Modern slavery represents a tragic market failure, where some companies maintain competitive advantage and large profits through unethical and unsustainable business practices that rely on the exploitation of approximately 16 million workers worldwide.
The finance sector has not been subject to the same level of scrutiny as sectors that are high-risk for labour exploitation. But financial actors, and asset managers in particular, have the leverage, and increasingly the responsibility, to push for better human and labour rights practices by companies within their portfolios. This is reflected in a fast-growing movement within the finance sector to push for stronger action on non-financial issues, commonly framed as Environmental, Social and Governance (ESG), or sustainability, considerations, such as the Organisation for Economic Cooperation and Development (OECD) guidance for investors on environmental and social risks, the European Union (EU) regulation on sustainability related disclosure for the finance sector, and the UN Principles for Responsible Investment (PRI) recommendations on integration of human rights into investment practices.
Human and labour rights considerations are necessary in risk management strategies to avoid financial and reputational risk, to comply with regulation, and also to contribute to the development of wider society. It is part of the fiduciary duty of institutional investors to ensure long-term sustainability and financial growth over maximising short-term profits. Legislation such as the UK Modern Slavery Act (MSA), places obligations on companies in all sectors to address the risks of modern slavery in their direct operations and supply chains. Walk Free, WikiRate, and the Business & Human Rights Resource Centre (BHRRC) identified 91 asset managers required to report under the MSA. Statements produced by 79 of these 91 companies were found and assessed to provide a snapshot in time that shows the level of awareness of modern slavery risks, identifies good practice, and highlights gaps in reporting. In addition to assessing asset managers’ disclosure on their efforts to address risks in their operations and supply chains, we also looked at due diligence efforts taken within investment portfolios in line with standards within the sector.
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