarotatingbasis.

TheRadissonUpperHilloffersfairtermsandconditionstoitsworkforce,withaseriesofbenefitsthatexceedKenyanlegalrequirementsandlocalindustrynorms.Ataminimum,alltermsandconditionscomplywiththeKenyanEmployment Act and with the sectoral collective agreement betweentheUnionofKenyanHotelkeepersandCaterersAssociationandtheKenyanUnionofDomestic,Hotels,EducationalInstitutions,HospitalsandAlliedWorkers(KUDHEIHA).Longhoursarediscouraged,andovertimeislimited.Keybenefitsthatgo“beyondcompliance”andareparticularlyvaluedbystaffinclude:

•Aservicecharge:In accordance with the collective agree-ment,thehotelappliesaservicechargeonsalesofaccom-modation,foodanddrinks,whichisequallydistributedamongstnon-managerialemployeesonamonthlybasis.AttheRadisson,theservicechargeonaccommodationis10%(inexcessofthe7%requiredbythecollectiveagreement),whichtypicallyresultsinasignificant(albeitvariable)uplifttothewagesofunskilledworkers,especiallyduringbusytimes.Forinstance,ahousekeeperearningabasemonthlywageofKES26,000(USD260),canpotentiallyearnanaddi-tional50,000(USD500)asaresultoftheservicecharge.

•Pension:Allstaffcontribute6-10%(dependingontheirposition)oftheirsalarytoapensionfund,withmatchingcontributions by the hotel.

•Medicalinsurancefordependents:In2016,thehotelintroducedanewmedicalinsurancepolicyforallstaff,which provided medical coverage for individual employees and two dependents.

•Parentalbenefits:Thehoteloffersanextramonthofmaternity leave and new mothers are permitted to follow moreflexiblestartingandleavingtimes.Untiltheirchildistwoyearsofage,mothersarenotrosteredonnightshift.Allemployees(womenandmenalike)areentitledtofivedaysofpaidleaveeachyeartocareforsickchildren(subjecttoprovidingamedicalcertificate).

•Accesstotraining:Staffvaluethehotel’sextensivetrainingprogramme,designedtoupholdthestandardsassociatedwith the Radisson brand and provide ready opportunities for stafftorefreshandupgradeskills.Thisincludese-learning,on-the-jobtraining,andstructuredin-housetrainingprogrammes(suchasthenewlyintroducedleadershiptrainingforsupervisors),aswellasexternalprofessionalprogrammesasrequired.Employeesareentitledto14dayspaid leave each year to pursue studies related to their work at the hotel.

HOW SWEDFUND SUPPORTS DECENT WORK AND JOB QUALITY Swedfund takes an active interest in job quality matters duringboardmeetings,whichareheldatleastquarterlyatthehotel.Accordingtothehotel’sGeneralManager,oneofthe main ways in which Swedfund and the other investee EDFIs contribute to job quality at the hotel is through their recognition of the connection between business perfor-manceandsoundpeoplemanagement:“itisultra-positivefor the hotel to have this emphasis on employment and generalHRpracticesatboardlevel”.TheGMsaysthatEDFIsupporthasbeencrucialinintroducingnewbenefitsforstaff:“IknowthatifIwanttogototheboardtoproposeanadditionalmonth’smaternityleaveforwomen,theywillbackit100%…Idon’tthinkIwouldgetthesamelevelofsupportfor these kinds of initiatives from other owners.”

Duringboardmeetings,boardmembersalsoraiseques-tionsrelatedtocompliancewithnationallegislation,thecollectiveagreementorPS2.LegalcomplianceisimportantforSwedfundnotonlyasamatterofPS2compliance,butalsobecauseERDListhedirectemployerofallworkersatthehotel,theyhavedirectexposuretoliabilityfornon-com-pliancewithKenyanlabourlaws.Inthiscontext,Swedfundsays that its investment and E&S functions work together closely to scrutinise reporting on workforce developments. AccordingtotheGM,EDFIboardmembersshowastrongawarenessoflabourandworkingconditions:“Assoonaswesayanythingthatmightnotseeminlinewith[PS2]duringboardmeetings,theywillpickitupstraightaway”.Thisisthen followed up with the hotel’s HR manager after the board meeting by Swedfund’s E&S specialist.

