Active investors are in a unique position to address the systemic problem of modern slavery. With deep industry knowledge, they’re able to zero in on industries, regions and companies that are at high risk of modern slavery. In many cases, investors also have the ear of company management, using the power of capital as shareholders or bondholders to encourage companies to adopt best practices.
But investors, like many consumers, are often unaware of modern slavery risk in their portfolios, and they’re not sure what they can do to drive positive change. Both challenges require a systematic approach.
Everyday modern slavery encounters
For most people, going to the supermarket is a benign experience: they drive to the store, fill their shopping carts with fish and vegetables for dinner, and stream music from their cell phones on the ride home. But the risk of modern slavery lurks under the surface of these everyday activities.
For example, the iron in car doors may have been produced using forced labour. Certain fish from Thailand or tomatoes from Italy may have been caught or harvested by people struggling under debt bondage. Some cobalt in cell phones is sourced from mines with unfair working conditions. These same risks are also present for investors who steer capital to businesses.
Modern slavery—forced labour, debt bondage, forced marriage, slavery and slavery-like practices, human trafficking, and child labour—directly affects more than 40m people worldwide. And it indirectly affects many, many more. To achieve the United Nations’ goal of eradicating modern slavery by 2030 would require the freeing of more than 10,000 people a day.
As human beings, we have a moral duty to combat modern slavery. As investors, we have the ability—and responsibility—to use research as a tool to identify modern slavery risk, and to use our power to engage on modern slavery risks, working with companies to address them. Both avenues can empower important advances in the battle against modern slavery.
Action on modern slavery is intensifying
Global governments and citizens are beginning to confront this social issue. Public policymakers are building a pipeline of new legislation with a heavier hand on modern slavery. For example, companies in the UK and Australia must report on how they identify and address modern slavery risks in their operations and supply chains. In the EU, Germany and Norway, companies must conduct human-rights due diligence. Some countries now ban imports of products allegedly made with forced labour—restrictions that can drive changes in consumer demand and increase financial risk to firms.
Consumers and company employees are using their individual and collective power to effect positive change. Consumers, for example, use online applications to shop ethically. They also may go out of their way to shop locally, ensuring that the products they purchase have been made without forced labor. Employees put pressure on the companies they work for and celebrate when action has been taken to mitigate risks. The media is reflecting these considerations, judging bad actors in the court of public opinion.
Investors need a systematic approach
Investors have to be even more systematic in identifying and addressing modern slavery risk. In our view, the first step should be analyzing issuers’ modern slavery risk exposure, based on factors posing a high risk to people. Factors such as vulnerable populations, as well as high-risk geographies, products and services, and business models, help us better understand social risks in our clients’ portfolios. For example, migrant workers are particularly vulnerable to modern slavery. And if a region has a history of abuses or is plagued by conflict, we pay special attention.
Certain products and services—like raw materials or goods produced in sweat shops—are at higher risk for modern slavery abuses in companies’ operations or supply chains. Some business models are more prone to using forced labour or debt bondage, including those that outsource or that have seasonal demand peaks and troughs. Using this factor assessment, we can rate issuers on a two-dimensional scale based on risk in their operations and risk in their supply chains.
Once investors identify an issuer’s riskiness, they need to dig deeper to better understand how leaders are addressing these risks. We encourage issuers to implement a strong governance framework to champion action on modern slavery. We learn how issuers identify risks—whether it’s through frequent audits, site visits, third-party assessments, whistleblower hotlines or technology. If an issuer has identified certain risks, we discuss how effective its action plan is at reducing them. Finally, we judge issuers on whether they’re taking actions to put them on a path to future improvement—and we monitor that progress.
Management access and collaboration
Through modern slavery research and engagement journey, it has been recognised that corporations with “obvious” exposure—including those facing negative press or consumer backlash—are keen to improve their practices but are often earlier in their journey to address modern slavery risks. Firms with less obvious exposure may not even be aware of the challenge.
Engaging on these issues gives investors even greater access to management teams and better insight into companies’ supply-chain management or cultures. During engagements on modern slavery issues, it is important to speak with people in different functions, including sustainability and procurement roles to get a more holistic view. Most companies with to join the fight for positive change.
Through active engagement and by communicating expectations of companies, investors can push issuers to make advances on modern slavery, helping victims and generating long-term, sustainable performance. Modern slavery is a complex issue that requires systematic and in-depth research, broad industry collaboration and collective action across the investment community.