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July 2019 Human Capital: a key asset not yet fully appreciated by the financial industry SUSTAINABILITY FOCUS
July 2019
Human Capital: a key asset not yet fully
appreciated by the
financial industry
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Key takeaways
� Vigeo Eiris has an overall limited assurance on the financial industry’s ability to manage its human capital development in a proactive and responsible way.
� Disparities exist amongst sectors and between geographical regions. Diversified Banks in Europe and Asia Pacific appear to achieve the most robust performances (57.2/100 and 51.9/100, respectively) in terms of human capital development and risk management. The weakest performances appear to concern companies in North American and Emerging markets.
� At a global level, the Diversified Banks sector achieves – on average - the best performances across the most relevant topics, namely restructuring, labour rights, prevention of discrimination, career management, and improvement of health & safety conditions.
� Focus: Digitalisation and automation will continue to bring structural adjustments to the composition and size of the banking industry workforce. In 2018, UNI Europa Finance1, suggested that solutions to mitigate the impact of digitalisation on sector employees include continuous training and lifelong learning to maintain employees’ skills, and the provision of healthy working conditions and an appropriate work-life balance. Vigeo Eiris’ study, however, shows that only a minority of banks describe training programmes aimed at promoting the employability and lifelong learning of all employees, including older workers. The study also demonstrates that the sector has not been able to avoid redundancies or to limit the impact of reorganisation through, for example, internal mobility or re-training.
� Financial companies face severe controversies in relation to restructuring, health & safety, non-discrimination and labour rights. With particular reference to allegations faced by the Diversified Banks sector, it could be argued that the size of these companies implies that they are more exposed to stakeholder scrutiny.
1 UNIFinanceistheGlobalUnionforallfinanceandinsuranceworkers
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IntroductionThis paper aims to assess 792 financial companies rated by Vigeo Eiris on their ability to enhance opportunities and limit risks in relation to their human capital.
Human capital is defined by the OECD2 as “the knowledge, skills, competencies and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being”.
According to Vigeo Eiris methodology, which is rooted in international standards, such as International Labour Organization Conventions and Recommendations, UN Declarations and OECD Guidelines, human capital development is a key asset for companies and is closely linked with organisational success. Indeed, a company’s capacity to attract and retain talent, and to create a cohesive and cooperative workplace, is strongly influenced by the way in which it manages workforce issues including restructuring, respect of labour rights, prevention of discrimination, career management, and improvement of health & safety conditions.
2 TheValueofPeople-OECDInsights:HumanCapital–2007-p.29
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Assessmentperiod:this paper covers the 2-year period from March 2016 to December 2018
Numberofissuers:792 companies
4 Regions: Europe, North America, Asia Pacific, and Emerging Markets and Middle East Africa
52 Countries
6 Sectors represented
Universe
Glossary:
4%
35%
31%
21%
1% 8%
Financial Cluster: Sector Analysis
Specific Purpose Banks & Agencies
Retail & Specialised Banks
Financial Services - General
Insurance
Development Banks
Diversified Banks
Development Banks:bankssetupbysovereignstateswiththemissionoffosteringeconomicandsocialdevelopmentintheircountriesofoperationbyfinancingprojectsandsupportinginvestmentforthecommongood.
Specific Purpose Banks and Agencies: bilateral developmentbanks,officialexportcreditagencies,andpublicgroupservingthepublicinterestandentitieswithotherspecificmandates.
Diversified Banks:internationallarge-scalebankswithassetsofmorethanEUR200billion.Theindustryservestheneedsofcorporations,institutionsandretailconsumers.Thesebanksnotonlyprovideconventionalbankingservicesbutalsoofferspecificservicessuchasinvestmentbanking,brokerageassistanceandassetmanagement.
Retail & Specialised Banks: commercialbankswithassetsoflessthanEUR200billionmainlyoperatingindomesticmarkets,andalsoregionalbanks.
Financial Services – General:financialcompanieswithspecificbusinessactivitiessuchasintegratedretailfinancialservicesproviders,marketplaceorganisers,assetmanagersandbrokers,andinvestment,privateequityandholdingcompanies.
Insurance: lifeinsurance(insuranceandretirementsavingsproducts),non-lifeinsurance(motor,accident&healthandpropertyinsurance),andreinsurancecompanies.