SwedfundhasalsohadsignificantimpactonworkingconditionsatthehotelthroughitsWomen4Growth(W4G)programme,conductedatthehotelinNovember-December2016.ThisprogrammeisalignedwithSwedfund’scommit-menttopromotinggenderequalityinitsinvestments,andisdesignedtounlockthepotentialofwomen,byprovidingleadership training and a platform for women to discuss and address barriers to their advancement in the workplace. At theRadissonBluUpperHill,theprogrammewasinitiallydeliveredthroughthreeworkshops,culminatinginafinalworkshop where women presented their recommendations toseniormanagementandowners.TheW4GprogrammeisalignedwithRHG’sBalancedLeadershipinitiative,whichaims to encourage more women to take on leadership roles in the company.

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Followingtheworkshop,severaloftheW4Grecommen-dationswereimplemented,andtheprogrammehastakenonalifeofitsown,leadingtoevengreaterchangethanwas originally envisaged by Swedfund and the partici-pants.Inparticular,someofthegenerousbenefitsforstaff(mentionedabove)wereagreedonasaresultofdiscussionsthathaveflowedonfromtheW4Gworkshops,includingtheadditionalmonth’smaternityleave,sickleaveforchil-dren’s illness and the medical insurance for dependents. TheGeneralManagermakesapointofmeetingwithsmallgroups of women employees on a regular basis to follow up onprogress:“Iwant[women]toknowthatIcareaboutthisagenda.Thisisalsoabusinessdecision:IneedtoknowwhatIneedtodotogetthebestoutofmystaff.”

22 See,e.g.Rezidor,2017,ResponsibleBusinessAnnualReport2017:http://www.rezidor.com/phoenix.zhtml?c=205430&p=respsustainabilityreports

THE BUSINESS BENEFITSAsafivestarhotel,theRadissonBluUpperHillreliesonallofitsstafftoconsistentlydeliverthehighestpossiblelevelsofservicetoguests,anditiscrucialthatstafffeelvaluedandmotivated,aswellasempoweredtorespondtoguests’needs.Inthiscontext,thehotel’sfocusonstaffengagementandsatisfactionhasbeenshrewdcommercialpractice:accordingtotheGeneralManager,“Whenwelistentostaff,wefindthatwehavebetterworkingpractices–peoplearemuchmoremotivatedtogotheextramile.”Bykeepingstaffhappy,thehotelalsokeepsstaffturnoververylow(0.02%in2017)andmakesitdifficultforcompetitorstopoachitsbestworkers.Atthesametime,thenewperformancemanage-mentsystemaimstobuildtrustandsupportstaffdevelop-ment,encouragingworkersatalllevelstoworktogetherandempoweringthemmakedecisionsintheirday-to-dayworkthat are better for the business.

A strong focus on people is also core to the Radisson global brandandreputation,underpinningtheRadissonHotelGroup’spubliccommitmenttoethicalbusinessstandardsand practices.22“ThinkPeople”isoneofthecompany’sthreepillarsofresponsiblebusiness(alongwith“ThinkCommu-nity”and“ThinkPlanet”).Since2010,theGrouphasbeenrecognisedasoneoftheWorld’sMostEthicalCompaniesbytheEthisphereInstitute,andisoneofonlythreecompaniesin the lodging and hospitality industry to be acknowledged inthisway.Morebroadly,theRadissonHotelGroup’sbusi-ness model recognises that its people are at the core of its success and future.

TheGeneralManagerconsidersthatthehotel’sapproachto people management has been integral to the hotel’s dramaticsuccessin2017:attheendof2016,theRadissonUpperHillwasranked18thoutof36RadissonhotelsinAfricaonguestsatisfactionscoresand186intheEuropean,MiddleEastandNorthAfricaandAfrica(EMENA)region;bytheendof2017,itwasrankedfirstinAfricaandfourthinEMEA.Thehotelhasalsoincreaseditsprofitability,withaGrossOperatingProfit(GOP)of26%in2016,growingto38%bytheendof2017.(Forcomparison,oneoftheRadisson’sclosestcompetitorsinNairobihasaGOPof28%.)

