Investors will play pivotal role in abolishing modern-day slavery
Modern-day slavery remains widespread within Asia, and investors have a crucial role in curtailing this insidious practice ahead of any government-backed regulatory changes
The scourge of modern-day slavery is becoming a pressing item on the ESG agenda, as investors look to follow the lead of legislation enacted globally - and particularly in Asia where around half of all instances of modern slavery enacted via human trafficking and forced marriage occurs - aiming to eradicate this pernicious phenomenon.
Modern-day slavery feeds an illicit industry estimated to be worth US$150 billion annually, with one in 185 people affected in 2016 and a prevalent phenomenon across the world. The deep-rooted causes of modern slavery, which eats into the global supply chain, include structural inequality and a lack of access to credit, feeding such exploitation.
From the ESG-compliant investor mindset, it is increasingly the case that institutional investors are beginning to realise that inequality can negatively impact their portfolios. The issue of modern slavery has increasingly hit centre stage in the West via recently-enacted legislation.
The Modern Slavery Act 2015 has been in place for several years in the UK, while anti-slavery legislation recently came into force in Australia at the federal level. Several European countries have adopted mandatory due diligence requirements that also cover the financial industry in relation to slavery.
“Investors have increasingly strong reasons to understand how the presence of modern slavery and human trafficking in the operations and supply chains of companies within their investment portfolio creates risk for them,” says Fiona Reynolds, managing director of the United Nations-supported Principles for Responsible Investment and chair of the Financial Sector Commission on Modern Slavery and Human Trafficking.
Across developed and developing economies, the financial sector intersects with modern slavery in a variety of ways, from the unwitting laundering of illegal funds generated from slavery to investment in companies engaged in these forms of exploitation.
Australian foreign minister Marise Payne – the Commission’s co-convener – succinctly described the action required during a recent Commission meeting: “It is not enough to be reactive and simply detect illicit financial transactions; investment decision-making must actively consider the risks of modern slavery.”
In Asia, the move to regulate against modern slavery has been sparked by a wave of human rights activism across the region, provoked in numerous cases by headline catastrophes such as the series of fires in Bangladeshi sweatshops and the recent catastrophic dam collapses in Laos.
The resulting public outrage has provided momentum for regulatory action from Asian governments against forced labour and across APAC, new laws are being introduced to protect workers.
Indonesia has issued a number of regulations to address forced labour in the fishing sector while Thailand recently released the final draft of its National Action Plan on Business and Human Rights (NAP).
This regulation was drafted after allegations surfaced of slavery in its fishing industry, while both India and Indonesia are progressing their own NAP process.
And earlier this year, lawmakers in Hong Kong vowed to fight for a new slavery law that includes civil and criminal liabilities for individuals as well as corporate entities.
According to prominent lawmaker Dennis Kwok, traffickers in the region are able to access Hong Kong's financial system to run their operations. He is fighting for a government clamp-down on illegal profits derived from modern slavery flowing through the city.
Despite the groundswell of legislation emerging in Asia (and worldwide) aimed at tackling modern slavery, the truth is that while regulation is a necessary tool, it is insufficient. Governments on their own cannot solve this crisis - they need the assistance of investors and the financial community.
“As we know all too well from other efforts, compliance with existing legislation is not enough. We must take strong proactive steps if we are to achieve the UN Sustainable Development Goals, which will – for investors and the global community alike – end up paying dividends down the road,” says Reynolds.
The impetus for investors is to act in a precipitous manner ahead of any regulatory action which might place assets or earnings which involve slave labour supply chains at risk. This dynamic element will eventuate in the downward re-rating of equities as well as of debt prices, possibly through downgrade action from the credit rating agencies.
A prime ESG comparison in this regard would be the equity and debt prices of fossil fuel producers, which have had a torrid time as ESG considerations bear down on the industry.
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