Internal Grant Committee meeting on 3 September 2014 Agenda item no. 2

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1 MINISTRY OF FOREIGN AFFAIRS Department for Green Growth (GRV) File no. 104.X Internal Grant Committee meeting on 3 September 2014 Agenda item no Title: ILO/IFC Better Work Programme: Phase III Strategy 2. Partner: International Labour Organization (ILO) International Finance Organisation (IFC) 3. Grant amount: 15.0 million DKK 4. Duration: Previous grants: N/A 6. Strategies and policy priorities: Strategy for Denmark s Development Cooperation: The Right to a Better Life. Danish Organization Strategy for International Labour Organization (ILO) Danish National Budget account code: UN Labour Organization (ILO) 8. Desk officer: Anne Bjarnested Simonsen 9. Head of Department: Morten Elkjær 10. Summary: The Better Work Programme was established in 2007 and is a partnership between the UN s International Labour Organization (ILO) and the International Finance Corporation (IFC). The overall objective of the Better Work Programme is to improve labour standards and at the same time companies competitiveness in global supply chains in developing countries with promotion of social dialogue between governments, the private sector and the unions as a key instrument. Focus is currently on the textile industry which is dominated by female workers. The Danish grant will support Better Work Strategic Phase III - Improving the lives of millions of workers, Better Work is operative in 8 developing countries, and contributes to poverty alleviation through increased workers remittances, improvement in workers life satisfaction and health, and respect for human rights. Special Danish priorities are 1) a new Better Work Programme in Bangladesh and 2) development of an environment component in the global Better Work Programme. The support to Better Work is in line with The Right to a Better Life, and complements the Danish Organization Strategy for ILO.

2 Objective and problem formulation: While globalisation can stimulate job creation and contribute to poverty reduction, in particular in developing countries, precarious employment contracts, growing income inequality, unhealthy working conditions and exploitation of young and vulnerable workers jeopardize this potential. Most developing countries have ratified the ILO core labour standards, however, the main challenge remains building the capacity of tripartite constituents to ensure effective enforcement and social dialogue. There are thus severe implementation gaps with regards to fundamental principles and rights at work. There are various reasons for the lack of implementation of labour standards. In many cases, ministries of labour do not have the capacity or resources for effective enforcement, and labour laws are unclear or not well understood by employers. Government actions are often stifled by the perception that strict enforcement will deter potential investors. As a consequence of this compliance gap, workers are facing job insecurity, uncertain wages and poor working conditions. Supplier firms miss opportunities for contracts with international buyers that insist on compliance. Nations risk export constraints because trading partners threaten sanctions for non-compliance with labour standards. The overall objective of the Better Work Programme is to improve labour standards while also promoting companies competitiveness in global supply chains in developing countries. This is done by (a) promoting compliance with international labour standards and national labour laws in global supply chains as a basis for building socially responsible export strategies and (b) enhancing enterprise-level economic and social performance. The focus is on long-term sustainable solutions that build cooperation between government, employers and workers organisations, and international buyers. The Better Work Programme is a partnership between the UN s International Labour Organization (ILO) and the International Finance Corporation (IFC) which is part of the World Bank Group. Better Work builds on the respective strengths of the two organisations and thus combines the expertise of ILO in social dialogue, labour standards and application of labour standards, with those of IFC in private-sector development, where it holds investment clients to high standards of performance in labour and working conditions. Better Work works at global and national level (Cambodia, Jordan, Haiti, Lesotho, Vietnam, Nicaragua, Indonesia and Bangladesh). At the global level Better Work develops procedures and tools which can help companies in developing countries to respect worker rights while at the same time strengthening their competitiveness. At the national level focus is on the development of sustainable institutions within the textile industry. The country programmes involve company assessments of rights issues, including for women, as well as advice and training. Better Work brings together all stakeholders in the supply chain. The direct recipients of Better Work services and technical assistance are individual enterprises and their organisations, workers and their organisations, and government institutions of the participating countries. In practice Better Work supports textile companies to create improvements and cooperates with approx. 75 buyers and international textile brands, including Nike, Levis and Gap. The 2

