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How to measure and reduce modern slavery risks

With awareness of forced labour issues growing, a report from AB says investors must know how to engage on it with portfolio companies

Modern slavery could become an issue as expansive and urgent in the public eye as climate change, meaning investors must know how to measure and reduce the risks it poses, an AB report has said.

With an estimated 40.3m people in modern slavery in any given time in 2016, this issue encompasses many industries and geographies with devastating affects to people’s lives.

Modern Slavery Risk: The Investor’s View, outlines AB’s approach to identifying modern slavery in its portfolios and addressing it with companies through engagement.

In its own operations AB said it had created a company statement and a vendor code of conduct includes forced labour. It has then created a five-step process that investment managers apply (see below).

Source: AB

Modern slavery must then be mapped across investment portfolios to assess risk. AB’s process involved focusing on four factors: vulnerable populations, high-risk geographies, high-risk products and services and high-risk business models. Third-party research, such as that from the Walk Free Foundation’s Global Slavery Index helps assess regional exposure. Companies can then be mapped, for example, restaurants and supermarkets have high exposure in operations and supply chains, so engagement is directed there first.

During engagement, AB said it sets out five criteria for companies to help reduce their modern slavery risk: governance framework, which includes making public commitments and creating focused teams; risk identification, which includes supply chain maps and audits; action plan to reduce risks, which includes staff training, fair wages, good grievance structures; action plan effectiveness, which includes management reports; and future improvement, which includes strategy development and public disclosure.

The report gives an example of engagement with Nestle over supply chain management. The food and drinks business is exposed to modern slavery risk in its use of high-risk products such as sugar and cocoa. In late 2020, the US banned imports from Malaysian palm oil company Sime Darby over forced labour issues. This was one of Nestle’s palm oil suppliers. Nestle is now commissioning a third-party labour assessment if Sime Darby’s Malaysian plantations.

See also: – Should there be harsher penalties for modern slavery?

In February 2021, a report by Themsis, Preventing modern slavery and human trafficking: an agenda for action across the financial services sectors, found awareness of the issue among the financial services industry was low.

It found 30% of financial services employees polled do not believe modern slavery is something that happens in the UK, and 43% of board level managers, and director level employees either did not know if their organisation had a modern slavery policy to manage their slavery risks or confirmed they did not have one at all.

But AB’s October report predicts awareness will grow. “We’re seeing companies and investors moving beyond the stage of ‘unaware and unaccountable’, developing awareness and an understanding that modern slavery is a real threat to business sustainability,” it concluded.