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Know The Chain: Why investors are at risk over modern slavery and human trafficking

Investors are often unwitting accomplices in modern slavery.

While human trafficking and forced labor are outlawed in every country, at least 21 million people are victims of modern-day slavery, with 16 million working in the private economy. Today’s traffickers have traded shackles and chains for less obvious but equally coercive tools of entrapment such as forced debt, document retention and isolation – and today’s investors are often their unwitting accomplices.

Institutional investors with shareholdings in sectors where forced labor risks exist should know that they have heightened exposure to human trafficking and illegal labor practices. Abusive labor practices can have a material impact on a company’s performance through legal, reputational or operational impacts.

For example, when construction firm Signal International filed for bankruptcy after having to pay $22 million in compensation to exploited migrant workers, the Teachers’ Retirement System of Alabama and the Employees’ Retirement System of Alabama had a combined loss of $75 million.

The Food & Beverage Industry

In today’s globalized economy, labor markets have become more fluid than at any time in history. It is estimated that 150 million people have migrated for work outside their countries of origin, seeking opportunities in sectors that produce products we consume on a daily basis.

The men and women seeking opportunities in the Food & Beverage industry are particularly vulnerable to exploitation. Many of them work on remote farms, in isolated processing facilities, or deep at sea on fishing vessels – far from the eyes of those who enforce anti-forced labor laws, and even farther from the safety of their homes and families. The food and beverage industry is increasingly dependent on agricultural work done in remote and rural areas to accommodate its land-intensive activities. This increase in opacity is reducing the safety of workers and driving the risk that investors and companies are, knowingly or unknowingly, taking advantage of forced labor.

KnowTheChain

My organization KnowTheChain is intended to be a resource for investors who want to take action to address their exposure to forced labor. We evaluate the largest publicly traded companies on what they’re doing to address forced labor in three high-risk sectors: Food & Beverage, Apparel & Footwear, and Information & Communications Technology (ICT).

Earlier this month we released our evaluation of the 38 largest global food and beverage companies, scoring them on their forced labor policies and practices.

The 2018 Food and Beverage Benchmark Findings Report finds that while many of the companies evaluated may have policies and commitments in place, the majority do not provide evidence that their policies and practices are being effectively implemented. Without evidence of implementation of these policies, companies may be unprepared to respond to an egregious abuse uncovered in their supply chain by an NGO, trade union, or reporter.

How are companies scoring?

Unilever, which was the top scoring company in KnowTheChain’s first food and beverage sector benchmark in 2016, remains at the top with a score of 69 out of 100. Kellogg took second place with a score of 66.Five companies score below 10 out of 100. None of them have a publicly available supplier code of conduct, nor do they take any action on worker voice and recruitment.

Scores by theme

The average score across the benchmark remains low, at just 30 out of 100, indicating that companies need to take further action to address forced labor risks across all tiers of their supply chains.

Overall, companies scored the lowest on indicators of worker voice and recruitment, suggesting that little or no action is being taken to listen to, engage with, or empower laborers across supply chains. These themes have the most direct impact on the lives of workers, and concerned investors can ask companies about their practices.

Improvements are (slowly) being made

Comparing the 2018 benchmark to its 2016 counterpart, we can see that more companies now have policies prohibiting recruitment fees, and in general, companies are providing more substantive examples of how their policies are used in practice. Of the 19 companies benchmarked in both 2016 and 2018, 17 disclosed additional steps taken to address forced labor risks.

It’s encouraging to see some companies making additional commitments since the 2016 benchmark, but progress for workers is not moving fast enough. Companies across the board must do better to make demonstrable improvements for workers.

Investors are taking action

In addition to scoring and ranking companies in comparison to each other, we provide a detailed scorecard for each company. These scorecards are designed to make engagement easier for active investors who may hold these companies.

Today KnowTheChain is used by investors representing more than $3 trillion in assets who have signed the KnowTheChain Investor Statement, which lays out expectations for how companies should address forced labor risks, in-line with international standards and existing human rights due diligence tools.

Investors are using KnowTheChain in a variety of ways. For example, shareholder advocate As You Sow introduced a resolution on behalf of Monster Beverage shareholders, citing its 0/100 score in our 2016 benchmark report and asking the company to address the lack of transparency regarding slavery and human trafficking in its supply chain.

Using the 2018 Food & Beverage Benchmark as a guide, the asset manager GES and Seventh Swedish Pension Fund (AP7) have undertaken an effort to engage food companies on child and forced labor risks. Investors can join this collaboration and help increase action on forced labor within this sector. Similarly, the Investor Alliance for Human Rights is a strong platform that helps investors engage on broad human and labor rights issues that may have an impact on their portfolio.

KnowTheChain will be releasing a similar benchmark report on the apparel and footwear industry in the very near future, and we hope the audience for this research continues to grow.

Kilian Moote is Project Director at Know The Chain. References overleaf.
Notes:

  • International Labour Organization (2016) International Labour Standards on Forced Labour. LINK
  • Verite (2014) Forced Labor in the Production of Electronic Goods in Malaysia: A Comprehensive Study of Scope and Characteristics. LINK
  • International Labour Organization (2015) ILO global estimate on migrant workers. LINK