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
1 BACKGROUND

2 FINDINGS

3 FOLLOW-UP

4 CONCLUSION & RECOMMENDATIONS

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
www.fmo.nl