Our highest priorities are to encourage:
- Long-term relationships with suppliers to help improve visibility into the supply chain
- Zero worker-paid recruitment fee and migrant worker policies to reduce the risk of overseas laborers being enslaved
- More social audits and worker-voice initiatives to help identify where abusive labor practices are occurring
Long-term supplier relationships, in particular, help build trust on the ground and create some stability in the workforce. By contrast, flexible and transient workforce requirements can facilitate practices that enable modern slavery. These include entrapping migrant workers through debt bondage and deceiving them with unfounded promises of higher wages in the future or the freedom to return home.
There are practical difficulties in implementing some policies: for instance, social audits are hard to carry out on board a vessel at sea. Worker sentiment surveys via anonymous texts can be a way to overcome obstacles and identify issues. Traceability can be challenging in the fishing industry too. Fish are often “pooled” (catches from several boats are processed together) and then potentially used across many different products, such as frozen meals and cat food. As a result, the risk of pooled fish being tainted by modern slavery might endanger the reputation of brands and businesses, including food retailers.
If investors continue to raise awareness across all these areas, we expect corporate management in food retailing to make faster progress to strengthen their policies.
Finance Is Central to Combating Modern Slavery
Modern slavery is a criminal enterprise intended to profit from abuse; warehousing and transferring the money generated requires access to the financial system. This gives the finance sector a key role to play in helping stop modern slavery.
Yet the financial industry lacks awareness of the problem. In a 2020 survey of UK financial institutions, 43% of board-level directors didn’t know about their firm’s modern slavery policy; more than two-thirds of employees hadn’t heard much of the issue from management. We’ve seen some improvement recently, but there’s still a long way to go—and the reputational risks are high.
For instance, Australian lender Westpac was fined A$1.3 billion in 2020 to settle a money-laundering suit linked to financing child exploitation—it was the highest civil penalty in Australian history. Many finance executives are still unaware that modern slavery is a problem in developed as well as emerging countries, and they believe that anti-money laundering efforts to know their clients and screen for transactional risks are sufficient to combat it.
But transactional risks are only a small part of the problem. Financial institutions lend to and invest in businesses that facilitate slavery. They also provide bank accounts where multiple cash transactions can go unmonitored. Many banks aren’t checking for illicit cash dealings that could indicate exploitation at a car wash or in a nail salon. Nor do they investigate their corporate clients’ supply chains to find out how they source products at high risk of involvement with modern slavery.
Strengthening Policies and Practices in Finance
Finance companies can upgrade their existing systems for uncovering money laundering to screen for indicators of suspicious activity that may signal modern slavery violations by clients. And senior management should send a clear signal to staff that modern slavery awareness is important. Asset managers can help drive change by researching the risks to portfolio companies, engaging with company management and pressing for better policies and practices on modern slavery.
We find that banks put the most focus on financial transactions and less on institutional lending. Their biggest blind spot, as we see it, is in small- and medium-sized enterprises (SMEs)—which face high modern slavery risks. Our top engagement priorities in the banking sector are to:
- Encourage better risk identification in SME lending, including hiring or working with social auditors to identify risk areas
- Broaden transaction monitoring from a narrow focus on sexual exploitation to check for several other forms of modern slavery, including forced labor
Beyond these priorities, our wider agenda spans group-level policies and capabilities, financial transactions, and lending to both institutions and SMEs (Display).