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World ranking – Top 50 Performers on Human Capital
Title Country Sector Score (/100)BNP Paribas France Diversified Banks 79La Banque Postale France Retail & Specialised Banks 77Caisse des Dépôts France Specific Purpose Banks & Agencies 73Amundi France Financial Services - General 73Agence Francaise de Developpement France Specific Purpose Banks & Agencies 71Commonwealth Bank of Australia Australia Diversified Banks Asia Pacific 71Groupe BPCE France Diversified Banks 71Credit Mutuel Arkea France Retail & Specialised Banks 70BPIFrance Financement France Specific Purpose Banks & Agencies 69Westpac Banking Corporation Australia Diversified Banks Asia Pacific 69Credit Agricole France Diversified Banks 69Axa France Insurance 69European Investment Bank (EIB) Luxembourg Development Banks 68Banque Federative du Credit Mutuel France Diversified Banks 67IBRD United States of America Development Banks 66Banco Santander Spain Diversified Banks 65Eurazeo France Financial Services - General 65BMCE Bank of Africa Morocco Retail & Specialised Banks Emerging Market 65Danske Bank Denmark Diversified Banks 64Bankia Spain Diversified Banks 64Intesa Sanpaolo Italy Diversified Banks 64Crédit Foncier France Retail & Specialised Banks 63RABOBANK Netherlands Diversified Banks 62National Australia Bank Australia Diversified Banks Asia Pacific 61Provident Financial United Kingdom Financial Services - General 61Erste Group Bank Austria Retail & Specialised Banks 60CaixaBank Spain Diversified Banks 60Asian Development Bank Philippines Development Banks 60Australia & New Zealand Banking Group Australia Diversified Banks Asia Pacific 59OP Financial Group Finland Retail & Specialised Banks 59CNP Assurances France Insurance 59Coface France Insurance 59Piraeus Bank Greece Retail & Specialised Banks 59Assicurazioni Generali Italy Insurance 59Mizuho Financial Group Japan Diversified Banks Asia Pacific 59ING Groep Netherlands Diversified Banks 59Dexia Belgium Retail & Specialised Banks 58Commerzbank Germany Diversified Banks 58Orient Corp Japan Financial Services - General Asia Pacific 58Swiss Re Switzerland Insurance 57UniCredit Italy Diversified Banks 57Bayerische Landesbank Germany Retail & Specialised Banks 57Bayerische Landesbodenkreditanstalt Germany Specific Purpose Banks & Agencies 56Munich Re Germany Insurance 56Landesbank BW Germany Retail & Specialised Banks 56BBVA Spain Diversified Banks 56Nordic Investment Bank Finland Development Banks 56Kreditanstalt Fur Wiederaufbau Germany Specific Purpose Banks & Agencies 55Deutsche Bank Germany Diversified Banks 55Aberdeen Asset Management PLC United Kingdom Financial Services - General 55The Royal Bank of Scotland Group United Kingdom Diversified Banks 55ASR Nederland Netherlands Insurance 55DNB Norway Diversified Banks 55De Volksbank Netherlands Financial Services - General 55
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Best practices:
BNP Paribas maintaineditsstrongcommitmenttosocialdialoguebysigninganewglobalagreementin2018withUNIGlobalUniononsevensubjectsrelatingtofundamentalrightsatworkandtheestablishmentofaglobalsocialframework.Moreover,BNPParibascontinuestodemonstrateastrongcommitmenttoprotectingemployees’rights.Thebankhasdisclosedcomprehensivepolicesandimplementedextensiveprogrammestoencouragetherespectoflabourrightsandtopromotediversity.
For Commonwealth Bank of Australia (CBA),labourrelationsareregulatedbytheCBAEnterpriseAgreement,andcollectiveagreementsonemploymentconditionscoverthemajorityofemployees.CBAformaliseditscommitmenttopromotecareermanagementandmonitorstheoutcomesofregularemployeeperformanceassessmentsandtraining.Inaddition,comprehensivemeasureshavebeenadoptedtoimproveemployees’physicalandmentalhealth.CBAdeploysextensivemeasurestopreventdiscriminationandtopromotediversity-supportedbycommitmentstoincreasetheshareofwomeninleadershiprolesandtheshareofIndigenousAustralianemployeesintheworkforce.Inaddition,manystakeholders,suchasDiversityCouncilAustralia,areinvolvedintheCompany’sDiversity&Inclusionstrategy.
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AccordingtoVigeoEirismethodology,thehumancapitalassetisaffectedbyanissuer’sperformanceonthefollowingdrivers:
− Respectoffreedomofassociationandtherighttocollectivebargaining
− Preventionofdiscrimination
− Responsiblemanagementofrestructuring
− Careermanagementandpromotionofemployability
− Improvementofhealthandsafetyconditions
Respect of freedom of association and the right to collective bargaining: accordingtoInternationalLabourOrganizationConventions(C87,C98)aswellastheInternationalLabourOrganizationTripartiteDeclarationofPrinciplesconcerningMultinationalEnterprisesandSocialPolicy,companiesareexpectedto:
− defineandexplainemployees’righttounionise
− ensurethatfreedomofassociationisnotrestricted
− promotecollectivebargaining.
Vigeo Eiris Findings: Sector performance across key human capital topics
Amongthe792companiesinoursample,theglobalaveragescoreofthesustainabilitydriver“Respect of freedom of association and the right of collective bargaining”isweakinallsectorsandlimitedintheSpecificPurposeBanks&Agencies(31.5/100)andDiversifiedBanks(39.1/100)sectors.
For the Development Banks sector,the“Respect of freedom of association and the right of collective bargaining” topicisnotanalysed.Theinternationalcivilservantsemployedbyintergovernmentalorganisationsdonotoperateunderanynationallegislationbutaregovernedbyinternalorganisationalregulation.Alldisputesrelatingtotheinternationalcivilservicearebroughtbeforespecialtribunalscreatedbytheseinternationalorganisationssuchas,forinstance,theAdministrativeTribunaloftheInternationalLabourOrganization.Civilservants’labourrightsareprotectedasaresultoftheirorganisations’statusandsotheriskoflabourrightsviolationsisconsideredtobeminimal.
Non-discrimination:asdescribedbyInternationalLabourOrganizationConventions(C100,C111,C138,C156)andRecommendations(R90,R111),aswellastheInternationalLabourOrganizationTripartiteDeclarationofPrinciplesconcerningMultinationalEnterprisesandSocialPolicy,companiesareexpectedto:
− committoprohibitandpreventdiscriminationandtopromotediversityintheworkplace
− settargetstoproactivelyincreasediversity
− clearlydefinewhatconstitutesdiscrimination,identifytheinstancesinwhichdiscriminationmightoccurandoutlinethevulnerablegroups
− undertakeactionstoproactivelypromotediversity
− createasystemtotrackthediversityratiointheworkplaceandtocollectandaddresscomplaintsofdiscriminationintheworkplace
39,1
25,0 27,3 26,531,5
Diversified Banks Financial Services -General
Insurance Retail & SpecialisedBanks
Specific PurposeBanks & Agencies
Respect of freedom of association and the right of collective bargaining /100
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49,359,7
34,8 41,0 39,6 38,5
DevelopmentBanks
Diversified Banks Financial Services- General
Insurance Retail &Specialised Banks
Specific PurposeBanks & Agencies
Non-discrimination /100
Amongthe792companiesinoursample,theglobalaveragescoreofthesustainabilitydriver“Non-discrimination”islimitedinallsectorsandrobustintheDiversifiedBankssector(59.6/100).