CONCLUSION

TheRadissonBluUpperHilloperatesinacompetitivemarket,wherethecustomerserviceofferedbyitsworkforceiskeytoitsoverallfinancialperformance.The hotel’s experience shows that listening to and investinginemployeespaysoff,allowingthecompanyto get the very best out of their workforce at all levels of the organisation and leading to better customer service outcomesandprofitability.Swedfundhasplayedanimportant role in supporting job quality and decent work,providingsupportandoversightatboardlevelasanowner,andprovidingadditionalcapacity-buildingatoperationallevelthroughitsWomen4Growthprogramme.

ONGOING CHALLENGESThe hotel has ambitious goals to keep on improving its performanceacrosstheboard,includingwithrespectto people management. One of its key objectives in the coming year is to embed the new performance management system. Management will need to build worker trust in the newsystem,continuetoprovideconstructivefeedbackandsupportfordevelopment,andbeseentorewardworkersfor positive performance. The new system will be integral to the hotel’s aim to provide progression opportunities for itsworkforce(e.g.thereisapolicytorecruitallsupervisorsinternally)andtoreducethenumberofexpatsinseniormanagementbyupskillinglocalKenyanworkers.

TheW4GprogrammehasenjoyedconsiderablesuccessattheRadissonBluUpperHillsofar:thechallengewillbetoconsolidate and build on the gains made. An important next stepwillinvolvethinkingabouthowtoengagemalestaff,asthere is a perception amongst some men that women are nowreceivingadisproportionateshareofbenefits.Oneapproach could be to involve men in discussions around worklifebalance,andtocommunicatemoreclearlythatmenareequallyentitledtotakeupthebenefitssuchassickleaveforchildren.Moregenerally,anotherimportantnext step will be to create a more formal basis for some of theinitiatives(e.g.regularmeetingsbetweentheGeneralManagerandrepresentativesoffemalestaff),sothattheyare more embedded in the hotel’s policies and procedures and less reliant on the actions of individual managers. A more formalised approach could then serve as a template forotherhotelsintheregion,includingtheRHG’sotherhotelsinNairobi,andotherhotelsinSwedfund’sportfolio.

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ANNEX C: CDC AND RFL ELECTRONICS LTD. (REL) Bangladesh - manufacturing

REL is an example of how hands-on sup-port from DFIs can help clients to align their management practices with inter-national standards, leading to progress on job quality outcomes in a range of difficult areas, including working hours, contractor management, gender equali-ty, and health and safety.

THE INVESTMENTRFLElectronicsLimited(REL)producesconsumerelectronicsandwhitegoodsdestinedforBangladeshiconsumers,andhasfirmambitionstoexpandintointernationalmarkets.Aspartofthecompany’sexpansion,CDCandStandardCharteredBankBangladeshprovidedUS$18millionindebtfinancing(US$15million/US$3millionrespectively)toREL.This investment is being used to expand existing facilities and support a move towards vertically integrating produc-tion.

RELispartofPRAN-RFL,ahighlysuccessfulcorporategroupinBangladesh,whichhasoverUS$1.8billioninturnover(asofJune2017).PRAN-RFL’sdirectworkforceexceeds100,000people,withsignificantadditionalindirectemployment.Thegroupisdividedintwoparts:PRANisfocusedonfoodandagriculture,whileRFL–towhichRELbelongs–producesahighlydiverserangeofnon-foodgoods,includingfurnitureand plastic goods.

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THE WORKFORCE RELhasadirectworkforceofapproximately311employees(asofMay2018)acrosstwoindustrialsites:PRANIndus-trialParkandDangaIndustrialPark.Thistotalworkforceincludes57women(18%oftotalworkforce),primarilyworking as operators. Workers have several functions includingtechnicians,cleaners,machineoperators,andquality assurance.

ConstructionandexpansionisunderwayatDangaIndus-trialPark,whichhasrequiredtheuseofaconstructioncontractorandsub-contractors(“contractedworkers”)ona seasonal basis. This contracted workforce is engaged in a varietyoftasksincludingmasonry,carpentryandgenerallabour.Thisisexpectedtoinvolveapproximately120workers during the next construction cycle.

