Investors need to brace themselves for a potential tsunami in modern slavery which could occur across European supply chains in light of Russia’s invasion of Ukraine, stewardship director at Rathbones Matt Crossman told RI.
Crossman was speaking to RI as the investor Tuesday launched the third iteration of the Votes Against Slavery engagement it leads.
Backed by investors representing £9.6 trillion ($12.6 trillion; €11.5 trillion), for 2022 the initiative is targeting 43 FTSE 350 companies that are currently failing to comply with Section 54 of the UK’s Modern Slavery Act, which requires businesses with an annual turnover of £36 million or more to annually disclose what action they have taken to ensure there is no modern slavery in their business or supply chains.
According to a statement released Tuesday, non-compliance can be due to a range of issues, including statements missing clear board approval, a failure to update a statement on an annual basis and/or not achieving director sign-off.
Previous years have shown signs of success, with the 61 FTSE 350 companies targeted in 2021 becoming compliant by January 2022, and 20 out of 22 FTSE 100 companies contacted in 2020 becoming compliant by the end of that year.
Speaking with RI on the current geopolitical situation regarding Russia invading Ukraine and the subsequent swathe of refugees, Crossman sees an increased risk of exploitation. “Already 3.9 million people have been displaced. And wherever there is displacement or vulnerable people, criminal elements step into the accountability and law enforcement vacuum in which modern slavery thrives. If we are not vigilant, we could see a tsunami happening in the modern slavery space across European supply chains. We need to brace ourselves for this and conduct a greater level of engagement on it with companies.”
Pointing to estimates by the Food and Agriculture Organization of the United Nations that more than 25 percent of the world’s trade in wheat comes from either Russia or Ukraine, and more than 60 percent of sunflower oil and 30 percent of barley exports, Crossman added: “We know that agricultural supply chains are one of the highest risk for forced labour and modern slavery. Disruption and shifting supply chains in a high-risk sector should sound the alarm bells.”
Looking ahead, he said: “A restatement from UK PLC that modern slavery is front and centre of their supply chain risk management and they’ll go out and find it, fix it, prevent it is our immediate priority.”
Returning to Tuesday’s announcement, Rathbones has already had several companies respond to its letter and has begun a dialogue on how the firms can do better.
“Most of the time, companies listen and engage, but there is that implicit threat that members of the coalition will consider voting against the annual report and accounts of companies who don’t,” Crossman explained to RI. He added however that divestment is not within the scope of the initiative
On the policy side, Crossman hopes that the UK government will soon implement the recommendations from a consultation it conducted on amending the Act. “The government needs to use its enforcement to penalise the ones not reporting,” he explained. “Our engagement works on softer power and influence – and it can only take us so far with the committed laggards.”
Previously, the UK’s independent anti-slavery commissioner Dame Sara Thornton called on the government to strengthen Section 54 of the Act to explicitly cover investment portfolios.
Although Crossman said more transparency would be helpful, he believes the data is simply not there yet to support any meaningful disclosures.
Earlier this year, the European Commission adopted a long-awaited proposal that will require certain companies to conduct human rights and environmental due diligence. On whether the UK should implement something similar, Crossman said Rathbones is very supportive of the move towards human rights due diligence. “But we also see it as necessary to keep the focus on modern slavery disclosures. In addition, modern slavery can’t get lost in a wider due diligence legislation.”