Firms in the upper right would be considered higher risk, so we rank them as the highest engagement priorities. But those companies aren’t our only focus. The matrix represents a risk spectrum: we might consider firms in the lower left to be lesser priorities for engagement, but they’re certainly not risk free.
A company that owns commercial real estate in one country, for example, might still be exposed to modern slavery risk through migrant labor used by a cleaning contractor. So, even though the REITs industry appears in the lower-risk part of the matrix, our company-specific fundamental research might single out a REIT firm from its peer group and assign it to a different quadrant.
Leveraging Specialist Research Perspectives
Many third-party sources of high-quality modern slavery research are relevant to each risk factor.
The Walk Free Foundation’s Global Slavery Index (GSI), for example, provides a country-by-country ranking of the number of people victimized by modern slavery, analyzes governments’ responses and explains the factors that make people vulnerable. The data help us assess individual company exposures based on countries where they conduct operations and/or source supplies.
We’ve found that global awareness of modern slavery risk can inform us about how companies are responding. It’s notable, for example, that supermarket chains in both Europe and the US have joined an initiative to help reduce risks to people in Thailand’s fishing industry. Similarly, electronics, retail, auto and toy companies are working to support the rights and well-being of workers in their global supply chains through the not-for-profit Responsible Business Alliance.
Fundamental Research and Engagement: The Path to a Better Understanding
Mapping companies using the prioritization framework and matrix is only the first step to assessing modern slavery risk. To fully understand individual firms and their modern slavery exposures and actions, investors need to research each company closely, according to its risk priority.
This effort requires more than strong research skills and collaboration between ESG experts and fundamental analysts. It also takes a willingness to engage directly with company management teams and a clear idea of best practices in identifying and managing modern slavery risk.
Equipped with the right tools and processes, investors stand a much better chance of accurately identifying modern slavery risk—and advancing the effort to root out modern slavery all over the world.
This topic is part of a series of insights on how to assess and address potential exposure to modern slavery through the investment process, analyzing companies’ direct business operations and their global supply chains.
