Unilever has promised that every worker who provides it with goods and services will earn a living wage by 2030 even if it costs the company more.
The living wage initiative will extend to 65,000 direct suppliers and several thousand agricultural businesses, chief procurement officer David Ingram told CNN Business. Unilever is one of the world's biggest consumer goods companies and its supply chain includes more than 1.5 million farmers, according to its website.
In a statement, the owner of Ben & Jerry's and Dove also pledged to spend €2 billion ($2.4 billion) annually by 2025 with suppliers owned and managed by people from under-represented groups, including women and Black people, up from €300 million ($363 million) currently.
"The two biggest threats that the world currently faces are climate change and social inequality. The past year has undoubtedly widened the social divide," CEO Alan Jope said.
The coronavirus pandemic has worsened global inequality and is expected to increase extreme poverty — defined as living on less than $1.90 a day — for the first time in over two decades, according to the World Bank. Unequal access to vaccines among rich countries and poor countries risks worsening the divide.
That will only increase pressure from activists and consumers for companies to tackle inequality. Several clothing retailers, including H&M and Asos, have committed to paying living wages in their garment supply chains. And major German supermarkets chains, including Aldi and Lidl, last year signed a voluntary agreement to promote living wages in their supply chains.
But few firms have Unilever's global reach. The consumer goods giant sells more than 400 brands in 190 countries and its products are used by 2.5 billion people.
Unilever said that a living wage should allow workers to break the cycle of poverty. "It allows people to afford a decent standard of living, covering a family's basic needs: food, water, housing, education, healthcare, transportation, clothing; and includes a provision for unexpected events," it added.
The commitment forms part of the company's sustainability goals, which include plans to ditch fossil fuels in its laundry and cleaning brands and make all 70,000 of its products biodegradable over the next decade.
Countries in Africa and South America, and others which supply Unilever with key commodities, such as India, Malaysia and Indonesia, will be prioritized.
Martha and Richard Anker, partners in the Global Living Wage Coalition and creators of the Anker Methodology for estimating a living wage, said that Unilever's commitment is a "very positive step" by a leading company that could set an example to other firms.
"It is important that this is done with full transparency [and] the living wage and living income targets they set in different parts of the world are independently determined ... and not something Unilever in any way sets themselves or influences," they told CNN Business.
Unilever currently requires its suppliers to pay legal minimum wages. Ingram said it will work with NGOs, suppliers, other businesses and governments in an effort to establish living wages for the countries where it operates.
"The core of what we're trying to do is make a change that is systemic [and] wide enough that ideally sectors and governments institute living wages as a natural base," said Ingram.
The cost of a living wage
Living wages are often considerably higher than minimum wages, which can be extremely low in poorer countries. In Ivory Coast, where Unilever sources cocoa beans for its Magnum ice creams, the rural living wage for 2020 was 68% higher than the national minimum wage, according to a report by the Global Living Wage Coalition.
Asked whether Unilever's margins would be squeezed by its commitment to a living wage, Ingram said there would be a cost to the company and its suppliers but it would be "absorbed in the value chain," and in some cases covered by helping suppliers to be more productive.
For example, developing sustainable agriculture systems in poor countries could boost crop yields and increase farmers' incomes. "We're not exactly sure what that gap and cost will be but what we are sure of is that the consumer won't end up paying more," he added.
But Fairtrade International said that price must be an "integral part of any living wage pledge" to avoid negative impacts on producers and their workforce. "There is a correlation for instance between very low wages in tea estates and consumer prices," senior adviser on workers' rights and trade union relations Wilbert Flinterman told CNN Business.
"Fully closing the living wage gap will depend on commitment and collaboration between different actors across the supply chain — from producers to traders and retailers," he said.