3 Better Work Global Programme is presently supported by Australia, the Netherlands and Switzerland as well international funds e.g. the Levi Straus Foundation and the Walt Disney Foundation. The United States Department of Labor supports the country programmes. The Better Work Programme contributes to poverty alleviation in developing countries through increase in workers remittances, improvement in workers life satisfaction and health, and through promotion of the respect for human rights. Better Work especially contributes to improved work and living standards and human rights for women as the majority of workers in the textile sector are women. The programme is in line with the thematic priority area social progress of the strategy The Right to a Better Life which forms the basis for Denmark s Development Cooperation. Social dialogue is a key element in Better Work s overall objective to improve labour standards and promote enterprise competiveness in global supply chains. In line with the Policy for Danish Support to Civil Society, 2014, cooperation and dialogue between governments, the private sector, unions and civil society is perceived as important for creation of decent jobs, including the promotion of workers rights and social protection. The grant also complements the Danish Organization Strategy for International Labour Organization (ILO) (awaiting final approval) and the Danish Embassy Growth Action Plans in Vietnam and Indonesia. Better Work is also in alignment with the Danish Government s Action Plan for Companies Social Responsibility , the United Nations Guiding Principles on Business and Human Rights, the Government s Strategic Framework for Growth & Employment, and the Danish Government Strategy for Export Promotion and Economic Diplomacy, Resource efficiency: Denmark together with the other donors will closely monitor the resource efficiency of the Better Work Programme. The Evaluation of the Better Work Phase II, 2012, i.a. raised the issue that the current service deliveries are resource-intensive. This issue has been taken into account in Phase III where efforts will be made to secure long-term financial viability by fees charged to business aiming at covering the cost of all core service delivery. Challenges and underlying reflections: Better Work has been operating since Tools and methods have been developed and tested in several developing countries with different national challenges and contexts. It is thus expected that Better Work can deal with the challenges that may arise by drawing on knowledge gained and lessons learned from different national contexts and issues. It is not foreseen that the implementation of Phase III will cause larger challenges in relation to the main goals set out in the project document. According to the Better Work Management the new country programme in Bangladesh does, however, represent a special challenge due to the large size of the national textile industry, recent history and the national political situation. Project description: The Danish funding will support the implementation of Better Work s Phase III Strategy Improving the lives of millions of workers ( ). Recommendations from specific thematic reviews and from the overall Better Work Stage II Evaluation, April 2012 have been taken into account when designing the vision and strategies for Phase III. Support to existing country operations will be prioritised, ensuring each engages a critical mass of exporters in the textile sector. The geographical scope of operations will be expanded,

4 particularly in Asia. Growth into closely related industries (e.g. footwear) and the feasibility of offering environmental services at factory level will be piloted. Focus is also on long term financial viability. The core services of Better Work will continue to be enterprise assessments in relation to compliance with core international standards and national labour law, and recommendations to improve systems that will support proactive management and compliance. Furthermore advisory services and training in relation to the findings of the enterprise assessments and other relevant issues. This is conducted by locally recruited and trained advisors. The Programme is coordinated and supported by a global team. Technical experts based in Geneva (ILO), Washington (IFC), and field programmes develop the practical tools and approaches to help enterprises improve their compliance with labour standards and increase their competitiveness. Overall objectives: The development objective of the Better Work Programme - Phase III Strategy is to contribute to improving the lives of workers, their families and communities in selected countries. Immediate Objectives: The Phase III Strategy has 5 immediate objectives: 1. By 2015, Better Work will have achieved greater scale and improved working conditions for more than two million workers. 2. Better Work will have accelerated and demonstrated significant impact at factory level. 3. Better Work and its alliance will have catalysed changes in relevant strategies, policies and practices related to labour compliance at sectorial, national and international levels. 4. Better Work will have stronger influence over more buyers to improve supply chain practices. 5. Better Work programmes will have strong and appropriate governance and will be viable. Specific outputs and activities with indicators, means of verification, and an analysis of assumptions and risks have been developed for each of the immediate objectives, and are included in the Phase III Strategy document. There are 3 indicators for the development objective of Phase III: 1) the number of workers reporting increase in remittances; 2) number of workers reporting improvement in life satisfaction; and 3) number of workers reporting improvement in health. Monitoring and evaluation: ILO will be responsible for the administration of the Danish funds and will every year present a financial report and a progress report. The financial report will show the funds received and expended during the preceding period (July-June). Upon completion the ILO will provide a certified final financial statement. The ILO will carry out evaluation of the project in accordance with its regulations, rules, directives, and procedures. The Better Work Programme will be subject to an independent evaluation in the 1 st quarter Previous Results: The ILO/IFC Better Work Programme has not previously been supported by Denmark. The 4

