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welkom. welcome. April 18-19, 2006. Risk Mapping, Due Diligence and Assessment. Sofie Michaelsen . Social Specialist . Washington DC April 18, 2006. Risk Mapping / Assessment. Labour Risk Identification Countries with high labour risk (i.e. China, Colombia)
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welkom welcome April 18-19, 2006
Risk Mapping, Due Diligence and Assessment Sofie Michaelsen Social Specialist Washington DC April 18, 2006
Risk Mapping / Assessment • Labour Risk Identification • Countries with high labour risk (i.e. China, Colombia) • Sectors with high labour risk (i.e. agriculture, extractive industries, manufacturing) • Large workforces of unskilled or temporary/migrant labour • Export Production Zones (EPZ) • Projects that involve mass retrenchment • Labour risk assessment training course for I.O. and env. specialists
Country Risk Assessment • Emerging Market Economics (EME) country risk tool • Human Rights Risk • Environmental Risk • Governance Risk • US State Depart. Country Reports on HR Practices • Detailed info on implementation of Labour Standards
Social/Labour Due Diligence • Labour checklist for A and B risk category projects • Pilot applying the HRCA developed by DIHR • Network of local expertise • SA8000 consultants • Local Human Rights NGOs • Labour NGOs
Case Study Colombia BACKGROUND 1 FINDINGS 2 FOLLOW-UP 3 CONCLUSION & RECOMMENDATIONS 4
Case Study - Colombia BACKGROUND 1
Colombia became a FMO focus country in 2003 • Assessment of safety for travelling in Colombia • No consultation on country risk with Env. & Social Unit even though: • Unstable political situation • General human right situation • Precarious position of trade unions • Most assassinations on trade unionists per year in Latin America 2002:180, 2003:91, 2004:99 (Source ICFTU )
FMO B-lender in regional A/B loan package in Company X • Production and sales of beer, soda drinks, fruit juices and mineral water • One of the larger companies in Colombia • Listed on Bogotá stock exchange • Acquisitions in Colombia, Ecuador, Panama and Peru in recent years
Case Study - Colombia FINDINGS 2
FMO due diligence carried out August 2003 Company Profile and labour conditions • Over 12,000 employees (2003) of which 7,000 in Colombia • Salaries on average 4x the legal minimum wage • Physical working conditions in compliance with int. standards • Workforce downsized from 17,000 to 12,000 (2000 due to closure of 8 Colombian plants (2001) • Severance package on average 6 year salaries per person
Labour Risks Identified: “Convencion Colectiva de Trabajo” (CCT) versus “Pacto Colectivo” (PC) • PC has not been negotiated with the trade union or employees • Signing of PC leads to renouncing core labour rights (collective actions, trade union membership etc.) • PC individually accepted by over 90% of workforce • CCT by less than 10 % of the workers • Trade union membership dropped from over 22% to less than 8% in one year • Breach with ILO core labour standards Right to Freedom of Association (87) and the Right to Collective Bargaining (98) • PC substantial non-compliance with FMO Social Policy
Case Study - Colombia FOLLOW-UP 3
Initial Consultation with Experts FNV - Dutch Trade Union Federation (LA Desk) ENS - Escuela Nacional Sindical (Labour NGO) • PC not in line with ILO Conventions 87 and 98 ABN AMRO Colombia - arranger of the deal Company X– HRM • PC legally allowed when less than 33% of the labour force is unionised at the moment of signing
Developments within FMO • Debate in FMO Project Committee • FNV Secretary General also board member of FMO and member of Project Committee • Preliminary E&S Policy for Investments in Colombia • Focus on Freedom of Association and the Right to Collective Bargaining • Use of Private Armed Security Forces • All projects shall undergo a pre-due diligence assessment • Adoption of Country Risk Assessment tool in 2006
Requirements to Company • Statement of Compliance with FMO Social Policy, including ILO C 87 and C 98 • “Any legal contracts entered into between the Undersigned and its employees and any internal work regulations and/or policies declared applicable by the Undersigned with regard to its employees’ working conditions, shall be interpreted in compliance with the above …” • TOR for social due diligence • Assess compliance of X’s operations with ILO C87 and C98 • Consulting 3 main stakeholders (workers, management and trade union) • 3rd party consultations (labour lawyer, labour experts etc.)
Case Study - Colombia CONCLUSION & RECOMMENDATIONS 4
After receiving TOR for Social Due Diligence and Statement of Compliance... ...client declined loan!
Internal FMO Evaluation • FMO procedures were followed by all the people involved, still heavy debate! • How different is X from other clients? • Role of Investment Officer in final outcome of this process? (in this case they were very open and proactive)
Conclusions: • Would it have made a difference if labour requirements were presented up front by an expert? • The Social Policy will have consequences for commercial department (if not window dressing) • Freedom of Association and Collective Bargaining is one of the most challenging issues to truly assess • Good network of independent labour experts is crucial • Collaboration and coordination among DFIs is crucial
Recent experiences: • Several clients express interest in improving labour conditions as upgrading of management system and improvement of performance • Some I.O. promote FMO labour due-diligence as a service to the client (i.e. diagnosis for SA8000 certification, supply chain management) • It is increasingly recognised that improved labour conditions is better business