Introduction

At the Utrecht university a method was developed to determine a definition of a “fair minimum wage (FMW)”(Croes & Vermeulen, 2016b), based on a relative amount depending on a countries’ wealth (a percentage of the GNI/capita), bottom truncated by an amount based on application of ILO conventions, a sustainable family size of 2 children per woman and the medium World Bank poverty line. See the justification in the section on remuneration.

Wages are only applicable in a employer-employee relation. In addition, all suppliers of sufficient size and development are potential actors in the Oiconomy Pricing system. Still lacking was a system to measure the distance to a fair payment for goods, delivered by “Low Developed Suppliers (LDS)”, such as small farmers, workshops, drivers or other actors without any payroll relation with the organization. In practice, the power difference between medium and large companies in high income countries and an LDS is often too big for an equal negotiation on prices.

The Oiconomy Pricing System (OPS) limits the assessment of fair transactions to transactions with an LDS. The OPS considers customers of LDS’s responsible to see to it that the LDS obtains a price for his product, at least equal to the FMW. Therefore, the organization purchasing from LDS’s shall determine the amount of hours and other costs of the LDS and determine the cost distance between paying him the hourly FMW (after having paid his costs) and the actual paid price.
However, the organization does not need to compensate the distance to the total income of the LDS if his business does not provide him a full time (1864 hours/year) job, but only for the worked hours.

Impact category and indicator

The impact category is unfair payment for products (materials or services) and the indicator is the distance between the paid amount per worked hour and the fair minimum wage (FMW) as determined by the O.P.T.

Targets

Zero distance between actual payment and the FMW.

Background calculations

The background ESCU calculation formula is: ESCU’s = FMW – WCI * DH, where:
FMW is the minimum wage
WCI is the Worst Case Income in the country, as listed in www.WageIndicator.org.
DH is the default amount of worked hours, as found for the industry sector in an IO database as WIOD-SEA (WIOD, 2020).

Introduction

The O.S. limits itself to product related transparency. In literature, no criteria on product related transparency could be found. At the Utrecht University, a preliminary set of criteria was developed, limited to product sustainability transparency and product costs transparency.
In order not to harm the consumer or society, the organization should be transparent in:

1. Directly and indirectly to the product related costs, such as the price, taxes, delivery costs, costs and terms of credits, installation costs, replacements to be expected due to wear, maintenance and energy use, disposal costs and the costs of required or advised insurances or subscriptions, taxes and tied sales with other products, contract- and cancellation periods. All these are based on the defined normal use and the year/moment of sales. For case specific costs (e.g. installation costs), averages may be used.
   2. All legal communication requirements to the product, all other terms of delivery or conditions for use of the product, and all addresses for redress, return and complaints.
   3. The expected product life at normal use, not necessarily equal to the warranty period. “Dependence on use” may be mentioned, but not without an average product life.
   4. If applicable, the potential adverse effects of the use of the product to the user, the environment or other people, and the measures the user/customer may take to minimize that impact and the costs of such measures. For financial products, the risks of the product.
   5. No communications by the organization contradicting the data demonstrated by ESCU’s.
   6. Information on the proper disposal of the product and its packaging material at end of life.

Indicator

The aspect is characterized by the measure of demonstrable compliance that the above 6 product transparency criteria.
The indicator is a reducing factor multiplied by the net operating margin of the industry sector.
The factor is a simple either 0, 0,33 or 0,66, depending on the correctness of the information and the percentage if sales/advertising locations where the information is communicated.

Targets

Full compliance to above criteria at all locations of advertising and sales.

Background calculations

ESCU’s = PP x BNOM x factor, where:
PP is the product’s price.
BNOM is the background net operating margin for the sesctor.
Factor as described above, but as background data, usually 1,0.

Foreground calculations

The organization is challenged to determine and enter the costs to achieve at least 80% of demonstrable compliance.
ESCU’s = Costs of 80% demonstrable compliance.

