Financial firms push back against modern slavery benchmark ranking

Financial firms have taken issue with a new modern slavery benchmark that ranks them as underperforming.

On Monday, charity asset manager CCLA launched the first iteration of its benchmark, which assesses the largest UK companies by market capitalisation on the steps they are taking to eradicate modern slavery in their operations and supply chains.  

The benchmark, which is based on firms’ public disclosures, looks at the extent to which they conform with section 54 of the UK Modern Slavery Act 2015, disclose information outlined in Home Office guidance on modern slavery, and report on finding, fixing and preventing modern slavery.  

The third requirement was inspired by the “Find it, Fix it, Prevent it” engagement framework, an investor initiative created by CCLA to tackle modern slavery by promoting public policy, corporate engagement and improved data. 

Companies were assigned to one of five performance tiers, ranging from tier one (“leading on human rights innovation”) to tier five (“no modern slavery statement”).

CCLA has pledged to vote against the financial statement and annual accounts of companies in tiers four and five that fail to improve their ranking and do not engage with the manager. “We encourage other investors to do the same,” it said in the report. 

A spokesperson for CCLA said the manager does not hold shares in all companies covered by the benchmark. They added: “CCLA has a track record of engaging beyond its portfolio to address systemic risks that affect all companies and to drive positive change. This is another such example.”

Finance mixed bag

The benchmark includes 20 companies categorised as financial, including Lloyds Banking Group, Schroders, Phoenix Group Holding and NatWest Group. 

None is ranked in tier five but eight are listed as tier four, or “barely achieving compliance”.

According to CCLA, firms in this category show evidence that they have relevant policies “but little evidence of sufficient human rights due diligence. For instance, risk assessment processes are primarily desk-based and compliance focused”.

RI contacted all the tier four financial firms: Legal & General Group, London Stock Exchange Group (LSEG), M&G, Beazley, Investec, Hiscox, Intermediate Capital Group and St James’s Place. 

Those that responded expressed concerns about CCLA’s approach and methodology.  

Legal & General Group told RI that it is 100 percent compliant with the Modern Slavery Act. “We did not find any instances of modern slavery on our owned sites or within our supply chains in 2022,” a spokesperson said. “Given this, we are concerned that our score and tier do not reflect our approach and commitment to eradicating modern slavery.  

“We continually look at ways to enhance our approach in this area and this year we’ve taken steps to introduce new governance, while engaging external experts to implement the latest best practices and develop rigorous, transparent KPIs.”

Investec said it was disappointed that the research did not include additional non-public information that the firm had “proactively” sent to CCLA researchers. “We are confident that had this been taken into account, the report would have ranked us more highly,” a spokesperson said. 

An M&G spokesperson said the CCLA report “does not take into account how we expect suppliers to adhere to our statement of human rights and our rigorous internal processes”.

They added: “We look forward to engaging with the CCLA to discuss our approach.” 

Meanwhile, a spokesperson for St James’s Place told RI: “We are primarily a consumer of services rather than goods and materials, and we have robust governance and oversight structures in place to support the ongoing monitoring of our operations and supply chains to identify and mitigate against the risk of modern slavery.”

LSEG and Intermediate Capital Group declined to comment.

At the time of publication, Beazley and Hiscox had not responded to RI’s request for comment.

Engagement focus

Replying to these comments, James Corah, head of sustainability at CCLA, acknowledged that the investment industry had stepped up its response to modern slavery since the launch of “Find it, Fix it, Prevent it” in 2019. 

“Through collaborative engagement programmes, investors are pushing companies to be proactive on human rights, to actively seek to find and then help victims of modern slavery in their supply chains and operations,” he said.

He stressed that, as financial firms’ supply chains are limited, it is through engagement that the industry can have the biggest impact.

“Sadly, most financial services companies do not disclose the results of their engagement in their modern slavery statements,” he said. “As a consequence, unlike Schroders – who should be applauded for doing so – they miss their biggest opportunity to reflect the fantastic work that they do.”

Financial portfolios are not currently in scope of the Modern Slavery Act, although investors and the UK’s former anti-slavery commissioner, Dame Sara Thornton, have pushed for their inclusion.

Engagement and investee companies are also not covered by the CCLA benchmark. Nevertheless, the report stated that the higher-scoring financial services organisations “disclosed activity to address modern slavery risks in their portfolios”.

Consumer pressures

The scoring framework for the benchmark is based on 48 questions divided into five categories: Modern Slavery Act compliance and registry; conformance with the modern slavery guidance; “find it”; “fix it”; and “prevent it”.

Consumer discretionary and consumer staples firms dominated the top two tiers, with Kingfisher, Marks & Spencer, Next, Reckitt Benckiser, Tesco and Unilever ranked as the best performers. 

In the report, CCLA acknowledged that this reflects specific pressures on these industries.

“Companies sourcing products of goods which are processed or manufactured with a high degree of manual labour are exposed to modern slavery risks more clearly than businesses that derive the majority of their value through knowledge-based activities,” it said.

“It is therefore expected that companies with greater risk exposure will score higher than those with less risk.”   

The lowest-scoring firms were mainly in the IT, finance and real estate sectors, which the report noted “derive their value primarily from knowledge-based activities” and have “less direct” exposure to modern slavery. As a result, it said, “their response and ability to find modern slavery may be less mature”.

CCLA noted that most knowledge-based firms are exposed to modern slavery through the high-risk electronics and electronic hardware manufacture sectors, and said it was possible for companies providing knowledge-based services to score on questions relating to identifying risks of modern slavery. 

It highlighted NatWest’s identification of temporary workers as a potential modern slavery risk. Tier three firms Prudential, Barclays and Phoenix Group were also commended for their work on categorising suppliers based on country and spend.

To better understand the rankings, RI requested details of either the overall scores or breakdowns by category for financial sector firms.

Despite the fact that the benchmark is based on publicly available information, CCLA declined to provide the information. A spokesperson said: “We do not disclose individual scores and the pathways are too differentiated to generalise.”

CCLA declined to answer further questions on its methodology and disclosure.

Tier five dispute

The only firm ranked in tier five – “no modern slavery statement” – was Airtel Africa.

“At the time of analysis, [Airtel Africa] had not produced a statement for 2022 and did not do so despite follow ups from CCLA. The company was therefore not assessed or scored and placed in tier five,” the report said. 

A spokesperson for the multinational telecommunications company told RI that Airtel Africa plc has been publishing its Modern Slavery Policy Statement year-on-year in full compliance with the UK Modern Slavery Act.  

“At the time of CCLA’s 2022 analysis, a statement for 2022 was published in the relevant section of the website accordingly,” a spokesperson said. “The modern slavery statement for 2022 is also referenced several times in the annual report for 2022.” 

As a result, they said, CCLA’s placement of Airtel Africa in tier five is incorrect and should be revised. “We will make sure that responsible teams will liaise with CCLA accordingly.” 

In response, CCLA told RI that it had emailed Airtel Africa on 25 July this year “as there was no modern slavery statement for 2022 on their website”. It added that the telecoms firm had subsequently sent a link to its 2021 statement but had failed to provide one for 2022.

Websites for Airtel and Airtel Africa appear to show modern slavery statements for 2018-2022 and for 2023.