CDC’S INVOLVEMENT AND THE MOVE TOWARDS INTERNATIONAL STANDARDSDuringtheproject’sappraisal,CDC’senvironmentalandsocial(E&S)duediligenceidentifiedseveralfocusareaswhichrelatedtolabourandworkingconditions,manyofwhichwerenotconfinedtoRELoperations,butlinkedtobroaderendemicissues in the manufacturing sector in Bangladesh. Some of the majorchallengesincluded:

• Workinghours.LongworkinghoursisapervasiveissueinBangladesh,andRELwasnoexception.Morestringentprocedures were required to ensure there were no exces-siveworkinghours.Additionally,overtimepayneededtoberevised.

• Contractormanagement.Some contracted workers were not receiving overtime pay rates according to national law. Accommodation provided to contracted workers did not meetinternationalstandards,andtherewasnogrievancemechanism equivalent to that provided to the direct work-force.

• Genderequality.Whilethecompanyhadanon-discrimina-tionpolicy,andalthoughothergenderissuessuchassexualharassmentpreventionwerebrieflyaddressedaspartofexistingorientationcourses,formalpolicies,proceduresand training were not in place.

• Occupationalhealthandsafety(OHS).Some OHS policies andprocedureswereinplace,howevergapsinimplemen-tation,monitoring,andtechnicalcapacityexisted.Thiswasparticularly true for contracted construction workers. For instance,eventhoughsafetyequipmentwasprovidedandrelevantrulesexisted,workersoftendidnotusepersonalprotectiveequipment(PPE)asrequired.

Inordertoaddressthesechallenges,CDChasbeenprovidingsupporttoRELforovertwoyears.Asignificantpart of this support took place prior to signing the loan agreement.Inparticular,CDCdevotedsubstantialin-houseresourcesandengagedadvisorstoworkcloselywithRELinBangladesh.Thissupportincludedthedeliveryofon-the-groundtrainingsandworkshopstosupportRELtodevelopand implement a robust environmental and social manage-mentsystem(ESMS).Akeyprioritywastobuildthecompa-ny’sknow-howsothattheycoulddeveloptheirownpoliciesand procedures that would be directly tailored to their operations,ratherthanrelyingonexternalmodelsfromelsewhere.Throughoutthisprocess,PRAN-RFLmanagementdemonstrated strong commitment and support towards achieving better E&S performance.

Crucially,whilethissupportwasprimarilydirectedatREL,CDC’scapacity-buildingeffortswereopeneduptomanage-mentfromPRAN-RFLgroup.ManyofthelessonsthatstemfromCDC’sinvolvementwithRELarebeingrolled-outtoandinformingwidermanagementpractices,particularlywithinthenon-foodsideofthebusiness(i.e.RFLgroup).This spread of good practice beyond the borrower into thebroadergroupwillbeanimportantpartofCDC’simpact.Goingforward,thecommitmenttocreateanESGCommitteeatRFLgrouplevelwhichwillcoordinatetheseissuespromisestoyieldfurtherbenefits.

“RELandthewiderRFL-PRANGrouphaveshownrealcommitment towards sustainability. We have seen signif-icantsupportfromseniormanagement,andmomentumto adopt international good practices across key aspects of the company’s environmental and social performance. This is driven by recognition that evolution of practice is not just the “right thing to do” but a business imperative. We are surethatthejourneyPRAN-RFLhasstartedwillpersistandCDCwillcontinuetosupportthecompanyandthewidergroup.”CDC’sManager–EnvironmentalandSocialRespon-sibility.

CHANGES SO FAR Aligning with international standards and addressing difficultlabourissuescanbealengthyprocess,butRELhas made substantial progress following a number of key interventions.Accordingtothecompany,CDC’sadvice,support,andcapacitybuildingeffortshavebeenpivotal,and have given the company a “clear path to improvement” in the words of the Deputy Manager responsible for EHS. In particular,changeshavebeenintroducedwithrespectto:

• Workinghours.Overtime pay issues were quickly recti-fiedtobringpracticesinlinewithnationallaw.Addition-ally,anewshiftsystemhasbeenpilotedwithinRELtoreducedailyworkinghours,whilstmaintainingworkers’pay. This break in production has improved the ability of supervisors to oversee and manage overtime.

