“Companies have little incentive to take more action to create safe working conditions”

Published on: 17 October 2022

Healthy and safe working conditions are important everywhere in the world. This is why they form a key component of APG’s engagement with the companies in which it invests. Debanik Basu, Senior Manager of Global Responsible Investing & Governance Asia Pacific, investigated working conditions in India, and how they are managed. “Workers can’t afford to be choosy, and companies are taking advantage of that.”

In India, the mortality rate is 11.4 per 100,000 workers; in the Netherlands, it is 1.5. In absolute terms, every year more than 48,000 people die while working in India, and less than 100 in the Netherlands. In studying the annual reports of Indian companies, Basu stumbled upon the fact that while some Indian companies are open about fatal accidents in the workplace, they do not take any further action. There was no accountability, which prompted APG’s Global Responsible Investing & Governance (GRIG) team to further investigate workplace safety regulations in India and the extent to which they are followed.

“Much attention today is focused on climate change, but safe working conditions are also an essential aspect of responsible investing as far as we are concerned. This is why we want to take action in this area,” Basu said. GRIG selected some of APG’s biggest holdings in India, including car manufacturers, chemical companies and oil and gas producers. Basu and colleagues reviewed their annual reports, looking for information on health and safety policies in general and whether they made any references to workplace accidents and fatalities.

What did you find there?

“What we found was rather worrying. There seems to be a trend that is not changing, which seems to indicate that companies are not doing enough in terms of safe working conditions. Most have policies, but they don’t seem to be following through in terms of taking action. At least not in a way that is clear to us, as an outside party. If we see high accident rates, we want more information about what the company is doing to make the workplace safer and whether a proper investigation was conducted. We also want to know whether injured victims were compensated, or in the case of fatal accidents, the next of kin. But there was hardly any information on this.”


Is the situation in India worse than in similar countries in the region?

“There is lack of transparency around this area in most of the emerging markets, India included. There are few incentives for companies to do more about safe working conditions, and sanctions are few and far between. At the same time, India has a large labor force that is generally not unionized. Workers therefore have a poor bargaining position. They just want to earn a living, and if that means ignoring safety regulations, so be it. Also because if they have a problem with it, someone else will take over their job. They can't afford to be picky, and companies take advantage of that. If we extend our study to other emerging markets in East Asia, we are likely to see similar trends. At least the problems are similar.”


The investigation was step one. Next quarter, you want to confront companies with your findings. How do you think they will respond?

“Some companies will go on the defensive, knowing that there is a real risk of reputational damage if they admit that their policies are not having the desired effect. Some will put the onus on workers, as in: ‘we have clear protocols for safe working conditions, but the workers are not following these.’ That may be partly true, but the responsibility to ensure that employees follow the rules properly lies with the employer. If they don’t, the company should take action by providing them with adequate training.”

In the most ideal scenario, we will reduce the number of workplace accidents to zero.

What does APG aim to achieve with this study and subsequent engagement?

“In the most ideal scenario, we will reduce the number of workplace accidents to zero. That may not be possible in the near term, but we do expect companies to take action to reduce the risk of accidents. That is one part of our approach. The second is that when accidents do occur, companies report on them more extensively. This still does not happen. Annual reports currently only state how many (fatal) industrial accidents occurred, but do not indicate what the causes were and what steps the management or board of directors will take, or have taken, to prevent the same thing from happening again. We want more information on these aspects so we know action is being taken.


An additional problem is that the actual number of company accidents may well be higher than the number reported. First, workers tend not to report accidents themselves, and even if they do, a company will not always mention this in a formal report. The figures on workplace accidents in India represent a conservative estimate that is already high, but the reality is probably even bleaker.”

How do you force companies to be more transparent with information about accidents in the workplace and the progress they are making in terms of safe working conditions?

“The first step is to ask for more information. But if we don’t see sufficient progress at companies, especially those with a high risk of industrial accidents, next fiscal year, we will certainly reflect that in our voting policy. We already do this when companies perform inadequately on human rights and climate change mitigation. Although we do not yet have an official view on companies’ health and safety policies, it is certainly an option to hold board members accountable if their performance in this area is substandard. We can also vote against a top executive’s compensation proposal if it is not linked to progress on this issue. This would be the next step if companies don’t become more transparent on this.”


Can an investor like APG also count on the Indian government to raise awareness in this area?

“Although the government has only issued minimum safety regulations, it lacks the capacity to enforce them. So companies can get away with it. The companies we invest in are at least doing the minimum and complying with the government’s requirements. But that is not enough. The fact that the Indian government requires only the minimum from companies, also poses a problem in other areas as well. Because the number of companies and the difference in size is so great, the government does not want to come up with rules that are too restrictive. If they do, the small companies with five or 10 employees will be hit harder than the big firms. But we only invest in the big companies and expect them to do more than the minimum. Our role as investors is to force companies to be accountable for how they perform.”


India is a huge country with countless companies, but this problem also exists in other emerging economies in Asia. Does this mean that you also work with other investors when it comes to engagement?

“We may start collaborating; that is definitely an option we are keeping open. The stewardship code (which requires institutional investors to be transparent about their investments, engage with investee companies and vote at shareholder meetings, ed.) that we’ve signed also suggests that like-minded investors can act together in their engagement. If you look at the companies in India that we invest in, our individual holdings may not always be very large. So it is difficult to bring about change. If we and other investors collectively have, say, 5 percent of the shares, then a company is more likely to take action. So although we try to engage first on our own, we certainly don’t rule out a collective approach.”