Introduction

This aspect is in development and not yet actively included in the O.P.T.
Most literature and websites on responsible or sustainable finance focus on the issue of responsible financing (usually by banks or insurance companies) and especially in which companies is invested.
The Oiconomy Pricing system would be a means for such companies to assess the sustainability of their investments.
However, little literature is yet available on criteria of financial conduct and used tools, while for instance the 2008 financial crisis was caused by irresponsible conduct and misuse of financial tools and a repetition of such crisis is far from impossible. Certain is that financial misconduct may lead to serious harm to large amounts of people and huge governmental support of financial corporations, such misconduct is an externality.

In order to make companies aware of potential finance related types of misconduct, a series of issues were already proposed in the O.P.T., but without ESCU calculations.

Impact category and indicator

N.a.

Targets

N.a.

Background calculations

N.a.

Foreground calculations

N.a.

Introduction

October 2021, the international community agrees that corporate tax rates shall not be lower than 15%. Herewith they agree that corporate tax rates were caused unfair competition.
The 15% minimum was an agreement based on negotiations, differences remain existing.
Fact is that most costs on infrastructure fall required for the production fall on the country of production and countries of head offices or mailbox companies hardly cost anything to the residing country. Therefore, the O.S. considers that fairly paid taxes should be proportional to the workhours on the product in the different countries.

Indicator

The difference between the fair tax and the paid tax.
The fair tax is calculated by the product of the product-workhour share, the Net Operating Margin, and the corporate turnover. The Datafile of the O.P.T. contains an inventory of corporate tax rates by country, taken from various sources but most from (Deloitte, n.d.; Trading Economics, 2022; OECDStat).

Targets

Zero difference between the fair tax and the paid tax.

Background calculations

Currently, anno 2023, The O.P.T. has not enough data to provide a background Tax avoidance average per industry sector. Therefore, for background calculations, only very rough indicative data are used until further research refines these.
Fact is that many international corporate companies pay little or even zero tax, despite of huge income (Koronowski et al., 2022). The OECD average corporate tax revenues as a percentage of GDP in 2018 was 3,1% and globally 3,2% (OECD, 2019).
Assuming that a product’s price represents its proportional part of the GDP, and that zero tax regularly occurs and therefore represents the worst case, One very rough way of calculating background ESCU’s are therefore as 3,2% of the product’s price.
The global average GDP weighted statutory corporate tax rate in 2022 was 25.54% (Tax Foundation, 2022).
However, Average Net Operating Margins by industry sector are available and usually, the industry sector is known, even when the company and country are not.
If it may safely be assumed that the relevant actor in the supply chain has no activities or companies in more than one country (E.g. most small farmers have not), the background ESCU’s are calculated as follows.
ESCU’s = PP x ANOP x ANOM, where:
PP is Product Price (of the product/material at the relevant supply chain stage).
ANOM is the Average Net Operating Margin for the industry sector.
ASCTR is the (globally) Average Statutory Corporate Tax Rate.

Foreground calculations

ESCU’ = å [(WH_country /TWH) x FNOM x CTR_country] x CT – PCT) x (PrT/CT),where:
WH_country is the amount of workhours of the organization in the relevant country.
THW is the total amount or workhours in the organization.
FNOM is the foreground net operating margin.
CTR_country is corporate tax rate in the country.
CT is the corporate turnover.
PCT is the paid corporate tax.
PrT is the product turnover.

Introduction

All subsidies are externalities and confuse the total ESCU value, which is aimed to gradually evolve to the real extra costs for the sustainable version of the product. In addition, subsidies may disturb the free market and it is doubtful that they even distort welfare. However specific sustainability enhancing subsidies are helpful for faster implementation of these (Draper et al., 2021; OECD; WorldBank; WTO; IMF, 2022).
Therefore subsidies count as ESCU’s except for those of which clear and intended first goal is sustainability enhancement.

Indicator

The full sum of subsidies relevant for the product.

Targets

Not applicable. F or all subsidies, ESCU’s are allocated.

Background calculations

N.a.

Foreground calculations

All subsidies, specifically on products shall directly be allocated as ESCU’s.
Subsidies to the organization, relevant for the product shall be allocated as ESCU’s proportionally to the product’s turnover share of organizations’ turnover.