Why is it important to us?
In September 2022, the 2021 Global Estimates of Modern Slavery reported that there are an estimated 49.6 million people globally living in situations of modern slavery, an increase of around 10 million people since the previous estimates were released in 20171.
This means one in every 150 people are affected by modern slavery, with women, children and migrants disproportionately impacted1. As these estimates are based on 2021 data, this number does not account for the number of people impacted by the escalation of the Russia-Ukraine conflict.
There is an ever-greater need to focus on this topic, in light of the COVID-19 pandemic, the Russia-Ukraine conflict, the growing recognition of the human rights implications of climate change, and the need for a just and equitable transition to a lower-carbon future. These forces will all have long-lasting and far-reaching human rights implications.
Companies that fail to proactively manage these issues will face an increasing level of scrutiny, in addition to legal, reputational, and financial implications.
Investment team progress
Investment teams have been engaging with a range of companies on human rights and modern slavery, with details shown below.
Australian Equities Growth
The Australian Equities Growth team discussed modern slavery risks with 20 ASX-listed companies in 2022. While it continued to focus on retailers, the team broadened its focus to other sectors including IT and healthcare. For companies with broad product ranges and third party manufacturers, it encouraged industry collaboration to maximise leverage with manufacturers. After researching the risk of worker exploitation in the Australian horticultural supply chain several years ago, the team continued to encourage the supermarkets to participate in industry-wide collaborations to educate growers and workers on appropriate pay and conditions.
Australian Small and Mid Cap Companies
The Australian Small and Mid Cap Companies team has engaged with all relevant companies on working conditions, employee welfare and accommodation, both from companies’ own manufacturing facilities and outsourced offshore manufacturing operations. The team has also engaged with relevant companies on their shipping activities, which is an industry that can have opaque practices which may mask modern slavery risk.
The Multi-Asset Solutions team has partnered with Sustainalytics for its modern slavery thematic engagement service. Sustainalytics is now two years into a three-year engagement programme, which by the end of the year had increased to 16 companies, from 12 in 2021. These companies are equally split across the apparel and construction sectors. Of these companies, nine have improved their scores through either adopting policies on responsible recruitment, commencing supplier audits and by seeking feedback from Sustainalytics on human rights programmes.
Fixed Income, Short Term Investments and Global Credit
The Fixed Income, Short Term Investments and Global Credit team continued its engagement with companies on the topic of human rights and modern slavery, with 24 engagements completed over the year. On the issue of the Russia-Ukraine conflict, the team engaged with four companies that have continued operations in Russia and/or Ukraine and will continue to do so in 2023.
Global Listed Infrastructure
The Global Listed Infrastructure team has assessed where the greatest modern slavery risks lie across its research universe. Companies were ranked according to the vulnerability index of countries they operate in, with the highest risks seen in companies with operations in Africa, Latin America and parts of the Asia Pacific region. The team is also focused on companies involved in the build-out of renewables, as elevated modern slavery risks have also been associated with the production of solar panels and wind turbines. It has engaged with a number of companies in its portfolio on these issues over the past year.
The Realindex team continued its engagement work regarding modern slavery. Besides being involved in the collaborative engagement with IAST APAC and engagement on the Russian/Ukraine conflict, Realindex has raised issues of modern slavery with a number of companies it has engaged with globally. This questions the company’s supply chain management including beyond tier one suppliers, as well as discussing policies and any remediation conducted for modern slavery issues identified.
First Sentier Investors’ submission to Modern Slavery Act review
In 2022, the Australian Federal Government undertook a review of Australia’s Modern Slavery Act 2018 (Cth) (Modern Slavery Act). FSI believes that the Modern Slavery Act has been successful in raising business and government awareness of the risks of modern slavery. However, enhancements will be required for businesses to be compelled to identify, report on and, most importantly, address the risks of modern slavery, going forward.
In our submission to the review, we indicated our support for many of the proposed initiatives and made several recommendations, including:
- Reducing the annual revenue threshold for reporting entities to $50 million (from $100 million), subject to greater resourcing to monitor and review the resulting increase in volume of statements submitted
- Refining the definition of ‘modern slavery’
- Harmonising reporting criteria and timelines
- Establishing an Anti-Slavery Commissioner
- Retaining the current, broad approach of non-punitive enforcement mechanisms
- Continuing the Modern Slavery Statements Register
- Considering introducing mandatory human rights due diligence.
Engagement on the Russia/Ukraine conflict
Armed conflict has enormous humanitarian consequences, as well as long lasting economic, social and environmental repercussions. The Russia-Ukraine conflict is not the only conflict happening now (the Geneva Academy is currently monitoring over 110 armed conflicts1), however the sanctions relating to this conflict are unprecedented in scope and severity, at state level as well as for corporates.
In response to the invasion of Ukraine, many companies announced their withdrawal from Russia, at times without applying a human rights lens to their decision. After referencing and updating our Human Rights Toolkit and receiving specialised training, First Sentier Investors identified and engaged with a number of companies to determine:
- The nature of their involvement and how exposed they are
- How the company is enhancing its due diligence to identify, prevent, and mitigate heightened human rights risks and comply with international humanitarian law
- What measures the company is taking to ensure it actively monitors the situation, including through consultation with workers, affected communities, human rights groups, and/or humanitarian organisations
- What measures the company has taken to ensure business relationships, products, services, operations, or other actions do not contribute to Russian military activities or occupation in Ukraine (this may or may not include a responsible exit)
- What actions the company has taken to mitigate the effects of any decisions taken on affected communities and workers and how regularly they are re-evaluating their response
- What other actions the company is taking to promote respect for humanitarian law and human rights.