Responsible Management of Restructuring: asdescribedbyInternationalLabourOrganizationConventions(C87,C98,C135,C154,C158)andRecommendations(R143,R150,R166),aswellastheInternationalLabourOrganizationTripartiteDeclarationofPrinciplesconcerningMultinational
EnterprisesandSocialPolicy,companiesareexpectedto:
− informandconsultemployeerepresentativesbeforeandduringtherestructuringprocess
− implementpracticalmeasurestopreventandlimitredundancies(notablybudgets,processesandreporting)
− takemeasurestomitigatethenegativeeffectsofemployeeredundancies,notablythroughreemploymentmeasures
31,1
18,4 20,0 19,0
29,5
Diversified Banks Financial Services -General
Insurance Retail & SpecialisedBanks
Specific PurposeBanks & Agencies
Responsible management of restructuring /100
Amongthe792companiesinoursample,theglobalaveragescoreofthesustainabilitydriver“Responsible Management of Restructuring” isweakinallsectorsandlimitedintheDiversifiedBankssector(31.1/100).
For the Development Banks sector,the“Responsible management of restructuring” topicisnotanalysed.ResponsiblereorganisationandrestructuringdonotrepresentsignificantissuesforDevelopmentBanks.Theseinstitutionsoperateinachangingenvironmentwhichrequiresconstantinvestmentintraininganddevelopment.Asdevelopmentbanksareexpandingtheirroleandactivities,theywillseldombeconfrontedwiththeneedforrestructuringthatreducesheadcount.Therefore,thetopicisnotanalysedforthissector.
Career management and promotion of employability: asdescribedbytheInternationalLabourOrganizationConventions(C142)andtheOECDGuidelinesforMultinationalEnterprises,companiesareexpectedto:
− anticipateshortandlong-termemploymentneedsandskillrequirementsandadaptemployees’skillsetstotheircareerpaths
− enableprogressiveimprovementinemployees’qualificationlevels
− setupaconcertedcareermanagementframeworkwhichistransparentandindividualised
− developcareermanagementschemesgearedtowardssenioremployeesandpromotetheiremployabilityandlifelonglearning
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Amongthe792companiesinoursample,theglobalaveragescoreofthesustainabilitydriver“Career management and promotion of employability” isweakinallsectorsandlimitedintheDevelopmentBanks(45.5/100)andDiversifiedBanks(47.8/100)sectors.
Improvement of Health and Safety: asdescribedbyarticle23oftheUniversalDeclarationofHumanRights,byInternationalLabourOrganizationConventionsandtheOECDGuidelinesforMultinationalEnterprises,companiesareexpectedto:
− defineandcontinuallyimprovehealthandsafetysystemsandensurethattheyareknownandrespected
− setupsystemstopreventaccidentsandoccupationaldiseases
− setupsystemstopreventpsychosocialrisksandwork-relatedstress
Forthefinancialindustry,VigeoEirismethodologyfocusesonhowcompaniesincludestresspreventionandmitigationintheirhealthandsafetystrategy.Companiesareexpectednotonlytoimplementprogrammestodetectandmanageemployeestress(e.g.skillstrainingtocopewithstressandriskassessments)butalsotomodifyoreliminatesourcesofstressinherentintheworkenvironmentthroughmeasuressuchasjobredesign.
45,5 47,8
20,1 24,1 23,4 22,1
DevelopmentBanks
Diversified Banks Financial Services- General
Insurance Retail &Specialised Banks
Specific PurposeBanks & Agencies
Career management and promotion of employability /100
37,442,0
20,5 22,7 21,7 21,4
DevelopmentBanks
Diversified Banks Financial Services- General
Insurance Retail &Specialised Banks
Specific PurposeBanks & Agencies
Improvement of Health and Safety /100
Amongthe792companiesinoursample,theglobalaveragescoreofthesustainabilitydriverImprovement of Health and Safety: isweakinallsectorsandlimitedintheDevelopmentBanks(37.4/100)andDiversifiedBanks(42/100)sectors.
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Sector performance across key human capital topics
TheanalysisshowsthattheDiversified Banks sector achieved the best performance across all topics underassessment.ThesectorischaracterisedbyahighrepresentationofEuropeancompanies
(45%).SpecificPurposeBanks&AgenciesisasmallsectorinVigeoEiris’universe.Itiscomposedof31companies,themajorityofwhicharebasedinEurope(71%).
44,1 44,0
23,8 27,0 26,1 27,0
DevelopmentBanks
Diversified Banks Financial Services- General
Insurance Retail &Specialised Banks
Specific PurposeBanks & Agencies
Human Capital Risk/100
The performances achieved by other sectors on the topics under review are also impacted by their geographical segmentation.
71%
36%31%
32%45%6%
17%24%
11%
16%
10%
38%
17%
19%
21%
13%
9%
27%
38%
18%
0
50
100
150
200
250
300
Specific PurposeBanks & Agencies
Retail & SpecialisedBanks
Financial Services -General
Insurance Diversified Banks
Nb
of c
ompa
nies
Universe: sector and geographical breakdown
Europe Asia Pacific Emerging Market North America
Development Banks:11 companies
TheRetail&SpecialisedBankssectorhasahighproportionofcompaniesbasedintheEmergingMarketzone.TheInsurancesector,ontheotherhand,seesarelativemajority(38%)ofcompaniesbasedinNorthAmerica.Aspreviouslyexplained,DevelopmentBanksarenotdividedaccordingtogeographicallocationastheyaresupranationalentities.
