Human rights and modern slavery

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 conflicts³), 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.

³ https://geneva-academy.ch/galleries/today-s-armed-conflicts

IAST APAC is an investor-led, multi-stakeholder project. It was established in 2020 to engage listed companies in the Asia-Pacific region to find, fix and prevent modern slavery in their operations and supply chains. IAST APAC comprises 42 investors with A$9.4 trillion in assets under management⁴, with Walk Free and the Finance Against Slavery and Trafficking (FAST) initiative acting as Knowledge Partners and Walk Free as Secretariat.

A company’s exposure to modern slavery risks can be complex due to both the contextual nature of the risks (different issues can be present based on sector, industry, geography) as well as the rise of distributed, dynamic and fragmented supply chains.

While a single data point is never the ‘answer’ to modern slavery risks, the members of IAST APAC believe that disclosure and collection of a core set of metrics can help provide the first step towards comparability and facilitate discussion and engagement of a company’s approach and outcomes.

As part of this, the group assembled a number of ESG data providers to discuss gaps in modern slavery analysis, understand gaps in current metrics and develop a core list of metrics in relation to modern slavery. The subgroup heard from data providers, standard setters, and academics as they looked for ways to improve the use of data.

The group subsequently drafted a set of recommended metrics for companies to disclose to help better identify modern slavery risk. They are designed to distinguish between “input” and “output” metrics: input metrics represent the inputs into effective management of modern slavery risk while output metrics aim to provide a quantitative measurement of tangible outcomes as a result of policies, frameworks and processes adopted and implemented.

⁴ According to IAST APAC Annual report FY2022-23

The issue

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.

Actions

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.
   

Findings

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.

Achievements

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.

Next steps

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.