To date, the quality of company feedback and the response rate has been low, with only 10% of global companies that we invited to respond on the Russia-Ukraine conflict, providing a full or partial response to our questions. The majority of responses were generic. We are continuing to engage.
Next steps will be to follow up with the companies that have not responded in addition to engaging with the companies that provided partial responses to expand our findings. Where we identify examples of best practice, we will seek to share that information with companies that have scope to improve their approaches.
Investors Against Slavery and Trafficking APAC
Investors Against Slavery and Trafficking APAC (IAST APAC) is a group of investors working to help end modern slavery, focusing on the Asia-Pacific region. FSI is proud to convene and Chair the initiative, which comprises 37 investor organisations with AU$7.8 trillion in assets under management (AUM), together with the Australian Council of Superannuation Investors (ACSI), Walk Free and the Finance Against Slavery and Trafficking (FAST) initiative.
In 2022, IAST APAC focused on facilitating policy advocacy opportunities for members specifically in relation to the Australian Modern Slavery Act review, and it engaged with 24 focus companies across the consumer discretionary, consumer staples, technology and healthcare sectors, listed on exchanges in the following countries: Australia, Hong Kong, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Vietnam.
The findings revealed that companies are still at various stages of tackling modern slavery, and that many companies are still coming to grips with the scale of the problem and what is required to address it.
However, the findings also revealed that several companies have made significant strides in finding, fixing and preventing modern slavery in their operations and supply chains.
The aim is to help these leaders go further, modelling best practice for other industry participants as they make progress on the issue, which will assist IAST APAC to more effectively support the companies that are earlier in their journey.
For further information, please see the IAST APAC Annual Report.
Figure 5: Company progress at the start of the engagement
Source: IAST APAC Annual Report, data as at 30/6/22
Figure 6. Seniority of company representative met
Source: IAST APAC Annual Report, data as at 30/6/22
Stewart Investors - Conflict minerals collaborative engagement update
Tantalum, tin, tungsten, gold and cobalt (referred to collectively as conflict minerals) are vital materials and building blocks of the semiconductor industry. The poor traceability of these minerals along complex supply chains, including smelting and refining, can obscure the provenance of these minerals. This can lead to the inadvertent financing of armed conflict and the abuse of human rights.
Demands for a greener future necessitates more semiconductors and therefore more mineral mining.
The engagement initiative
Following specific company discussions and two commissioned research reports, in 2021, Stewart Investors launched an industry engagement initiative: Tackling conflict mineral content in the semiconductor supply chain. The initiative was supported by 160 signatories, collectively representing US$6.59 trillion in AUM.
With regulators and consumers also increasing their attention on the challenges of mineral sourcing within the semiconductor supply chain, the collaboration effort has attracted greater interest from a number of large financial institutions.
In 2022, Stewart Investors increased engagement efforts with:
- Companies, the team met with several companies in response to the initial letter
- Industry bodies, at the Responsible Minerals Initiative (RMI) annual conference, and
- Civil bodies, having met with Global Witness to discuss the findings of field research recently carried out and published in their ITSCI Laundromat report.
These engagements revealed the issue of improperly sourced minerals and associated human rights abuses to be more severe than initially anticipated, and progress has stalled due to companies’ challenges from reliance on third-party audits, the concentration of minerals in high-risk countries and a lack of sustained effort by companies. However, NGO pressure and geopolitical tensions are increasing governments’ focus on supply chain transparency leading companies to refocus their efforts on full supply chain mapping.
Stewart Investors has raised the profile of investors’ concerns about this issue with key companies in the supply chain. Following this engagement some companies have committed to improving transparency and one company has for the first time published a full list of the smelters and refiners they use.
The engagement has also raised the profile of investors’ concerns with the main industry body and civil bodies which has helped bring the issue to a wider audience and provided scope for further collaboration.
It is extremely early days for this multi-year engagement but it is clear that tracing mineral provenance is an extremely complex challenge for companies, and progress is slow. While there is a unanimous desire to improve practices, some companies are more eager and able to meet this challenge than others.
Stewart Investors is now seeking to:
- Attract more signatories to underline a deepening commitment to this issue
- Write again to all companies to assess and encourage progress
- Formulate investor guidelines, with the RMI, to deepen the quality of company engagements, and
- Attend industry functions to learn and improve the quality of our engagement.
Despite the efforts of many, the number of estimated victims of modern slavery worldwide continues to rise. While the numbers quoted in the Global Estimates of Modern Slavery are concerning, it has made a number of recommendations to action between now and the 2030 target date for eradicating modern slavery.
As responsible investors, we have an obligation to set expectations that investee companies find, fix and prevent modern slavery within their operations and supply chains, as well as engage with policy makers and broader stakeholders including survivors, civil society organisations and ESG data providers.
After we complete our fourth consecutive modern slavery statement in 2023, we will review the effectiveness of our approach and refine it as appropriate.
We will also continue the engagement with companies in relation to the human rights implications of the Russia-Ukraine conflict and other armed conflicts globally. We also hope to build on the preliminary analysis already completed on the topics of mental health and access to nutrition.
First Sentier Investors has developed a Human Rights Toolkit to help all investment teams globally better manage human rights risks in our portfolios. The toolkit provides research and guidance for each of the following steps:
- Identifying companies with a risk of human rights in their operations or supply chains
- Assessing companies’ approach to the issues identified
- Engaging with the companies identified as at risk of human rights violations
- Internal reporting on our progress
This has formed the basis of our approach to addressing human rights risks within our investment portfolios, which we are required to report on in accordance with legislation in Australia.
Download our latest Modern Slavery Statement.