Why investor engagement is crucial to the fight against modern slavery

Blog by Patricia Carrier from the Business and Human Rights Resource Centre

Modern slavery is pervasive across corporate supply chains in all regions of the world, generating approximately $150bn a year in illegal profits. Sectors that are vulnerable include: agriculture, apparel & footwear, construction, food & beverage, manufacturing and mining. It is more likely than not that the goods and services provided to us by companies on a daily basis have been touched by forced or child labour.

The impacts of forced labour on companies’ operations include supply chain disruptions, reputational damage, reduced consumer demand and lack of employee engagement. Supply chain disruptions, in particular, typically reduce productivity and result in unanticipated delays in production. These problems can impact directly on the revenue of a company.

Investors are increasingly engaging with companies on modern slavery risks in their operations and supply chains. In part, investors will likely want to distance themselves from abhorrent practices such as forced and child labour. But, there is also an underlying rational for disengagement that is linked to the material risk modern slavery poses to companies.

Not only can the discovery of supply chain abuses pose reputational risks and shrink share price, there is a further danger of costly legal action and in some cases large compensation payouts to victims. The costs to a company – reputational, legal, financial or otherwise – will ultimately fall to investors.

Company reporting under the transparency in supply chains provision of the UK Modern Slavery Act (MSA) has the potential to provide investors with the information they need to make more responsible and sustainable investment decisions. Yet, analysis of the modern slavery statements by some of the biggest companies in the UK show a poor quality in reporting overall.

Companies are not providing detailed information on their supply chains or risks.  Indeed, most companies do not disclose specific instances of forced or child labour found within their operations or supply chains. The majority of company statements miss out on the opportunity to provide the reader with an understanding of what due diligence a company has in place, how those processes identify human rights risks, and how these are managed and mitigated.

Additionally, company statements are not subject to official monitoring or review, and there are weak enforcement mechanisms to ensure businesses comply with their legal duty to report on their actions to prevent modern slavery. In practice, it is stakeholders like investors, civil society and consumers that will create the pressure on companies to provide detailed disclosure, and hold them accountable when they fail to do so.

A recent report published by the Ethical Trading Initiative found that investor interest is increasingly a driver for companies to address modern slavery; this together with anecdotal evidence suggests that investors, more than other stakeholders, are especially well placed to influence corporate action and reporting on these issues.

Investors will need to use their considerable leverage to encourage companies to partake in more substantive and effective action and reporting. The mandatory transparency provision of the MSA, hailed as a landmark requirement on companies, is in danger of being seen as a mere compliance exercise. Companies will only feel the need to improve their performance and reporting if they know people are paying attention to what they are doing and what they are publishing.

CORE, Business & Human Rights Resource Centre, Unicef UK and Anti-Slavery International have produced a briefing to encourage investors to act as advocates on modern slavery prevention. We want to support investors’ engagement with companies on their actions to tackle exploitative labour practices and human trafficking.

Investors can show real leadership on this issue, and they can use their influence to drive positive change in the fight against modern slavery.