Miles Askew: Modern slavery

07 Feb 2019 Expert insight

Modern slavery presents a significant risk to charities as investors, opines Miles Askew.

Northumbria Police raid a suspect's house in Fenham, Newcastle-upon-Tyne

The Modern Slavery Act 2015 applies to all commercial organisations carrying on business in the UK with a turnover of £36m or more. Its aim is to ensure they are managing their supply chains effectively, keeping them free from slavery and human trafficking. In addition to being unacceptable ethically, failure to do so could result in severe reputational damage, which could impact the share price of a listed company. 

It also poses the risk of reputational damage to charities, if they are seen to be investors in companies which are not taking modern slavery seriously. This reputational damage could reduce their ability to generate new income from supporters and ultimately impact upon mission delivery.

So what is the real scale of modern slavery? How are business affected and what should responsible investors such as charities be doing to ensure they are minimising their risks and helping ensure that modern slavery has no place in the companies in which they invest?

A global phenomenon

The term modern slavery refers to the recruitment, movement or receival of children, women or men through the use of force or coercion for the purposes of sexual or labour exploitation. In the context of business, it most often takes the form of labour recruited, transported or compelled to work for little or no money. According to the International Labour Organization (ILO), forced labour in the private economy worldwide generates illegal annual profits of over $150bn.

The 2016 Global Slavery Index (GSI) estimated that nearly 46 million people are caught up in some form of slavery across 167 countries. Of this 46 million, it found that 58 per cent are drawn from just five countries: India, China, Pakistan, Bangladesh and Uzbekistan.

Is the UK affected?

While the lowest prevalence of modern slavery can be found in European Union countries, there are no grounds for complacency, even in the UK. Recent figures suggest that around 11,700 people are trapped in some form of slavery across the UK.

In 2016, the National Referral Mechanism identified 3,805 potential victims from 108 different countries, with Albanian and Vietnamese nationals among the most prevalent. Labour exploitation was the most common type of slavery in the UK – 53 per cent of cases – with a worrying sign that exploitation involving minors is on the increase.

UK modern slavery – a case study

One particular area of risk in the UK is supermarket car washes. These are usually run as a franchise, with the supermarket being paid rent by the franchisee. A report in October 2016 discovered that one franchisee, Waves Car Wash – responsible for the management of Tesco’s hand car wash portfolio – was paying undocumented Romanian workers just £3.63 an hour; a figure well below the national minimum wage. Waves moved swiftly to close the Cheshire-based franchise. In response to efforts by Epworth to seek reassurance about Tesco’s activity in this area, the company stated that ‘no checks or audits had identified any incidences of trafficking or forced labour’.  Accepting that car washes are one of the top industries for risks of forced labour, Tesco set out a list of measures it had taken to mitigate and ensure that its car washes were now completely safe and legal. These measures included ensuring criminal record checks for all franchisees, giving compulsory induction training, involving Border Agency personnel in meetings with franchisees and providing ongoing guidance and support for the prevention of labour exploitation.

How is business affected?

The groundbreaking Modern Slavery Act 2015 is the UK’s legislative response to tackling modern slavery and human trafficking. It builds on existing law and has created an Anti-Slavery Commission. The law also addresses incidences of forced, bonded and trafficked labour falling within the responsibility of corporate supply chains. The Act requires companies with revenues exceeding L36m to publish an annual statement that either confirms the steps taken to ensure modern slavery and trafficking are not taking place, or confirms that no steps have been taken to audit potential incidences of modern slavery and trafficking in the supply chain.

The impact of the Act essentially rests on reputational pressure and the assumption that companies would not want to suffer the reputational damage of having incidences of trafficking and slavery in their sphere of influence.

Three years on, however, the impact of the Act has been variable. The Business & Human Rights Resource Centre (BHRRC) has conducted research into the contents of the statements themselves and stated that: “The majority of company statements for the UK Modern Slavery Act demonstrate weak risk assessment and due diligence. Companies are missing the opportunity to provide much needed leadership to eradicate forced labour from business operations and supply chains.”

Of the statements analysed, only 56 per cent complied with the very minimum requirements of the Act (ie had explicit board approval, were signed by the appropriate people and provided a link to the statement on the company homepage). This suggests that there is still a lot of progress to be made in forcing businesses to take the Act – and the very notion of modern slavery – seriously, with a need to ensure that companies do not merely see it as a tick-box exercise.

What should charities be doing?

Firstly, every investment manager needs to be aware of the problem and ensure that it is considered alongside other investment issues, before they invest in any company. All sectors may have potential exposure to human rights-related issues, including incidences of modern slavery, via their direct operations or through the supply chain. Sectors where it may be particularly prevalent include agricultural produce, apparel, construction and some service sectors.

Secondly, engagement is key. Human rights engagement should always form a core part of discussions with companies. Epworth has long engaged on the subject of human rights and trafficking, working alongside ECCR (Ecumenical Council for Corporate Responsibility) and the Church Investors Group during the 2010 South Africa World Cup, and again during the 2012 London Olympics, principally on the trafficking risk in the hospitality sector.

Our guidance in this area is governed by a policy, Human Rights and Conflict, published in 2013. This asserts that engagement is the principal medium for seeking to bring about an improvement in a company’s practices in respect of human rights and monitoring the risks related to modern slavery. If a company is unwilling to enter into serious dialogue, or to address material concerns, the decision may be taken to disinvest.

For a charity, engaging with your investment manager to understand what they are doing to combat modern slavery is essential. Together, charities and their investment managers can play an important part in combating this critical issue.

Miles Askew is head of research at Epworth

Charity Finance wishes to thank Epworth for its support with this article

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