• Contractormanagement.RELhasstrengthenedoversight of its contracted workforce and is devoting more resources to improving the welfare and safety of contractedworkers.Contractedworkersweremovedintobetteraccommodation,whichisnowdestinedforusebyfutureoperationsstaff.Toaddressirregularitiesinovertimepayments,RELdecidedtopaycontractedworkers directly from its payroll in order to ensure that proper amounts were being paid. Based on work bills andsalarysheets,contractedworkersarenowpaidbyRELincashandinthepresenceofrepresentativesfromthe construction contractor to ensure full transparency. Existing grievance mechanisms have been expanded to includecontractors,andRELhasalsoremainedproactiveindealingwithissuesamongitscontractedworkforce,including addressing worker dissatisfaction with food quality and price of food.

• Genderequality.Gender-relatedpoliciesandprocedureshavebeenimplemented,andRELhasalsocommittedtoimproving and expanding existing training and awareness around harassment and gender issues. The company’s preventiveandzero-toleranceapproachtosexualharass-ment has been linked to company values and morals. A number of sexual harassment training sessions have been conducted,withtwothree-hoursessionsplannedeverymonth going forward.

Additionally,thecompanyisconsideringimplementingprogrammes to support women taking more senior roles withinthegroup.CDCwillbesupportingthecompanytoidentify further opportunities around women economic empowerment.

• Healthandsafety.Roles and responsibilities have been moreclearlydefined,andpoliciesandprocedureshavebeenexpanded.Alongsideimprovedtechnicalknowledge,monitoring systems have been developed to support betterOHSoutcomes,andnewindicatorswillinformappropriateresponsesgoingforward.On-the-jobOHStraining has also been enhanced and will evolve based on feedback,withthecreationofastrongOHScultureastheoverallaim.Awarenesseffortshaveincludedtheobser-vance of “World Day for Safety and Health at Work” which involvedarally,evaluationofsafetyknowledge,aswellaspractical training exercises.

Overall,thecompanyhasgreatlybenefitedfromformali-sation and standardisation of processes and procedures. Improvingcapacityandtechnicalknow-howhasmeantthatexisting systems will be developed and adapted as neces-sary,withoutfurtherexternalsupportrequired.

“It is very pleasant to see how our organization is moving towards international standards on top of meeting national labourandenvironmentalrequirements.CDC’sinvestmentandsupporthelpedustofigureoutthekeyenvironmentalandsocialimprovementareasandopportunities.Obviously,this support is enriching our capacity in terms of environ-ment,socialandhealthandsafetymatters.Itisateameffort&willbecontinued.”RFL’sDeputyManager–Compli-anceandEnvironmental,HealthandSafety

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CONCLUSIONBUSINESS BENEFITS AND ONGOING OPPORTUNITIES FromtheperspectiveofbothRELandthebroaderPRAN-RFLgroup,thebusinesscasefordevelopingandenhancingmanagementsystemswithCDCassistancewassupportedonmultiplefronts:

• Beingan“employerofchoice”inBangladesh:Asahigh-profileemployerintheregion,theprocesstowardsinternationalisation,andtheimprovementswhichhavealreadybeenseen,havereaffirmedthatthecompanyisaleadingemployerinBangladesh.ThismeansthatRELandthebroaderPRAN-RFLGrouparebetterpositionedtoattractandretainthetalentthattheyneed–atalllevels–to support growth.

• Expanding access to international markets. Alignment with international standards can place the company in a better position to access international markets and expand beyond Bangladesh. This may come in the form of more interest from private buyers with their own stand-ardscoveringlabourissues.AsPRAN-RFLlooksbeyonditscurrentmarketposition,thevalueoftheseeffortsarebecoming clearer.

• Accesstocapital:Alignmentwithinternationalstand-ards can also place the company in a better position to attractinternationalinvestors,whichincreasinglyrequirealignment with international environmental and social standards.

