Sustainable value requires a living wage

In the many election campaigns that have been taking place around the world in 2024, rising inequality and the cost of living crisis have been common themes. Inflation has dragged many more people into a terrifying world where what they earn is not enough to meet their needs – and in many cases, not enough even to feed their family.

The Business Commission to Tackle Inequality (BCTI) estimates that more than one billion workers worldwide – a third of the entire workforce – earned less in 2023 than they needed to afford a decent standard of living. The consequences of this are profound on a personal level but also extraordinarily dangerous for societies, as it may lead to strikes, protests and civil unrest.

The United Nations sees the living wage as central to sustainability and the concept is strongly linked to several of its Sustainable Development Goals. Yet according to a new ACCA report, A living wage: crucial for sustainability, the subject of wages is rarely mentioned in sustainability-related conversations.

The report – produced in collaboration with Shift (a centre of expertise on the UN Guiding Principles on Business and Human Rights) and Forvis Mazars – draws on the results of a worldwide survey, roundtable discussions, and interviews with accountancy and finance professionals across the world. It sets out to explain why a living wage is essential for addressing the social aspects of sustainability, and to highlight the role of finance and accountancy professionals in progressing payment of a living wage.

Ethical issue

While recognising that there is no single, globally accepted definition of a living wage, the survey asked respondents what they would identify as the essential components. The majority said a living wage should be enough to cover accommodation, food, healthcare, transportation, education, energy and heat, childcare, pension contributions, clean water and insurance.

It should also reflect normal hours of work, excluding overtime, and take into account local and regional differences in the cost of living. (The survey produced notable differences in results according to local context and circumstances, which are also explored in the report.)

The importance of a living wage was recognised by 89% of all respondents, with 82% seeing it as linked to sustainability. But predominantly, paying a living wage is seen as a matter of ethics and human rights. This reflects the fact, says the report, that ethics is a cornerstone of the accountancy profession, and accountants understand that trust is essential to the proper functioning of organisations, markets and economies.

Sustainability driver

The report also addresses what needs to happen to encourage meaningful change, with most roundtable participants feeling regulatory push was essential. When it came to their own organisation, 60% said the link to sustainability was a critical factor – in other words, it would happen when leaders saw the living wage as intrinsically linked to a sustainable operating model. Only a relatively small proportion felt that investor or consumer pressure – or indeed legislation – would have a significant impact on the actions of organisations.

In fact, some roundtable participants argued that business models with low margins that rely on paying below a living wage to their workforce would eventually fail. ‘If a business is no longer viable simply from paying a living wage,’ said one, ‘then it does not have a sustainable business model.’

This argument is a central theme in the report, which argues that living wages act as ‘a socio-economic multiplier’, not only giving workers and their households better access to nutrition, health and education, but also giving organisations a more motivated and productive workforce.

Higher wages mean higher consumer spending (encouraging economic growth), reduced need for government subsidies, and improved social stability. In fact, the BCTI believes that ‘a globally implemented living wage could generate US$4.56 trillion in additional GDP each year through increased productivity and spending’.

Accountants’ role

Finance and accountancy professionals have a responsibility – although not the sole responsibility – for determining whether their organisation pays a living wage, says the report. This ties to the CFO’s evolving role as chief value officer and strategic leader, with a focus on generating long-term sustainable value.

‘People are a major driver of value for any organisation,’ says the report, ‘one that needs to be protected and enhanced. Inequality and in-work poverty therefore have to be seen as a systematic risk that threatens long-term sustainable value.’

Finance and accountancy leaders, the report concludes, have ‘a tremendous opportunity to advocate for a living wage.’ It makes a number of recommendations for actions that can be taken by CFOs, governments, investors, consumers, standard-setters and others to achieve this goal.

It suggests, for example, that standard-setters could consider including references to a living wage in sustainability disclosure standards, and require organisations to benchmark their wage levels relative to a credible living wage estimate.

The report stresses that ‘making living wages a reality is possible’, if finance and accountancy professionals take the lead and set out a clear argument for the link between a living wage, value and sustainability. The impact – for organisations, economies and billions of people worldwide – could be profound.