Comparedtoissuersinotherregions,Europeancompanieshavemoreoftensignedframeworkagreementswithemployees,implementedcontrolmeasures(suchasmonitoring,riskassessmentsandaudits)andactivelyinformedemployees abouttheirrights.ThisdivergencecanlikelybeascribedtoadvancedworkerprotectionlegislationandrecognitionofthestrengthofthetradeunionmovementinEurope.Thepooroveralldisclosure
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fromcompaniesbasedinothergeographiesunderlinesthathugechallengesremaininensuringthatworkers’fundamentalrightsarerespected.Moreover,intheUnitedStates,unionbustingpracticesareoftenused.Forinstance,itisquitecommonforcompaniestohireconsultantsthatadviseemployersontacticstodiscourageorintimidateworkersseekingtounionise.ItshouldbenotedthattheUnitedStatesdidnotratifytheInternationalLabourOrganizationconventionsonfreedomofassociation(C87)andtherighttocollectivebargaining(C98),northeDiscrimination(EmploymentandOccupation)Convention(C111)1.
Despitepersistentproblems,suchasthegenderpaygap2andthelowrepresentationofwomeninleadershippositions,measurestotacklediscriminationarewellintegratedintoEuropeancultureandlegislation3.InNorthAmericancountries,institutionsinterferelessonsocialissuesinbusinessanddonotputpressureoncompaniestoreportontheseissues.However,NorthAmericancompaniesarequiteactiveinintegratingdiversityintoworkplaceculture-forinstance,employeesdevelopandparticipateinemployeeresourcegroups(ERGs)tosupporteachotherinachievingtheircareerandpersonalgoals.ThemostcommonERGsareforLGBTemployees,women,veterans,youngprofessionalsandethnicminorities.
IntheAsiaPacificzone,theroleofgovernmentinensuringtheprotectionoflabourrightsisagainarelevantconsiderationinouranalysis.ItisworthnotingthatonlyAustralia4hasratifiedtheInternationalLabourOrganizationconventionsonfreedomofassociation(C87),therighttocollectivebargaining(C98)anddiscrimination(C111),whileChina5 has not ratifiedC87andC98.
AnInternationalLabourOrganizationpaper6usedVigeoEirisdatatoassessthevoluntarylabourcommitmentsundertakenbymajorlistedcompaniesworldwide.ThepaperconfirmsthatWesternEuropeancompaniesachievebetterperformancesintermsoflabour-relatedCSR(corporatesocialresponsibility)practiceswhilepreventionofdiscriminationrepresentsapriorityforcompaniesbasedinNorthAmerica.
1 ILOwebsite–accessedinJanuary2019-https://www.ilo.org/dyn/normlex/en/f?p=1000:11210:0::NO:11210:P11210_COUNTRY_ID:102871
2 Genderpaygapstatistics–Eurostat–accessedinApril2019-https://ec.europa.eu/eurostat/statistics-explained/index.php/Gender_pay_gap_statistics
3 Legislation-Directive2000/78/EC
4 ILOwebsite–accessedinJanuary2019-https://www.ilo.org/dyn/normlex/en/f?p=1000:11200:0::NO:11200:P11200_COUNTRY_ID:102544
5 ILOwebsite–accessedinJanuary2019-https://www.ilo.org/dyn/normlex/en/f?p=1000:11210:0::NO:11210:P11210_COUNTRY_ID:103404
6 “Unevenpracticesinvoluntarylabourcommitments:AnexplorationofmajorlistedcompaniesthroughtheVigeoEirisdatabase”–ILO–November2017
Costreductionstrategies,includingjobcuts,heavilyaffectedthefinancialindustryafterthefinancialcrisis.Intermsofrestructuring,nationallegislationandcollectiveagreementsinEuroperegulatethedismissalofworkers(e.g.noticeperiodsandreasonsforredundancy)andcompensation.Similarly,inAustralia,workplacerelations,terminationsandredundanciesareregulatedbytheFairWorkActadoptedin2009.IntheUnitedStates,terminationofemploymentisnotregulatedbyfederallawandworkerscanbedismissedforanyreason;regulationonlyrequiresemployerstogivenoticeincasesofmassdismissal7.Thepolicyenvironmentshapescompanybehaviourwhilebenefitsofferedtoworkersareamatterofagreementbetweenanemployerandanemployee,ortheemployee’srepresentative.TheOECDcollectsdataonemploymentprotection,includingindicatorsrelatingtotheprotectionofpermanentworkersagainstindividualandcollectivedismissals.
Regardingtraining and career development,muchisdoneintheEuropeanUniontoprotectemployees’physicalhealthandalsotoencouragestress management: TheFrameworkDirective89/391/EEC,andtheEuropeancollectiveframeworkagreementsonwork-relatedstress(2004)andharassmentandviolenceatwork(2007)setthemanagementofstressasanobligationforemployers.InAustralia8thelegislationrequirescompaniestoensurethementalhealthoftheiremployees,andinJapan9theIndustrialSafetyandHealthActinJune2014wasamendedtointroducemandatoryemployeestresschecksincompanieswithmorethan50workerstopreventthedevelopmentofmentalillness.Inotherregions,definingcompanyresponsibilityforworkers’mentalhealthremainsanemergingissue.
7 WarnAct-ILOwebsiteaccessedinJanuary2018http://www.ilo.org/dyn/eplex/termdisplay.sourceScope?p_lang=en&p_expandcomments=Y&p_checkbox=Y&p_country=AU
8 SafeWorkAustraliawebsite–accessedinJanuary2019-https://www.safeworkaustralia.gov.au/topic/mental-health
9 NewStressCheckProgrammeinJapan’sworkplace-TomoyukiKawada7/9/2016
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22 24 2630
52
2732
36
44 46
57
21 21 22 22
38
1622 23
28 29
Human Capital Risk scores by sectors (/100)
AP
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ThegraphshowsthatDiversifiedBanksEuropeandDiversifiedBanksAsiaPacificachieverobustperformances(57/100and52/100,respectively)intermsofhumancapitalriskmanagement.ThethreelaggardsectorsareFinancialServiceGeneralNorthAmerica(22/100),InsuranceEmergingMarket(22/100)andInsuranceNorthAmerica(21/100).Finally,DevelopmentBanksachievealimitedperformanceintermsoftheirhumancapitalmanagement(44/100).
