Investors pressure UK companies to comply with modern slavery laws
A GBP3.2 trillion investor coalition against modern slavery, including Aberdeen Standard Investments, Church of England Pensions Board, Legal & General and Rathbones, has put pressure on 22 laggard companies on the FTSE 350 to comply with the UK’s modern slavery laws.
According to a new report from wealth adviser Rathbones, the Votes Against Slavery coalition had a hit rate of 90 per cent, with 20 of the engaged companies now complying with modern slavery laws. The coalition is in “continued dialogue” with the remaining two, Sports Direct International and Pollen Street Lending.
Forced labour currently affects almost 25 million people worldwide, according to the latest estimates from the International Labour Organisation. This feeds into the supply lines of major global corporations and generates profits of USD150 billion a year.
In the first quarter of 2020, Votes Against Slavery notes that there were 65 companies in the FTSE 350 that did not have a modern slavery statement as required by UK law. Of those that had published modern slavery statements, only two thirds met all the legal requirements outlined in the 2015 Modern Slavery Act.
The most common reason for companies failing to comply with existing legislation was because they did not update their Modern Slavery statement each year. These companies instead treated the act as a “one-off compliance event” as opposed to a change in company risk management practice.
Action on modern slavery by institutional investors is gathering pace. In August 2020, a group of institutional investors led by CCLA, including Schroders and M&G, wrote to 54 companies – including multinational brands with business operations in the Gulf nations – to request details about their approach to safeguarding migrant workers.
Meanwhile, Canadian asset manager BMO GAM has conducted more than 60 engagements with apparel, automobile, and communications technology companies on modern slavery between 2019 and Q1 2020.
Votes Against Slavery says it took aim at the UK’s largest companies because “by being active themselves, FTSE350 companies can have a ‘multiplier’ effect as their actions will incentivise further compliance down their supply chains”.
A 2017 study by the Hult International Business School and The Ethical Trading Initiative (ETI) found that 77 per cent of leading UK companies, when interviewed anonymously, thought it likely that modern slavery occurred in their supply chains.
The initiative first asked members of the UN Principles for Responsible Investment (PRI) to sign and support its engagement letters, which were sent to the boards of the 22 target companies.
Secondly, the coalition threatened to abstain their votes on the approval of the annual report and accounts of non-compliant companies at the time of their Annual General Meeting.
While progress has been encouraging, Matt Crossman, head of stewardship at Rathbones, says that the initiative is only “scratching the surface of the pervasive problem of forced labour and human trafficking”.
A separate study by the UK Independent Anti-Slavery Commissioner, Themis and the TRIBE Freedom Foundation, found that almost half of senior managers in the financial services sector were not aware of forced labour in the UK.
At the report’s launch, the UK Independent Anti-Slavery Commissioner Dame Sara Thornton said it revealed a “failure to recognise that financial institutions can be complicit in these crimes” by not making the link between traffickers and their bank accounts, or fund managers and their investments in businesses that engage in forced labour.
“The pandemic has once again exposed the vulnerabilities of global supply chains,” says Crossman, who hopes the report can help drive a “step-change” in company attitudes to human rights due diligence and supply chain reporting.
“Investors are stepping up to play their role; we expect companies to go further and faster in their fight against slavery, and we look forward to recommencing the initiative in 2021 with more FTSE Index 350 companies. Compliance with the Act is only the beginning,” says Crossman.
MP Darren Jones says Votes Against Slavery’s work cements a “hugely positive step forward in the fight to end modern slavery” in which investors can play a vital role.
“Although the Modern Slavery Act’s reporting requirements have enabled real
progress in improving corporate behaviour, laws can only ever be as effective as their enforcement mechanisms. First and last, that means an informed and engaged investment community — and I’m grateful that Votes Against Slavery is leading the way,” says Jones.
Governments may not be as powerful as investors in influencing corporate behaviour, says Fitch Ratings in a recent report that finds non-compliance with modern slavery laws is likely to have an impact on company credit ratings in future.
“We expect that customer and financial institution responses to labour rights violations revealed by improved transparency will have more influence on credit profiles than the penalties, at least initially,” write Fitch’s analysts.
“Customers, financial institutions and governments have higher expectations regarding supplier transparency and product traceability. Failure to meet these expectations could lead to a loss of customers or constraints on accessing to financing, although there is yet to be an example where the impact has been sufficient to influence credit ratings,” they write.