Modern slavery, human trafficking and your money

Written by Rebecca O'Connor on 14th April 2016

“Modern slavery is a scourge that grossly undermines the inherent and God-given dignity of the human, and we must work urgently to eradicate it from our world. This report highlights that in our globalised economy, any business can be exposed to slavery through its supply chain. Companies that have conducted audits have been shocked to discover that they have been unwitting benefi- ciaries of slave labour. The transparency in supply chains measure in the Modern Slavery Act is a call to action that I urge British business to seize.”

Justin Welby, Archbishop of Canterbury

Remember the cockle pickers of Morecambe Bay? How about the domestic slaves in Brixton?

These examples of modern slavery are just the tip of the iceberg.

It is not an exaggeration to say that in one way or the other, global economic growth is powered by the unlawful abuse of workers’ human rights.

According to the report Forced Labour, Trafficking and the FTSE 100, aimed at informing investors about which companies have forced labour in their supply chains, an estimated 21 million people are trapped within forced labour, generating illicit profits thought to be worth around US$150.2 billion per year. 14.2 million of those working under conditions of forced labour are in the private economy – primarily in agriculture, construction, domestic work, manufacturing, mining and utilities.

This means that indirectly, the returns on our savings and investments and our bargain-basement credit levels are also powered by other people’s loss of freedom too.

Where is the greatest exposure?

FTSE 100 companies can play a significant role in confronting this crime. With a combined value of £1,700 billion, FTSE 100 companies represent approximately 80% of the market cap of all listed UK companies. Further, unit trusts, insurance companies, financial institutions and pension funds collectively hold close to 30% (£500 billion) of the FTSE 100 companies.

Four sectors are particularly at risk through their supply chains. These are:

 Textiles and Apparel: 8 companies, £78bn market cap, 4.6% of the FTSE 100;

 Seafood: 4 companies, £31 bn market cap, 1.8% of the FTSE 100;

 Gold: 13 companies, £343 bn market cap, 20.3% of the FTSE 100;

 Travel and Leisure: 8 companies, £83bn market cap, 4.9% of the FTSE 100.

What is modern slavery in practice?

Here is a case study from the report:

Trafficking within the spinning and weaving process: The ‘Sumangali Scheme’

Tamil Nadu is central to India’s garment industry, supplying many global brands and retailers, and is home to some 1,600 mills with a workforce of more than 400,000 – 60% of which comprise of girls and young women.

Within Tamil Nadu’s ‘Sumangali Scheme’, young female workers (generally from poor surrounding villages) are employed as ‘apprentices’ in spinning mills for three years. The promise is made of monthly stipends to their families, good accommodation, and a lump sum at the end of their employment. Re- search has revealed that although conditions differ from site to site, the overall reality is very different from that promised to the young women.

Hazardous working conditions, high wage deductions, compulsory overtime and the absence of written employment contracts are endemic throughout the scheme, amounting to conditions of forced labour. In some factories, workers are expected to work 60 hours per week, are prohibited from leaving the premises in which they stay unless granted permission, and are rarely allowed to contact family.

Reports of abuse and harassment, as well as threatened suicides have also been made. The majority of workers who begin work under the scheme are under 18, with reports of some girls as young as 12.

Despite many initiatives by global brands over the past few years and increased awareness of the issues, exploitative conditions remain within the spinning industry. The monitoring processes of the buying companies generally do not extend to the early production phases such as spinning, weaving and dyeing. Yarn may be sold to garment manufacturers who themselves export garments from countries such as China and Bangladesh, and clarity about which mills the yarn is sourced from is hampered as, according to a report by Centre for Research on Multinational Corporations (SOMO) ‘there is no such thing as supply chain transparency’ in this part of the chain.

Brands need to make a greater commitment to understanding their supply chain linkages and risks, particularly when suppliers are located in countries such as India, China and Bangladesh. They must also ascertain whether the yarn that is used in the garments they sell comes from a scheme such as Sumangali.

What can you do?

If you hold shares in a company, either through your pension or other investments, which you believe is at risk of modern slavery through its supply chain, you can ask a number of questions (suggestions below). You will also soon be able to check a database – the tiscreport.org, where companies are being asked to deposit their annual compliance reports.

 

The following questions can be directed at companies by shareholders, pension fund investors or investment managers:

  •   What steps are you taking to ensure compliance with the Modern Slavery Act?
  •   What actions have you taken to evaluate and address the risks of forced labour, slavery, human trafficking, and child labour within your product supply chains?
  •   What policies have you put in place to identify and eliminate risks of forced labour, slavery, human trafficking, and child labour within your supply chains, and what actions have you taken in relation to, or in the absence of, such policies?
  •   How will you ensure that audits of suppliers within your supply chains are conducted to investigate working conditions and labour practices and to verify whether suppliers have systems in place to identify risks of forced labour, slavery, human trafficking and child labour within their own supply chains?
  •   How will you manage your suppliers to ensure that the manufacture of products and the recruitment of labour is carried out in compliance with applicable legislation regarding forced labour, slavery, human trafficking, and child labour?
  •   What steps have you taken to establish and maintain internal accountability standards and procedures for employees or contractors that fail to meet company standards regarding forced labour, slavery, human trafficking, and child labour?
  •   What training have you provided to your employees and personnel with direct responsibility for supply chain management regarding forced labour, slavery, human trafficking, and child labour?
  •   How will you ensure that labour recruitment practices comply with corporate policies and/or efforts to eliminate practices that contribute to forced labour, slavery, human trafficking, and child labour?
  •  How will you ensure that remediation is provided to those who have been identified as victims of forced labour, slavery, human trafficking, and the worst forms of child labour within your supply chains?

Suggested Questions for Fund Managers and Pension Fund Trustees:

If your investments are held by investment managers or pension funds, you can ask the following questions to ascertain the extent to which they are raising concerns about forced labour, slavery, human trafficking, and the worst forms of child labour with the companies in which they invest your money. This will encourage them to do more in this respect.

  •  What are you doing to ensure that the company in which you are investing on my behalf is taking adequate measures to ensure that forced labour, slavery, human trafficking and child labour are not present within its supply chain?
  •  With how many companies have you raised concerns or asked questions about the risk of forced labour, slavery, human trafficking, and child labour either within their own operations and/or those of their suppliers?
  •  In what ways have you engaged with companies on the issue of modern slavery?
  •  How will you be monitoring companies’ compliance with the Modern Slavery Act?
  •  In what ways have you engaged with national and international policy makers on business and human rights agendas?
  •  What industries and asset classes do you consider to be higher risk for the incidence of modern slavery?

The research in the report was backed by Rathbone Greenbank Investments, among others, which goes to show that even big money makers don’t want to find they are accidentally invested in modern slavery.