But it is also a matter of sizeAnotherfactortobeconsideredintheanalysisoftheresultsisthesizeofcompanies.Retail&SpecialisedBanksaresmallerentitiescomparedtothoseintheDiversifiedBankssector,whichincludesbankswithtotalassetsofatleastEUR200billion.Inmanycases,thebiggersizeofthecompaniesenablesbetterreportingoncertainhumancapitaltopics(e.g.careerdevelopmentandtraining).Italsofacilitatestheimplementationofformalisedpoliciesandmoreinvestmentinmeasurestosupporthumancapitaldevelopment.Incontrast,theFinancialServiceGeneralsectorcontainssomecompanieswithsmallnumbersofworkers–onlyafewhundredemployeesinsomecases–andischaracterisedbyweakdisclosureoverallonhumanresourcestopics.
Regarding Development Banks, the international civilservantsemployedbyanintergovernmentalorganisationdonotresortunderanynationallegislation(fromwhichtheyhaveimmunityofjurisdiction)butaregovernedbyaninternalstaffregulation.Alldisputesrelatedtointernationalcivilservicearebroughtbeforespecialtribunalscreatedbytheseinternationalorganisationssuch
as,forinstance,theAdministrativeTribunaloftheInternationalLabourOrganization.civilservants’labourrightsareprotectedasaresultoftheirorganisations’statusandsotheriskoflabourrightsviolationisconsideredtobeminimal.Forthesector,reportedeffortsonsocialissues(suchasmanagementofstressintheworkplace,careerdevelopmentandpromotionofdiversity)arelimitedandnotcomprehensive.Indeed,DevelopmentBankstendtofocusonthedisclosureofESGinformationrelatedtotheirfinancingactivitieswhilereportingontheirinternalESGpoliciesandinitiativestakessecondplace.
Stakeholder pressure Stakeholderpressuremightwellinfluencethelevelofcommitmentanddisclosureregardinghumancapitaltopics.Forexample,thepresenceofstrongandrecognisedtradeunions1inEuropepromoteshealthysocialdialogueandencouragesbetterdisclosureonlabourrelations.Inadifferentculturalcontext,suchastheUnitedStates,whereunionsarelesslegitimised,companyinvestmentinhumanresourcescanbeencouragedbythepressandexternalawards,suchastheGlassdoororForbesrankingsofthebestplacestowork.Finally,shareholderactivismcanincentivisecompaniestoimprovetheirmanagementofhumancapitalissues.
1 ItucGlobalRightIndex2018-ITUCInternationalTradeUnionConfederation–p.7
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Human Capital and the financial industry: risks and opportunitiesTheInternationalLabourOrganizationreporton2018employmenttrends2highlightsthatdespiteglobaleconomicgrowthhavingincreasedfrom3.2%to3.6%,unemploymentstillaffects42%oftheworld’sworkers,theaverageageofthelabourforceisexpectedtostandat41in2030andinequalitiesareinemploymentrightsexpectedtopersist.
Althoughthebankingindustry,forexample,achievesgenderbalanceintheworkforce,thehigherupthehierarchy,theloweristhepresenceofwomen3.Therefore,non-discriminatory practices areimportantfactorsforinternalcohesionandhelptocreateamotivatingworkingenvironment.Indeed,structuralandrecurrentdiscriminationmaynegativelyaffectworkforcemotivation,andemployeeturnoverandabsenteeismmayincreaseasaresult.Sincethe2008financialcrisis,theindustryhasbeenimpactedbyseverejobcuts.Furthermore,technologyisgoingtohaveahugeimpactonthejobmarketinthebankingsector4.AsreflectedinVigeoEirismethodology,byfollowingresponsible restructuring processes,companiescanretaincriticalknowledgeandcompetenciesthatmaybeneededinthefuture.Poorlyexecutedrestructuringcanleadtolossoftalentedworkersthroughvoluntaryandinvoluntarydepartures.Talentretentionisessentialbecauseitishardforcompaniestoreplacehumancapitaloncelost.Financialcompaniesarebecomingdigital,andhumanresourcesdepartmentsneedtotakealeadingroleinhelpingtheirworkforceadapttothechallengesofdigitalisation.Withanageingworkforceindevelopedcountries,itisessentialtopreserveandenhancehumancapitalassetsthroughtraining and career development thatenablesemployeestocontinueaddingvaluetocompanies.In-depthcareerdevelopmentplanswilllikelybethemaindriverofworkermotivation,engagementandsatisfaction.Companiesthatfailtoinvestintheiremployees’riskdowngradingtheirhumancapital,becominglessattractivetonewemployeesandbeingconfrontedwithhighturnoverrates.Workpressurealongwithalackofjobsecurityarethemajorcausesofstressandconsequentlylowmotivationamongstemployees.Thiscan,inturnincreaseabsenteeismandturnoverrates.Preventing work-related stress is essential in orderforfinancialcompaniestopreservehumancapital.
Ontheonehand,investinginhumancapitalcohesionrepresentsavaluableassetforcompaniesinfacing
2 WorldEmploymentSocialOutlook–Trends2018–ILO
3 “Genderdiversityinthebankingindustry,Aninternationalcomparison.”-SKEMAObservatoryontheFeminizationofCompanies-2017Edition
4 “BANKOFTHEFUTURE-TheABCsofDigitalDisruptioninFinance”-CitiGPS:GlobalPerspectives&Solutions-March2018
thechallengesaheadwhileontheotherhand,companiesthatdonotmaintainarobusthumancapitalapproachmightincurlegalandoperationalrisks.Theserisksmayultimatelymanifestasfinancialrisksforinvestors.
