First State Super, one of Australia’s largest super funds, will delve deeper into the emerging risk of franchise models in Australia to ensure its investments don’t support rights abuses.
First State responsible investment manager Liza McDonald says the fund, which has $89 billion under management and 770,000 members, will undertake detailed research on franchise models to inform its engagement activities with companies.
“Our concerns are specifically around the underpayment of franchisees and alleged visa fraud,” McDonald says. “To date, we have engaged either directly or through our appointed investment managers with companies, on various issues relating to the emerging risk in franchising models.
“We continue an open dialogue with these companies, requesting detail around improved practices and policies, namely transparency around franchisee contracts, as well as improved operational procedures ensuring the correct treatment of workers.”
She says open dialogue allows First State investment managers to continue to monitor concerns around franchisee risk and ensure corrective action is understood and taken.
Franchises 7-Eleven, Caltex, Domino’s Pizza and Retail Food Group – whose brands include Donut King, Brumby’s, Gloria Jean’s, Pizza Capers, Crust Gourmet Pizzas and Michel’s Patisserie – have been wracked by scandals of alleged wage fraud, migrant labour exploitation and underpayment of wages.
McDonald says these revelations have become an emerging risk for big investors, which can embrace the principle of universal ownership to ensure companies have good workforce relations, manage safety, supply chains, diversity and adherence to international guidelines on human rights. They do this by engaging regularly with company management.
“Universal owners are defined as pension funds or other institutional investors that are so large they become an integral part of the market microstructure,” McDonald says. “We refer to this as the footprint we leave. In this sense, universal ownership is about taking responsibility, on behalf our members, for managing the opportunities and risks associated with being a large fund.”
She says the biggest labour and human rights risks in the fund’s portfolios are from companies with workforces or supply chains, across all asset classes and geographies.
The fund supports an Australian Modern Slavery Act, based on a similar act in the UK that was established following the 2013 Rana Plaza collapse in Bangladesh, in which more than 1000 textile workers died as a result of poor construction and safety standards.
.“As investors, we believe human rights issues can present potential financial impact through reputational damage and operational risk to companies in our portfolio,” McDonald says. “We welcome a Modern Slavery Act to improve transparency about how companies operating in Australia are managing modern slavery risks in their operations and supply chains.”
First State Super supported the Principles for Responsible Investment submission to the Australian Government regarding the introduction of the slavery act and is a member of the Human Rights Working Group, which collaborates on human rights issues relevant to investors, researchers and advisers.
McDonald says the fund was an early Australian signatory to the Workforce Disclosure Initiative: promoting transparency in supply chains of multinational companies. In 2017, a survey on supply chains was sent to 75 global companies; a report is due to be published later this month.
McDonald says investors rely on disclosure from companies to inform their investments and disclosure in the private sphere needs to improve.
“We see limited disclosure for these issues in private markets…there is more improvement required,” she says.
McDonald spoke to Investment Magazine ahead of addressing this topic at the 2018 Australian Council of Superannuation Investors Annual Conference, to be held in Sydney on Thursday, May 17.