Investors’ role in holding companies to account under the UK’s new Modern Slavery Act

Why investors need to be at forefront in a largely hidden issue

Slavery and human trafficking are among the most heinous human rights abuses it is possible to imagine. Both have been prohibited in international treaties and domestic legislation for many years. But both problems persist. According to the International Labour Organisation, almost 21 million people are still victims of forced labour worldwide; with 19 million victims exploited by private individuals or enterprises and two million by states or rebel groups.

These figures may sound overwhelming, but a key tactic for finding and ending this often hidden crime is closely monitoring company supply chains. We will all remember the headlines last year about the awful human rights abuses perpetuated through seafood supply chains, to take just one example. But how can we ensure companies step up in their efforts to combat these practices? A law introduced in the UK this year will give investors new tools to hold companies to account.

The Transparency in Supply Chains clauses in the Modern Slavery Act came into force at the end of October. They require companies and partnerships to produce a statement each financial year, setting out the steps they have taken to ensure that slavery and human trafficking are not present in their business or supply chains. The clauses apply to any organisation which supplies services or goods, carries on a business or part of a business in the UK and has a total turnover of £36m or more. Although the Act is now in force, organisations with a financial year end of 31 March 2016 will be the first to have to publish a statement.

The Act is a big step forward. The UK Government hopes that it will lead to a ‘race to the top’ by companies in both the quality of disclosure and efforts to eradicate the problem. However, the Act is not prescriptive on what a statement must include, nor on what steps a company should take to address modern slavery if it is found to be present in a business or supply chain. It is permissible, although perhaps unwise, for a company to publish a statement saying it has taken no steps to address or prevent the issue.

The UK’s Home Office (interior ministry) has issued guidance on how it thinks companies ought to report, but it is clear in that guidance that its enforcement role will be limited to ensuring that statements are published, promoted on websites, and the steps (if any) that have been taken to tackle slavery in that year set out. The Government believes that it will be for ”consumers, investors, and Non-Governmental Organisations” to hold companies to account where they are not taking credible action. There is therefore a clear role for investors in calling for high quality disclosure by companies, and in examining their efforts to tackle any substantive problems.

So what can investors do, both now and in the future? The first thing at this stage is to signal to companies that this is an issue of interest and that disclosures under the Act will be looked at carefully. Investors, like the co-authors of this article and others who supported theintroduction of the transparency clauses in the Act, are aware that modern slavery can impact on the companies they invest in. Many of us in the responsible investment community have engaged with businesses to encourage them to acknowledge their potential exposure to this problem as a first step.

Our starting point is that large businesses should be proactive in helping to eradicate these abhorrent crimes and that failing to do so risks impacting not only on their reputation, but also on their operational effectiveness and, ultimately, their financial performance.

Alongside the new mandatory reporting requirements, responsible investors will also want companies to take meaningful steps to prevent problems occurring and to say what they are doing to address issues if they are discovered. There are many ways that modern slavery can infect a company’s operations, and there is no room for complacency in tackling the issue – such an attitude is exactly what criminals who run modern slavery operations look to exploit. In addition to the work of the UK’s Independent Anti-slavery Commissioner, many Non-Governmental Organisations, such as the Business and Human Rights Resource Centre, Anti-Slavery International, the Environmental Justice Foundation, the CORE coalition, ECCR, Stop the Traffik, and Know the Chain, offer great expertise about the problems of modern slavery, and provide information that can help companies understand the risks and take effective steps to address them.

In the Home Office guidance, the Home Secretary Theresa May said: “It is simply not acceptable for any organisation to say, in the twenty-first century, that they did not know. It is not acceptable for organisations to ignore the issue because it is difficult or complex.”

We hope responsible investors will agree with this statement and be at the forefront in ensuring companies act on this largely hidden issue and support the fight against modern slavery. The greater the efforts to identify and expose modern slavery and human trafficking, the smaller the space in which criminals can operate.

Slavery, human trafficking and forced labour are problems that many would like to think have been eradicated and left in the past. Sadly, we know that this is not the case. But by using the new tools available to investors and working together, we can play a powerful role in ending practices that have absolutely no place in today’s world.

Jonathan Hoare, Director of Investor Networks, ShareAction
Mark O’Kelly, Head of Finance, Barrow Cadbury Trust
Jackie Turpin, Head of Finance, Joseph Rowntree Charitable Trust
Karon Cook, Financial Controller, Panahpur