Case study: Banks & Digitalisation ThewaycompaniesmanagetheemergingissuesofjobautomationanddigitalisationcanaffectVigeoEiris’evaluationoftheirhumancapitalcapacity.Companiescanintegratedigitalisationtopicsintotrainingprogrammesandprotectemployeejobsecurityfromthepotentialworkforcereductionsthatmightbecomingfromtechnologicaltransformation.
Digitalisationandautomationwillcontinuetobringstructuraladjustmentstothecompositionandsizeofthebankingindustryworkforce.InNovember2018,UNI Europa Finance and the banking sector signed a joint declaration on the impact of digitalisation that aims to avoid negative consequences for the sector’s employees. UNI EuropaFinance,akeystakeholderfortheindustry,identifiescontinuoustrainingandlifelonglearning,healthyworkingconditionsandanappropriatework-lifebalanceasprerequisitesforpreparingtheworkforcetofacethesechallenges.Withsufficientcompanyinvestmentintraining,employeescanadapttochangeandfitnewroles.Onepositiveimpactofdigitalisationhasbeenidentifiedintheincreaseofothertypesofjobsinthebankingsector,suchasITengineers5.VigeoEirisanalysisshowsthatDiversifiedBankshavemadeconcertedeffortsonthetopicofcareermanagement.Theaveragescoreforthesectorintermsof“Career Management and Employability” is almost robust – 47.8/100. AmongthetrainingprioritiesidentifiedbyGroupe BPCE,thetopperformerintheDiversifiedBankssectorintermsofcareermanagementandtraining(85/100),thedevelopmentofskillsrelatedtodigitalisationappearstobethetoppriority.Acrossthesector,roomforimprovementisidentifiedintermsofofferingtrainingprogrammesaimedatpromotingtheemployabilityandlifelonglearningofolderemployeesbyhelpingthemtoadapttothechangesbroughtbytechnologicaladvancements.Infact,onlysixbanksinthesectorhavedevelopedcustomisedprogrammes(namelyGroupe BPCE, Banque Federative du Credit Mutuel, UniCredit, UBS Group, RABOBANK,andWestpac Banking Corporation).
Manystakeholders,rangingfrombankCEOs6 to
5 ADB/UNIAproFinancejointforum‘DigitizationTrends:ImpactonEmploymentinFinanceIndustry’–Manila-03/05/2018
6 DeutscheBankbosssays‘bignumber’ofstaffwilllosejobstoautomation–TheGuardian–6/09/2017
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dedicatedconferences7totradeunions8,havehighlightedtheunavoidableimpactsofdigitalizationontheworkforce.Thereareseriousconcernsovertechnologydisplacingjobsandthenegativeconsequencesforfront-linestaffmaderedundantbybankbranchclosuresorautomatisedcallcentres.Employeesheavilyinvolvedinadministrativeandbackofficefunctionsmayfeelthemostinsecureabouttheirposition.AshighlightedinthisVigeoEirisstudy,severalbankswillbeaffectedbyrestructuringlinkedtoinnovationprocesses.Ina2017conference,theCEOofDeutscheBankpredictedhighjoblossesinthebankingsectorduetosomeroles,suchasaccountants,beingreplacedbymachines9.InMarch2018,theRoyalBankofScotlandCFOexplainedthatthebank’srestructuringplanentailedlayoffsalongsidenecessaryinvestmentsintechnology10.AsimilaropinionhasalsobeenexpressedbytheCitigroupCEOwho,ina2017interview,foresawa30%reductioninbankingjobs,especiallybackofficeroles11.In2017,theSwedishbankNordea announcedarestructuringprocessleadingtothelossof4,000employeesand2,000consultantsoverthefollowingyearsbecauseofdigitaltransformationinitiatives12.Accordingtothebankclosuredatabasefromconsumergroup“Which?”13,almost3,000banksandbuildingsocietybrancheshaveclosedoraregoingtoclosebetween2014-2018intheUnitedKingdom.Thereasonshavebeenidentifiedastheincreaseduseofonlineandmobilebankingandthedecreaseinpeoplegoingtobankbranches.Ifitistruethatcustomers’habitsarechangingthentheseclosurescancreateobstaclesforpeopleandsmallbusinessesthatrelyonlocalbanks,especiallyinruralareas.UndertheAccesstoBankingStandard(2015),bankshavethedutytoofferalternativesotherthanbranchestocustomers.Banksrespondedbyofferingtheirservicesthroughpostoffices,mobilebankvansandcommunitybankers.Moreover,manybanks(amongthemRBSandBarclays)offertrainingtocustomersonusingmobilebankingappsontheirdevices.IntheUK,HSBC, Lloyds Bank, andBarclaysannouncedreductionsincompany’sheadcountinrecentyears14.AccordingtotheUK
7 ADB/UNIAproFinancejointforum‘DigitizationTrends:ImpactonEmploymentinFinanceIndustry’–Manila-03/05/2018
8 DigitizationTrends:ImpactonEmploymentinFinanceIndustry–UNIGlobalUnion-10/05/2018
9 DeutscheBankbosssays‘bignumber’ofstaffwilllosejobstoautomation–TheGuardian–6/09/2017
10 RBSjoblosses‘inevitable’withdigitalinvestment,financechiefsays–Independent–01/03/2018
11 Thesejobsmaygomissingfrombanksinthenextfewyears–TheEconomicTimes-14/09/2017
12 NordeaBank’s6,000JobCutsAreJusttheBeginning,UnionSays–Bloomberg–1/12/2017
13 Bankbranchclosures:isyourlocalbankclosing?–Which?WebsiteaccessedinNovember2018
14 EuropeanMonitoringCentreonChange–accessedinJanuary2019-https://www.eurofound.europa.eu/observatories/emcc
FinanceReport15publishedin2018,12%morepeopleusedbankingappsin2017comparedto2016intheUK-reaching22millionusers.CorporatedownsizinglinkedtothewideruseofartificialintelligenceandautomationisalsoaffectingtheJapanesebankingindustrywithlayoffsatMizuho BankasaresultoftheuseofrobotsandMitsubishi UFJ Financial Group,whereautomationhasreplacedonethirdoftheclericaljobsatitssubsidiary,BankofTokyo-MitsubishiUFJ.Inaddition,Sumitomo Mitsui Financial Group,hasopenedpaperlessbranchesandreplacedadministrativestaffwithrobots)16.Despitesomeofthealreadyvisiblynegativeimpactsofdigitalisation,theindustrydoesnotappeartobeequippedtomanagereorganisationsresponsibly.TheaveragescorefortheDiversifiedBankssectorintermsof“Responsible management of restructuring” is limited,standingat31.1/100.Thereisnoevidencethatanyofthebanksinthesectorhasbeenabletoavoidredundanciesortomaintainemployment.Onapositivenote,somegoodpracticesarevisible.AtRabobank,a2017-2020CollectiveLabourAgreementincludesprovisionforcomprehensivesupportforemployeesimpactedbythereorganisationplan,includinginternalmobilityandretrainingoptions.DBS Group Holdingshasadoptedmeasurestopreventfuturelayoffsassomejobsbecomelessrelevantduetodigitalisation:internalmobilityopportunitiesandreskillingprogrammesforemployeestotakeonneworenhancedroles.
