Industries with high exposure to modern slavery in both their business operations and supply chains fall in the upper right region, indicated by the purple shading. These would be the highest research and engagement priorities—though certainly not the only focus. Industries falling in the lower left region (the blue shading) would be lower priorities.
While the industry example demonstrates the general prioritization of research and engagement, assessing modern slavery risk must be a company-by-company exercise. Insights gleaned from fundamental research might put a company in a different part of the matrix from its peers, so investors can’t assume that a company’s mere presence in a low-risk industry defines it as low risk.
Digging Deeper: How Do Firms Stack Up on Best Practices?
If the matrix helps prioritize research and engagement efforts, where should those efforts lead investors? At AB, our primary objective is to understand how effective companies are at reducing modern slavery risk. By collaborating with certain firms, we’ve identified five criteria that can collectively serve as a best-practices benchmark:
- Governance Framework
- Risk Identification
- Action Plan to Reduce Risks
- Action Plan Effectiveness
- Future Improvement
Not all the criteria apply to every company equally in all situations, but they help investors consider how firms might respond to modern slavery risk.
Building from our sector-agnostic framework, we’ve developed best-practices guides for a number of high-risk industries: fishing, apparel, technology, mining and finance. The risk to people in these industries varies, and so do best practices.
For example, the apparel industry depends on a large female labor force working in a factory that requires gender-specific policies. Wild fishing often depends on young, male migrant workers who spend extensive periods at sea, making it hard to monitor labor conditions. The financial sector plays a key role in detecting and disrupting modern slavery, given that the proceeds from these crimes flow through the financial system.
Ultimately, modern slavery best practices involve a continuous process of learning and improvement: firms typically progress from an initial laissez-faire attitude to the ultimate acceptance that modern slavery risk goes to the heart of what they stand for and must be addressed.
Where Do We Go from Here?
Near term, as investors continue to evaluate modern slavery risk in their portfolios and engage with companies, there should be an intense focus on expanding their knowledge bases and enhancing analytical capabilities as a path to more informed investment decisions and better reporting.
Over a longer time frame, scrutiny of modern slavery is likely to intensify, with the world becoming more aware and increasingly driven to action. We’re already seeing a wave of regulation related to modern slavery, human rights and supply-chain due diligence requirements. Popular activism could also have a broader impact on this issue, particularly in light of the widespread reach of social media and consumers’ growing power at the point of sale.
In fact, we believe that modern slavery could become a moral issue as galvanizing as climate change. Companies and investors are becoming more aware and gaining a better understanding that modern slavery threatens business sustainability. With the pace of the journey accelerating, investors who embrace the challenge will likely be the most successful.
