OpinionWalk Free08 May 2019

How do we stop investing in slavery?

Clear international guidelines are needed to ensure global lenders don’t continue to invest in industries and businesses profiting from slavery.

Investment-article

As the world grows more conscious of ethical practices across the board, ‘sustainable’ global investment is purported to have grown to over $30 trillion. Meanwhile, slavery is one of the fastest-growing criminal industries, with an estimated profit of $150 billion each year. Given this radical growth, it is highly likely that these two sectors overlap, and that ‘sustainable’ investment dollars are funding businesses that are profiting from slavery.

To reduce this risk, the financial sector must demand more transparency from the businesses it invests in and find a way to apply consistent due diligence standards and sustainable investment criteria. This is crucial to drive better business practices that will combat the growth of slavery as a criminal industry.

A roadmap for action

A coordinated and global effort is needed and the Financial Sector Commission on Modern Slavery and Human Trafficking (also known as the Liechtenstein Initiative) will play a critical role in developing a roadmap to accelerate action by the financial sector to combat slavery. Beyond improving investment standards, the Commission will examine how banks can better monitor and report on suspicious transactions linked to slavery and how innovative financials tools could help those who are vulnerable to slavery.

While this is no mean feat, there are already well established, and increasingly widely adopted, investment frameworks which address slavery and labour exploitation, such as the UN Principles of Responsible Investment and the Equator Principles for project finance.  Both of these sets of principles are informed by the UN Guiding Principles on Business and Human Rights.

What’s more, Larry Fink, CEO of Blackrock, the largest investment fund in the world, has said businesses that care about labour standards in their supply chains actually perform better.

Transparency roadblocks

While all of this is good news, it is still difficult for investors to adequately assess the risk of slavery in business supply chains. Once the risk has been identified, it is perhaps more difficult to assess whether a particular business is equipped take appropriate action when it occurs.

Some of the world’s largest companies must now issue a “modern slavery statement” each year under relevant laws in the UK or Australia. However, the UK experience has shown that information in these statements is often lacking, with only 26 per cent of statements complying with the Act.  Relying on modern slavery statements also becomes complicated where the investment vehicle (an Exchange Traded Fund for example) represents hundreds of companies.

Most investors judge whether an investment is “sustainable” or not based on environmental, social and governance (ESG) practices. However, as noted in the Mekong Club’s recent report, ESG represents such a wide range of issues and much of the focus to date has been on environmental and governance practices. Social (or human rights) impacts have received far less airtime in the investment sphere. This is why the Liechtenstein Initiative is needed to raise the profile of slavery as a key issue for financial decision-makers.

A step further

Ultimately, governments, investors and lenders have a variety of tools at their disposal to both encourage best practice and penalise businesses that profit from slavery. While signalling from investors (and indeed, consumers) is perhaps the most effective way to encourage businesses to take action, other stakeholders also have influence. For example, stock exchanges could play a greater role in requiring companies to disclose their supply chain risk and details of their actions where slavery is found.

Governments could follow Brazil’s lead by creating a “slave labour dirty list” to blacklist companies which are profiting from forced labour. These companies are subjected to investigations, bank lending penalties, and are barred from receiving public funds. It is this financial element which, unsurprisingly, has made it a very effective tool to improve practices.

Looking to the future

Modern slavery is a crime in almost every country in the world. Sure, it can be a complex and hidden crime, but ineffective due diligence cannot be an excuse for inaction.

The financial sector has the power to drive better human rights practices through its investment choices. Current human rights investment frameworks are a good starting point, however a consistent global standard is still needed on slavery. The Liechtenstein Initiative is an opportunity to galvanise the financial sector to agree on this standard, to ensure that sustainable investment dollars don’t inadvertently fund modern slavery.

Investors and lenders must demand better information from the businesses and projects that they invest in. Ultimately, they must show that slavery is an unacceptable practice and one no one should profit from.

Serena  Grant
by Serena Grant
Serena Grant leads business engagement on modern slavery at Walk Free and is part of the Secretariat of the Bali Process Government and Business Forum. Serena has previously worked as a corporate lawyer in London, Sydney and Tokyo and most recently as a Director at the Thomson Reuters Foundation in London. Serena holds a BA/LLB from the University of Western Australia.
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