15 TheWayWeBankNow2018-UKFinance–May2018
16 Japan’sbanksplan33,000jobcutsindigitaldownsizing–Finextra-31/10/2018
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Controversies by sectorVigeoEirisconsidersstakeholderfeedbackandcompanyresponsivenessoncontroversiesinitsanalysis.AcontroversyisbasedonpublicinformationfromtraceableandreliablesourcesthatincriminatesanissueronESGissues.Suchallegationsmayrelatetospecificfactsorevents,totheirconflictinginterpretations,tolegalproceduresortonon-provenclaims.
Todeterminetheseveritylevelofacontroversy,theassessmentconsidersthenatureoftheallegations,thescaleoftheimpactonstakeholders,thelevelofinvolvementbymanagementandthereputational,financial,legalandoperationalimplicationsforthecompany.
ResultsfromVigeoEiris’ControversyDatabaseshowthat:
− There are 45 controversiesrelatedtofinancialcompaniesonthetopicsofrestructuring,healthandsafety,non-discriminationandlabourrights.
− Almosthalfofthecases(47%) relate to the Diversified Banks sector.
47%
13%
22%
16%2%
Controversies by sector
Diversified Banks
Financial Services - General
Retail & Specialised Banks
Insurance
Specific Purpose Banks & Agencies
0
2
4
6
8
10
12Diversified Banks
Financial Services -General
InsuranceRetail & SpecialisedBanks
Specific PurposeBanks & Agencies
Map of controversies by sector and topic
Labor rights
Non-Discrimination
Restructuring
Health & Safety
Human Capital: Controversies
Themostfrequentcontroversiesrelatetoconflictsbetweencompaniesandemployeesthatallegediscriminatorypractices.Somecasesculminateinlawsuits,andothercasesrelatetoreorganisation.
Thebankingsectorhasindeedbeenaffectedbyjoblossesasaresultofdigitaltransformationandprocessautomation.
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InDecember2017,Royal Bank of Scotland (RBS)announceditwasplanningtoclose259branches,whichcountedforaquarterofitsnetwork.Thedecisioninvolved62branchesofRBSand197branchesofNatWest,anRBSsubsidiary,therebypotentiallyaffectingmorethan700jobs.Thedecisionwasstronglycriticisedandsparkedpoliticaldebateandwarningsaboutthepotentialsocialandeconomicconsequences.TheunionUnite,whichrepresentedmanyofthoseaffectedbytheclosureprogramme,accusedRBS(whichwas71%ownedbythetaxpayer)ofinitiating“savage”jobcutsandabandoningruralScotland.Itaddedthatthedecisionwouldnegativelychangethefaceofbankinginthe
country,resultinginoverathousandstafflosingtheirjobsandleavinghundredsofhighstreetswithoutanybankingfacilities.TheScottishparliamentannouncedtheconstitutionofanaffairscommitteeinquiryintothe62plannedbranchclosuresandthelossof158jobs.Thecommittee,whichwastoconveneinJanuary2018,wastoinvestigatetheimpactofthecuts,especiallyinruralareas,andaskthebanktoreconsideritsdecisioninsomecases.TheFederationofSmallBusinesses(FSB)alsocriticisedthedecision,sayingthatbankclosureswouldmakeitmoredifficulttorunabusinessinScotland.TheCompanyreportedinadetailedwayonitspositiontothecase.
20%
29%42%
9%
Controversies by severity
MinorHighSignificantCritical
EU 100%
EU 38,4%NAM 38,4%RoW 23,2%
The severityofthecontroversyisconsidered“critical”in9%ofcases,“high”in29%ofcases,
“significant” in 42%ofcasesand“minor”in20%ofcases.
40%
51%
4%4%
Controversies by responsiveness
Reactive
Non Communicative
Remediative
Proactive
NAM 39.1%, EU 30.4%,RoW 30.5%
Asforcompanyresponsiveness,whichisdefinedastheabilitytoengagestakeholdersinriskmanagementproceduresbasedonexplanatory,preventative,remediableorcorrectivemeasures,itappearsthat:
− Inaround51%ofcases,thereisalack of transparencyanddetailinthecompany’sresponsetothecontroversy.
− In40%ofcases,thecompanyprovidesconcreteexplanationsofitspositioninrelationtotheallegations;insomecases,ithasstartedtoimplementcorrectivemeasures,
butgenerallytheseareimposedbyathirdparty(suchasajudge,court,ornationaladministration)andnotimplementedonavoluntarybasis.
− In4%ofcases,thecompanyhasimplementedcorrectivemeasuresonavoluntarybasis,mainlytoremediateorcorrecttheallegation.
− Inonly4%ofcases,thecompanyhasimplementedmeasuressuchasstructuralchangesininternalprocessesandpoliciestopreventthecontroversyfromreoccurring.
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Conclusion:
This research reveals that Vigeo Eiris has a low to moderate level of assurance that human capital-related risks are adequately managed for most of the financial sectors under analysis. One of the factors impacting human resource management is the geographical location of companies. European companies attach far more importance to informing relevant stakeholders about their social performance. Another key factor positively influencing performance on human capital management is related to the size of the company. Listed companies that have continuous dialogue with external stakeholders are more able to report publicly and transparently on their internal human resource practices.
Stakeholders are putting pressure on companies to increase their investment in human capital: trade unions are aiming to guarantee job security and good working conditions for employees; national laws are shaping the working environment especially in terms of health and safety, non-discrimination and job security; and some investors are understanding the links between eroding human capital and the risk of negative impacts on operational efficiency, legal security and financial results.
In a world where the number of employees engaged in various forms of vulnerable employment is rising, and the workforce1 is ageing, investment in human capital is critical; a healthy, trained workforce is more resilient in the face of challenges and can enhance the success of companies2. As recommended by the recently published International Labour Organization report “Work for a brighter future”3, action is needed to face the challenges ahead. Governments, employers and workers’ organisations must reinforce the social contract so that economic progress is more equally shared, and workers’ rights are respected and protected. Moreover, the report highlights the need for a human-centred agenda that is based on three pillars: investing in people training; strengthening the institutions of work (namely regulations, employment contracts, collective agreements and labour inspection systems); and investing in decent and sustainable employment.
1 WorldEmploymentSocialOutlook:Trends2018–ILO-2018
2 “TripartiteDeclarationofPrinciplesconcerningMultinationalEnterprisesandSocialPolicy”–ILO-2017
3 “Workforabrighterfuture”–ILO–January2019
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Appendix
Top Performers – Europe
Title Country Sector Score (/100)BNP Paribas France Diversified Banks 79La Banque Postale France Retail & Specialised Banks 77Caisse des Dépôts France Specific Purpose Banks & Agencies 73Amundi France Financial Services - General 73Agence Francaise de Developpement France Specific Purpose Banks & Agencies 71Groupe BPCE France Diversified Banks 71Credit Mutuel Arkea France Retail & Specialised Banks 70BPIFrance Financement France Specific Purpose Banks & Agencies 69Credit Agricole France Diversified Banks 69Axa France Insurance 69EIB Luxembourg Development Banks 68
Top Performers – North America
Title Country Sector Score (/100)The Bank of Nova Scotia Canada Diversified Banks North America 47Goldman Sachs Group United States of America Financial Services - General North America 45Bank of Montreal Canada Diversified Banks North America 44JPMorgan Chase & Co. United States of America Diversified Banks North America 43Toronto-Dominion Canada Diversified Banks North America 42Royal Bank of Canada Canada Diversified Banks North America 41Citigroup United States of America Diversified Banks North America 40The Bank of New York Mellon Corporation United States of America Financial Services - General North America 39Morgan Stanley United States of America Financial Services - General North America 39State Street United States of America Financial Services - General North America 39
Top Performers – Asia Pacific
Title Country Sector Score (/100)Commonwealth Bank of Australia Australia Diversified Banks Asia Pacific 71Westpac Banking Corporation Australia Diversified Banks Asia Pacific 69National Australia Bank Australia Diversified Banks Asia Pacific 61Australia & New Zealand Banking Group Australia Diversified Banks Asia Pacific 59Mizuho Financial Group Japan Diversified Banks Asia Pacific 59Orient Corp Japan Financial Services - General Asia Pacific 58Hong Kong Exchanges & Clearing Hong Kong Financial Services - General Asia Pacific 52Sumitomo Mitsui Trust Holdings Japan Diversified Banks Asia Pacific 47ORIX Corporation Japan Financial Services - General Asia Pacific 45Japan Post Bank Japan Diversified Banks Asia Pacific 44
Top Performers – Rest of the world
Title Country Sector Score (/100)BMCE Bank of Africa Morocco Retail & Specialised Banks Emerging Market 65Banco Santander Brasil Brazil Retail & Specialised Banks Emerging Market 50BMCI Morocco Retail & Specialised Banks Emerging Market 49CTBC Financial Holding Taiwan Retail & Specialised Banks Emerging Market 49Banco do Brasil Brazil Diversified Banks Emerging Market 48Garanti Bank Turkey Retail & Specialised Banks Emerging Market 46Itau Unibanco Holdings Brazil Diversified Banks Emerging Market 45BanColombia Colombia Retail & Specialised Banks Emerging Market 45Fubon Financial Holdings Taiwan Financial Services - General Emerging Market 45Banco Bradesco Brazil Diversified Banks Emerging Market 44Bank Negara Indonesia Persero Indonesia Retail & Specialised Banks Emerging Market 44Wafa Assurance Morocco Insurance Emerging Market 44Grupo Financiero Banorte Mexico Retail & Specialised Banks Emerging Market 44
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oducedanddesignedbyVigeoSAS
Sara Faglia
Senior ESG Analyst Human Resources
Authors:
Elisabetta Colombo
Thematic Group Manager
Human Resources
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General information: Amélie Nun - [email protected] / + 33 1 55 82 32 77