• Demonstrating corporate commitment to social sustain-ability.PRAN-RFLhashadalongstandingcorporatecommitmenttosocialsustainability,andimprovingmanagement practices in order to address a wide range of important labour issues is seen as a clear expression of these commitments to social sustainability. This commit-mentbeganseveralyearspriortoCDC’sinvestment,andincludedconcertedeffortstoeliminateormitigatetheimpact of child labour in a context where child labour was often considered unavoidable in certain industries. More recenteffortsincludetheinvolvementofanRFLfactoryinthe Better Work program.

• Acrossthekeyfocusareasofthiscasestudy,anumberof tangible improvements have already been observed at REL.Theseimprovementsfurthersupportthebusinesscaseformovingtowardsinternationalstandards:

• Productivitygains.Themovetowardsa4-hourbreakbetweenshifts,asopposedtoacontinuousproductioncycle,wasaccompaniedbytechnologicalupgrades.Takentogether,productivityhasbeenmaintained,andearlytrends suggest an increase in productivity which appears to be linked to the change in working hours and the impact of capital investments.

• Strengtheningorganisationalcapital-makingbestuseofthe skills and talents of women and men alike. According totheDeputyHRManager,whohasbeenresponsibleforconductingtraining,thecompanyisworkinghardtoensure that women feel more comfortable in developing skills,advancingwithinthecompany,andcontributingatall levels. Initiatives aimed at increasing the number of women in management are being gradually introduced.

• Improved health and safety outcomes. Building a health and safety culture is a long and ongoing process. Early indicatorssuggestprogress,suchasanincreaseinhealthandsafetyawareness(evidencedbyanincreaseinthenumberofOHS-relatedsuggestionsandgrievances)andreduction in observed unsafe behaviours. The company hasrecentlystartedtotrackOHSKPIssothatperfor-mance can be better tracked.

“Our aim is to generate employment and earn dignity and self-respectforourcompatriotsthroughprofitableenter-prises. A good environment and social management system isIMPERATIVEtoachieveourgoal.PRAN-RFLiscommittedto continue its focus on promoting an environment and social culture in the group so that we are not behind in achievingInternationalstandards.”PRAN-RFLGroup’sDirector-CorporateFinance.

CDC’sinvestmentinRELdemonstrateshowsupport,expertise,andcapacity-buildingcanimpactjobqualityoutcomes across a few key areas. These improvements havebeenlinkedtorealbusinessbenefits,andasaresult,lessonsfromtheclientcompanyhavebeenshared throughout the wider group which has broad-enedCDC’simpact.GivenPRAN-RFL’ssizeandprofilewithinBangladesh,theseearlyoutcomesaresignifi-cant.Althoughthejourneyisstillongoing,individualsthroughout the company have seen the value of aligning management practices with international standards and addressing labour and working conditions. The Director ofCorporateFinanceatPRAN-RFLisoptimisticthatthecompany’s progress can demonstrate to other Bangla-deshicompaniesthebenefitsofengagingwithinterna-tional standards and labour matters.

ONGOING CHALLENGESManyofthechangesatRELaretakingplacewithinachal-lengingnationalcontext.InBangladesh,workinghours,accommodationstandards,thestatusofwomenintheworkforce,andlackofsafetyculture,amongotherthings,havebeenidentifiedbymanyactorsasareasforfurtherscrutiny and improvement.

Inthiscontext,movingtowardsinternationalstandardsmaycause some tensions with longstanding business practices andattitudes.Asaresult,changingmindsetsandchangingworkplaceculturewereidentifiedascommonchallengesthroughouttheprocess.Fromamanagementperspective,thebusinesscaseaswellasCDC’ssupportandrequire-menttoaddressE&Sissuesasaconditionoffinancingwerepowerful drivers of change. Since these rationales tend to be lesspersuasiveamongworkers,RELstrovetoensureopenchannelsofcommunication.Forinstance,employeeshaveoften been willing to work long hours in order to maximise earnings.AtREL,workerassemblysessionswereusedtocommunicatethebenefitsofleisuretimeandwork-lifebalance,andmanagersweredirectedtohaveopendiscus-sions with employees regarding any changes. Awareness campaigns on the topic of health and safety as well as genderissueswerealsoimportant.Overall,incrementalchanges supported by open dialogue have led to promising results,withsignsofmoretocome.

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