Week 37: Fifty million slaves. 86% in the private sector. Here's what ESG investors can do.

In this issue: ▸ Slavery is slavery ▸ 50 million are trapped in slavery ▸ Quantifying slavery ▸ Slavery exists in every industry, in every country ▸ What can investors do about slavery?

Dear all,

It’s always the eyes. The gaze, or rather the silent scream they project. Fear and human agony do not need words. It has a special smell and a unique gaze. I have seen those eyes across the world many times over the past 30 years. They always leave me with that empty, hollow feeling of nothingness. Like a block of solid concrete parked on your chest. Slaves.

The fact that today we call it “modern slavery” and have various types of acts, rules and frameworks for “modern slavery” is almost ironic. Slavery is slavery, and the mechanism has been the same throughout human history.

In this newsletter, I will only use the term “slavery” and not “modern slavery”. Because there is nothing modern about it. 

50 million trapped in slavery

Today, fifty million people around the world are trapped in slavery, either forced to work against their will or forced into a marriage. This is according to new global estimates, and it presents a significant rise over the past five years.

The number of people trapped in forced labour, including sex trafficking, rose to 28 million last year, with a further 22 million trapped in forced marriage, says the report published last Monday by the International Labour Organization, International Organization for Migration and the anti-trafficking human rights group Walk Free.

The new estimates found that 10 million more people had fallen victim to forms of slavery in 2021 compared with 2016, with women and children the most badly affected. Most cases of forced labour – 86% – were found in the private sector in industries including manufacturing, construction, agriculture and domestic work. Millions of people, mainly women and girls, are also estimated to be trapped in commercial sexual exploitation. The other 14% of cases are state-sanctioned forced labour.

I had to read that number again. 86% in the private sector. According to the report, the main form of coercion used by employers was the deliberate withholding of wages and the threat of dismissal. Also, the refugee crisis has fuelled a surge of exploitation in supply chains and commercial businesses and industries.

The new estimates also show that slavery is occurring at scale across the world, with more than half (52%) of all forced labour and a quarter of forced marriages occurring in high-income or middle-income countries.

The report thus reveals a fundamental abuse of human rights by corporates, investors, private businesses and consumers in the high- and middle-income countries. A hard truth it is. We are supporting this, or at least silently accepting it. We benefit from it, directly or indirectly, every single day.

So what can we do about it? And what does slavery have to do with ESG?

I had a closer look at this – and I would like to share my main takeaways.

Quantifying slavery

The UN’s 2015 Sustainable Development Goals (SDGs) or Global Goals, include the aim to eradicate slavery by 2030. So far, so good.

Unfortunately, slavery is one of the most underweighted elements of all indicators within the ESG frameworks used today.

Being the least quantified stream has meant being the topic investors are least focused on. Even though slavery indicators are important as they measure and describe the risk profile of an organisation, measuring slavery can be really difficult.

Reading slavery reports on company websites do not usually provide detailed insights, as it may only offer a veneer of confidence for investors and stakeholders. The fact is that there aren’t any measures that have been acknowledged on how this can be tackled. Creating a standard indicator for slavery would provide a better understanding to investors of the risks that slavery holds and would help mitigate risks.

However, currently, the indicators on this area are non-standardised. Therefore, it makes it difficult for investors to compare options. It is also difficult as companies do not disclose enough information on slavery, and they are often not very transparent on this topic. Lack of disclosure prevents investors from understanding how organisations manage the risks associated with slavery.

Nevertheless, investors prefer stable earnings, and these are impacted by slavery.

You can read more about it here.

Slavery exists in every industry, in every country

The UK Independent Anti Slavery Commissioner describes that  “slavery exists in every industry, in every country in the world,” yet in the United States where slave labour valued at more than $150 billion annually exists, there is a low level of awareness of the prevalence of slavery.

A year and a half ago, on 10 March 2021, the EU Parliament voted to adopt a mandatory legislation requiring human rights due diligence, including for many U.S. companies selling in the EU. You can find the full document here.

The result? We now know that over a third of companies in high-risk sectors do not show any evidence that they are even assessing human rights risks. And four out of five provide no evidence they are adopting responsible purchasing practices to mitigate the risk of forced labour in their supply chains.

The glacial progress over five years also highlights the need for governments and parliaments to insist on action through laws, regulations and business incentives. 

A systemic transition is not possible through voluntary guidance. Slavery will not be resolved by voluntary approaches. We need more regulation.

You can read more here.

What can investors do about slavery?

But what about investors? What can investors do about slavery?

Well, as long-term investors, we have an obligation to hold our investee companies to account when they fall short of the reporting on slavery directly and indirectly impacted by their business operations. This is because slavery represents an external risk to a company’s reputation and operations. It is a systemic societal challenge facing all companies globally. Besides, it is right thing to do.

There are some very concrete steps for ESG investors to take, and the recommendation is simple: Just do it. Here are the steps: 

• Assess whether potential investee companies have in place appropriate human rights policy commitments, due diligence processes which include addressing forced labour risks, and grievance mechanisms;

• Review portfolio companies’ human rights due diligence processes to inform their view on the effectiveness of managing forced labour risks;

• Engage with companies on how they are ensuring workers are effectively consulted throughout their human rights due diligence processes, such as in the assessment and monitoring of forced labour risks, and the involvement of workers in the design or performance of grievance mechanisms;

• Engage with workers and their representatives and directly engage portfolio companies regarding allegations of forced labour and other labour rights abuses; and

• Support human rights due diligence resolutions and/or vote (at annual general meetings) against management of companies that consistently fail to demonstrate respect for human rights in supply chains.

Other ESG relevant articles worth reading

• This year, all 10 of the top performers in the S&P 500 Index are fossil fuel companies, with Occidental Petroleum up 123% while the index is down 16%. That has made eschewing oil and gas companies a hard decision to defend. But a 10% drop in the price of oil in the past two weeks, and a 30% drop since mid-summer, might dampen pushback against environmentally based investing. Read the article on Reuters.com.

• There was a very good article on ESG from Washington Post aptly entitled “Everything You Need to Know About ESG Investing And the Backlash to It”. Read it here.

• There are three main areas where asset managers and retail wealth managers differ in their ratings needs: standardization, customization and intuitiveness. With the asset manager marketplace dominated by a few established ESG providers, new entrants have focused on creating products targeted at the specific needs of wealth management, which may enable advisors to provide ESG advice to their clients. Read this piece on ESG in wealth management from Advisor Perspectives.

• ESG ratings firms provide information to investors, analysts, and corporate managers about the relation between corporations and non-investor stakeholders interests. Recently, ESG ratings providers have come under scrutiny over concerns of the reliability of their assessments. In this academic paper, these concerns are examined. The authors review the demand for ESG information, the stated objectives of ESG ratings providers, how ratings are determined, the evidence of what they achieve, and structural aspects of the industry that potentially influence ratings.

Have a great fighting slavery week!

Kind regards,
Sasja