5 relative large number of country programmes after only 7 years, the interest of more countries to join the programme and the number of international companies cooperating with Better Work, are all indicators of the success of the programme. The Better Work Stage II Evaluation, 2012, reflects on previous results. Some of the 8 main conclusions listed in the Phase III document include: Significant achievements have been made by the programme, both in terms of designing and providing support to new country programmes, establish policies, procedures and systems to drive operations, instituting new approaches in the ILO management systems and in designing new tools. Better Work is a learning organisation that has developed deliberate processes to integrate lessons learned and good practices within its model of operations, at all levels. Greater commitment from major international brands is required in order to reach a greater percentage of garment factories in operating countries. A comprehensive approach to sustainability needs to be developed and implemented in all operating countries. Special considerations and priorities: The Danish grant consists of core funding to the Better Work Programme. While support to the Better Work Programme globally is important, there are two specific Danish priorities for the Phase III Strategy: 1) A new country programme in Bangladesh, and 2) Development of an environmental component in the Better Work Programme, with a view to promote resource efficiency in water and energy use, reduce pollution etc. It is a general Danish priority to support improvements of the working conditions and human rights in the textile industry in Bangladesh. Danida is already supporting different initiatives within the textile sector in Bangladesh. One example is The Danish Partnership Agreement for Responsible Garments and Textiles Production in Bangladesh signed in May The aim of this agreement between the Danish government, the garment and textile industry, unions and civil society is to ensure workers rights and security within the garment and textile industry in Bangladesh. There are 3 focus areas: Workers rights and security in factories, the environment, and transparency in supply chains. The Partnership Agreement was developed as a consequence of the tragic collapse of the Rana Plaza building in 2013 which killed and injured many thousand workers. The priority of Denmark to support initiatives to improve the lives of textile workers in Bangladesh is also illustrated by Danida support to Danish Ethical Trading Initiative s (DIEH) project in Bangladesh. The project objective is to promote sustainable development of the clothes and textile sector in Bangladesh and to contribute to specific improvements of the textile workers rights and work security. Possible cooperation and synergies between Better Work and DIEH in Bangladesh will be sought. Better Work brings together all stakeholders in the supply chain and is thus in a god position to facilitate dialogue on how to pave the way for green growth while improving working conditions and the competiveness of companies. Green growth will only succeed if there is an open and inclusive dialogue between citizens, civil society, the private sector and authorities on how green initiatives will be planned and adapted to the country-specific situation. The special Danish interest in supporting efforts to develop and include an environment

6 component (a green dimension) in the Better Work Programme which can supplement the present social component ( red dimension ) is thus in line with Danida s focus on sustainable economic growth. The private sector should be a force for economic growth and employment and contribute to sustainable and inclusive development. Experience shows that economic growth and sustainable management of natural resources do not have to be conflicting objectives. Environmental issues should be seen as an integrated and strategic dimension in a business competitiveness. In general Denmark tries to put pressure on the multilateral system to strengthen efforts to support developing countries to promote green growth. As a core donor to the ILO, Denmark is also in dialogue with the ILO on the importance of increased focus on sustainable economic growth in the general work of ILO. Budget: 15 million DKK. The core funding will be made in 2 instalments: 1) Upon signature of the agreement between Denmark and ILO); and 2) October 2015 after receipt of annual progress report and financial report. Significant risks and Mitigation measures: In the Better Work Phase III Strategy document there is an assumption and risk analysis which includes a mitigation strategy for each risk. Most of the 8 risks identified are viewed as being low risks. The Better Work Stage II Evaluation, 2012, concluded that the current service delivery model, i.e. the package of advisory services, training, methods and tools, is resource-intensive and may limit the scalability of bigger Asian country programmes. The recommendation to refine the model to allow country programmes to reach the intended scale has been taken on board in Phase III according to the Phase III Strategy document. This challenge is i.a. relevant to the work in Bangladesh. The possible inclusion of environmental aspects in the Better Work programme has been discussed since However, it is only in Phase III that the possibility of developing an environment component has been included as a specific output. While IFC supports the development of an environment component, the ILO seems to be more reluctant for mainly resource reasons. However, the risk for further postponement of an environment component appears to be limited given: 1) Pilot environmental projects in Vietnam and Indonesia have been carried out by IFC ( ); 2) the international textile industry is increasingly demanding green growth solutions; and 3) as it is an output in the Phase III strategy. Together with the other donors Denmark will closely follow the development and implementation of an environment component in the Better Work Programme as well as the development of the Phase III in general, and the country programme in Bangladesh in particular. 6

7 Annex 1: Partners The Better Work Programme is jointly implemented by: The United Nations International Labour Organization (ILO); and The International Finance Corporation (IFC) ILO will administer the Danish grant. Annex 2: Background facts N.a. Annex 3: Indicators A detailed table illustrating outputs and activities, indicators, means of verification and risk assumptions is included in the Phase III Strategy document. Annex 4: List of relevant supplementary material Better Work Phase III Strategy Improving the lives of millions of workers