Tackling modern slavery is increasingly a pressing topic for company boards and between corporations and their investors.
Modern slavery – defined as making people work against their will and under threat of punishment – is understood as part of the ‘social’ element of ESG considerations, and as such ought to be on the radar of corporate treasurers.
At the Business & Human Rights Resource Centre (BHRRC), we track and analyse how companies report on their anti-slavery initiatives through our Modern Slavery Registry and through our influential reports on FTSE 100 companies.
We’ve seen this issue taken up by governments as well as responsible companies and investors as an urgent risk demanding serious action.
A 2016 report by Hult University in the UK found that 77% of companies surveyed thought there was a likelihood of modern slavery occurring in their supply chains – up from 71% the previous year.
The same report found engagement by senior business leaders to be the strongest enabler of corporate action on modern slavery, with more resources allocated to address this issue when those senior people were engaged.
Their engagement is partly driven by a recognition that greater attention on modern slavery, prompted by media coverage or the introduction of national legislation, brings increased reputational risk to companies.
Chain of investment
What’s more, investors are increasingly vocal about the risks of modern slavery within companies’ operations and global supply chains.
The UN-backed Principles for Responsible Investment (PRI), representing more than $86 trillion in assets, is increasingly engaging on the issue as part of the S in ESG.
The FAST Initiative (Finance Against Slavery and Trafficking) is a multi-stakeholder initiative that has developed a blueprint for the financial sector and professional service providers to speed up action to end modern slavery.
The Organisation for Economic Co-operation and Development (OECD) Responsible Business Conduct for Institutional Investors references the UK Modern Slavery Act in the context of the need for transparency around due diligence practices of companies operating in high-risk sectors.
On an individual level, investors are asking companies about their policies and due diligence on modern slavery. They use civil society research and materials such as the KnowTheChain benchmarks and BHRRC’s data on companies’ modern slavery policies and practice to ask these questions.
Investors are asking companies about their policies and due diligence on modern slavery
For example, in 2018, a shareholder resolution put to drinks company Monster Beverage demanded the company assess its risk for modern slavery after it stated it had a minimal risk in spite of scoring poorly on the KnowTheChain benchmark.
As a result, the company undertook an impressive overhaul of its policies and practices. Similar shareholder pressure was applied to Coles and Woolworths in Australia.
This momentum is causing companies and investors to rethink their fiduciary duties to shareholders – looking beyond short-term profits and more about long-term societal good. This has received a boost from Larry Fink, CEO of BlackRock, the huge US investor with $6.84 trillion of assets under management.
Rathbones Investment Management, meanwhile, is using compliance data on the FTSE 350 provided by the Modern Slavery Registry to push companies to raise their human rights standards.
Environmental awareness has also helped to drive change.
Climate change is causing more people to migrate, which has the potential to create a growing population of migrant workers at risk of exploitation. National policies, such as the UK’s post-Brexit immigration and visa schemes, are likely to increase risks to vulnerable migrant workers seeking work.
Businesses are also finding modern slavery is an issue receiving greater attention from rating agencies and governments.
As investors continue to demand data on modern slavery, rating agencies will have to respond and provide comparable, consistent data that can be used as part of an investor’s own due diligence into companies.
The EU’s non-financial reporting directive (EU NFRD) links modern slavery to statutory Strategic Reviews within corporate reporting.
As part of a renewed sustainable finance strategy, Valdis Dombrovskis of the European Commission has announced a revision of the NFRD, which requires companies to disclose material environmental and social information, including on human rights.
Recent analysis by the Alliance for Corporate Transparency of more than 1,000 companies found disclosure under the EU NFRD to be very poor in the area of supply chain management and human rights.
This supports the rationale behind the revision called for by Dombrovskis, namely that information being provided is not comparable or reliable and does not meet users’ needs.
Internationally, Modern Slavery Acts, placing reporting and other requirements on companies, have been introduced in the UK and Australia, with an Act being considered in Canada, and amendments being considered to strengthen UK legislation.
Meanwhile, there is a growing movement in Europe to introduce mandatory human rights due diligence (mHRDD), requiring by law that companies identify and prevent adverse human rights impacts, including modern slavery and other labour abuses.
Initiatives for such laws are gaining ground in Germany, Finland, Switzerland, the Netherlands, Norway and recently in Mexico, with talk of pushing mHRDD across the EU.
All of this being said, it’s important to see modern slavery as at the extreme end of a spectrum of labour rights abuses, all of which represent a risk to businesses.
Modern slavery is one of the most difficult abuses to police given that it occurs far down the supply chain where there is low visibility. The best way to combat modern slavery, therefore, is to address other labour rights issues.
For example, modern slavery is directly linked to fair pay practices, so enforcing decent and timely wages for workers in supply chains makes modern slavery less likely.
Action on issues such as living wage, freedom of association, health and safety and collective bargaining throughout supply chains will help mitigate the risks of the most severe forms of exploitation.
Treasurers have a crucial role in protecting companies from such risks, supporting best practice by matching the proactive steps taken by companies and investors, and thereby helping to eradicate modern slavery.
Keeping supply chains free from exploitative labour or unsustainable business practice is an imperative that is climbing ever higher up the corporate agenda.
For high-profile consumer brands, in particular, sustainable supply chain finance (SCF) is proving an effective means of building brand loyalty and safeguarding corporate reputation.
For sports brand Puma, building a sustainable SCF programme across its supply chain has had some desirable outcomes, enabling it to support its suppliers financially and incentivising them to become more sustainable.
Partnering with HSBC and leveraging the bank’s global footprint, the sports brand has created a tiered pricing structure for suppliers based on an internal set of sustainability criteria – facilitating supplier payments via its purchasing and logistics platform, GT Nexus.
The financing programme, which went live last year, represents a multimillion-dollar facility, covering suppliers across 17 mainly Asian countries.
HSBC’s Burcu Senel, head of propositions, global trade and receivables finance, says the bank looks at sustainable finance from a number of angles. “The ways we engage with our clients are multiple – and this is a fast-moving space,” she says.
“We really want to partner with our clients, to understand their goals and challenges and then co-create with them and place rigour around supply chain finance.”
Sustainable SCF is attracting interest from intergovernmental bodies, businesses and the public. “The amount of impact you can create by making the supply chain sustainably based is far greater than by trying to support a single client on their sustainability goals,” says Senel.
Puma’s approach is a sophisticated one, she notes, resting on a strong internal model of sustainability key performance indicators (KPIs). The bank is agnostic as to whether companies should use third-party mechanisms or rely on their own sustainability rating system, but they need to be clear about desired outcomes.
“What needs to be in any client conversation,” Senel points out, “is a clear sustainability goal – an established target that they want to meet through their supply chain.”
For corporate treasurers, two key points for building or maintaining a sustainable SCF programme are buy-in from sustainability representatives and procurement colleagues to work against an agreed set of KPIs.
“The dialogue completely changes when procurement, treasury and banking partners are aligned,” Senel says. “The treasurer’s role is in bringing everyone to the table.”
She sees a positive future for sustainable SCF. “Every client is on a different type of journey, but we do see a lot of co-creational opportunity.”
UN Principles for Responsible Investment
Finance Against Slavery and Trafficking (FAST) initiative
OECD Responsible Business Conduct guidelines for multinational enterprises
Patricia Carrier is project manager for the Modern Slavery Registry at the UK Business & Human Rights Resource Centre
This article was taken from the June/July 2020 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership