Verité Emerging Markets Research Project: Supporting labor improvements in investment decision-making Dan Viederman Presentation to Labor standards in development finance April 18, 2006

Verité Non-profit global research organization specializing in monitoring consumer products manufacturing: including footwear, apparel, accessories, electronics, toys and food 60+ countries Offices in China, India, Bangladesh, Philippines, Belgium, Latin America, US

Verité Verités work Assessments and solutions for: –Corporations –Factories –Governments –Investors Range of activities –Social auditing –Training/capacity building –Consultation/program design –Research

Verité The CalPERS Emerging Markets Research Project CalPERS and NYCERS emerging markets investments Assessing ability to support institutional investment through Permissible Countries List 27 countries

Verité CalPERS Investment Criteria Five Market Factors –Market liquidity and volatility –Market regulation/investor protection –Capital markets openness –Settlement proficiency –Transaction costs Three Country Factors –Political stability –Transparency –PRODUCTIVE LABOR PRACTICES VERITE CONTRACTED TO PROVIDE

Verité Investment Criteria: Productive Labour Practices a productive workforce is a critical factor in economic growth and, ultimately, equity market success Wilshire Assoc. report to CalPERS Focus of research –To facilitate economically-productive labor practices, markets shall be evaluated based on their ratification of and adherence to the International Labour Organizations principles … and the degree of effectiveness of implementation

Verité Research Methodology: Range of sources Desk research: publicly available documents In-country interviews by country nationals –Government –Business and trade associations –Trade unions –Non-governmental organizations Verite on-the-ground knowledge from audits, training, etc.

Verité Research Methodology: Criteria 4 ILO Core Convention Areas –Child labor –Forced labor –Freedom of association –Equality/Discrimination 4 functional areas –Convention Ratification (10%) –National legislation (25%) –Institutional capacity (15%) –Effectiveness of implementation (50%)

Verité Calculations - outcomes 41 specific indicators Permissible/ impermissible Risk factors Forward- Looking factors Increasing depth Scoring/assessment

Verité Reactions: Finding meaning in this investment decision Positive news for social investors: –Expansion of fiduciary responsibility for these investors –Opportunity to engage country governments –About $2 - 3 billion more in socially- screened portfolios

Verité Reactions: Finding meaning in this investment decision Questions/concerns for social investors: –Exclusion, not engagement –Will it help workers directly? –Will it make for more productive investments? Danger of a backlash

Verité Next steps: Whats possible? Engage with countries instead of excluding them –Use this framework as a guide to priorities for capacity building Extend to company-level decision-making –Active portfolio management will examine ILO standards and Global Sullivan Principles Include emerging markets operations Adapt this framework for use in decision- making by other investment institutions