Investors and consumers are becoming more aware of the problem and starting to push back, for obvious ethical reasons. At the same time, investors are discovering that the analysis required to assess modern slavery risk in investment portfolios can strengthen their fundamental research processes, leading to higher conviction in their stock selections.
To appreciate the importance of fighting back against modern slavery, and the challenges such an effort entails, it helps to gain a sense of just how pervasive this social evil is.
THE TRUE COST OF YOUR WEEKLY SHOPPING
One way to illustrate this is to look at how a routine shopping trip can bring you into contact with products made by forced labour.
Let’s assume that, like most people, you drive to the shops. Depending on the make of your car, you could be exposed to modern slavery the moment you slide behind the steering wheel. At least four auto manufacturers—two from the US and one each from Europe and Japan—have used Brazilian pig iron to make their car doors. The supply chain for the pig iron begins with the burning of hardwood to make charcoal. In many instances, the trees are felled illegally, while the charcoal is made by slave labour in camps in the Brazilian rainforest.
Another ingredient used in auto manufacture—mica, a silicate mineral that produces the shiny finish on a car’s paintwork—has been linked to child labour and debt bondage in mines in India. Some of the children are as young as 10. If your car ride involves listening to music streamed on a mobile phone, there’s a chance that it contains cobalt from the Democratic Republic of the Congo, where mining is widely linked to modern slavery.
Even the car park at the shops may not be free from taint: at least one Australian retail chain has discovered modern slavery practices, such as wage theft, among contractors supplying workers—many of them immigrants—to collect trolleys from car parks.
No doubt your weekly shopping list includes fresh food. More than 80% of garlic exported globally comes from China, where prison labour is common in supply chains (Chinese prisoners have been made to peel garlic, for example). Berries grown in Australia may also be suspect, as several cases have been reported of itinerant workers, hired to pick fruit and other crops, being abused. Fish from Thailand may be suspect, too: while several companies in the country’s fishing industry treat their employees fairly, there are many instances of other companies using slave labour.
Visiting a hardware store? Rubber gloves from Malaysia have been associated with slave labour, and there are concerns that the practice continues. Clothes shops may contain Aussie beachwear—the designer and maker of one iconic brand has been associated with the use of North Koreans in slave-labour conditions in China. Clothing and other items made from cotton may deserve scrutiny, especially if sourced from Turkmenistan, where government support for modern slavery in the industry has attracted censure from the US government.
Although these examples are all consumer-related, modern slavery is widespread in global industrial supply chains, including shipping and airlines. For example, Chinese prison labour is known to have manufactured headphones used by airline passengers.
GOOD SENSE, MORALLY AND INVESTMENT-WISE
Being run by criminals, modern slavery relies on secrecy and corruption to survive. That makes it difficult for companies to trace the risk in their global supply chains (and even, sometimes, in their own operations), which is why, as a consumer or investor, you may become an unwitting party to the crime.
How can we bring this practice and its victims into the light?
The key, from an investment perspective, lies in rigorous research—knowing what red flags to look for at a big-picture level (for example, the countries where a company does business or sources its supplies, and the nature of its business) and in close-up (how individual companies manage their supply chains and what policies they have in place for assessing and reducing modern slavery risk).
It’s also vital that investors engage directly with the companies, to encourage and help them reduce the risk in their supply chains, and in investors’ portfolios. This makes good sense, both morally and from an investment perspective—because, in our view, if a company can’t manage modern slavery risk in its supply chain, it can’t manage its supply chain.
