ESG: Putting an end to forced labour

Forced labour is identified as an environmental, social and governance (ESG) issue due to its reliance on exploitative practices and human rights violations. And like many topics falling under the ‘social’ label of ESG, the disruption to economies and supply chains caused by the pandemic served to increase the numbers of people identified as victims of forced and child labour.

It’s estimated that globally one child in every ten is involved in child labour; labour that’s hidden in the fields, factories and mines that produce goods to satisfy the demand of consumers in Europe, the US, and beyond. 

A 2022 report by the International Labour Organization, Walk Free and the International Organization for Migration estimated 50 million people were living in modern slavery. Of these people, 28 million were in forced labour and 22 million were trapped in forced marriage.

Goals and legislation

The UN’s 2015 Sustainable Development Goals (SDGs) include the aim to eradicate modern slavery by 2030, but with modern slavery being one of the most underweighted topics within ESG frameworks, it attracts less investment. Why? Like so many ‘S factors’, measuring ‘modern slavery’, through long and complex supply chains, can be really difficult.

The British and the EU currently lead the world in these concerns, with the EU Parliament voting last year to adopt mandatory legislation requiring human rights due diligence including for many U.S. companies selling in the EU. This legislation has served as a reminder that investors need to be aware of the corporate risks associated with ESG topics, such as forced labour, and seek to identify and mitigate them where possible. Disregard for human rights issues may not only harm the people directly affected, but also exposes companies to significant legal, regulatory, operational and reputational risks.

Engagement and supply chain roadmapping

In order to tackle forced labour, asset managers must engage with the companies they invest in to make them aware of possible exposure to modern slavery. Companies need to have a robust framework of due diligence in place and evidence that they know their suppliers in order to fully understand their exposure and risk. Through shareholder engagement, fund managers can assess the level of exposure, and if risk is identified, evaluate a company’s response.

As is typical with ESG factors, global mandated disclosure is required to provide asset managers and consumers with the appropriate insight into how companies are approaching human rights issues. That we unfortunately don’t have. 

But as attention and scrutiny from governments, media, investors, consumers, and other stakeholders grows, every actor operating in this context has a responsibility and role to play in addressing human rights violations. It is crucial that companies can clearly demonstrate they have implemented effective policies and procedures to mitigate this risk.

To gain greater understanding of the risks across your portfolio companies, get in touch. SI Engage provides quick and easy engagement planning and tracking. Quality reports are tailored to shareholder needs within just a few clicks, simple to download or embed on a website of your choosing. 

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