The term modern slavery is increasingly making an appearance in all walks of life, from journalist headlines, corporate releases, and of course in the investment world. What does it mean and how is it presenting itself in our societies? What does it mean to investors and what are we doing to combat it?
As an introduction to modern slavery, it’s interesting to note there is actually no internationally agreed upon definition. Here in New Zealand MBIE defines modern slavery as “severe exploitation that a person cannot leave due to threats, violence or deception. It includes forced labour, debt bondage, forced marriage, slavery, and human trafficking.” For context, the International Labour Organisation (ILO) recently released its global estimates of modern slavery1 noting that 50 million people were living in modern slavery in 2021. They broke this down into 28 million people in forced labour and 22 million in forced marriage. While many assume these issues are a relic of the past, it’s certainly not when it encompasses nearly one in every 150 people on earth and has increased by nearly 10 million people in the last 5 years!
So, what forms can modern slavery take? Descent-based slavery is historically what we think of when the word slavery is mentioned and this does still exist, largely in Africa. But the most common form of modern slavery is debt bondage (or bonded labour), where a person is forced to work while indebted to the employer, often with little control over the debt and for minimal or no pay. This is more prevalent in Southern Asian countries2 and sectors like agriculture, mills, mines, and factories. On top of this is child labour, forced labour, and human trafficking - to name a few.
Where does New Zealand stand on this topic? In 2021, the NZ government committed to a Plan of Action3 against forced labour, people trafficking, and slavery. The 28 actions as a part of this plan are to be implemented over the course of the next five years (to 2025) to ensure NZ meets its international commitments on modern slavery (and worker exploitation). The government is currently working on a legislation to achieve this (with public submissions received), which would create new responsibilities across the operations and supply chains of all types of organisations but with more responsibility falling on larger (>$50 million revenue) organisations. This is where the bulk of the NZX listed entities would be captured, although some already disclose modern slavery risks following the ASX requirements.
Across the ditch in Australia, they have moved a lot quicker than us to combat modern slavery. They have already introduced their Modern Slavery Act 20184 requiring entities with revenue over AUD$100m to annually report on the risks of modern slavery in their operations and supply chains.
A recent study by Monash University5 looked at the modern slavery statement disclosure quality of the top 300 listed entities on the ASX. This study gave a scorecard rating to each company (rated A through F) based on 5 key areas. In summary, these areas are the level of detail in describing their own entity, their supply chain, the risks of modern slavery within their supply chain, actions of the entity to address and remediate such risks, and finally how an entity assesses the effectiveness of the actions taken to assess the risks of modern slavery. From this assessment and the resulting scoring, a few key observations were made.
Firstly, size matters. The larger the market capitalisation in general the better the score, with the implication that larger organisations have more resources to assess, structure, and review such policies and practices. For many entities, this would have been a new requirement. Secondly, the sectors which scored the best were utilities, consumer staples, and real estate, while health care was the worst, with often sectors most at risk taking it more seriously. Lastly, the most common risk seen overall was forced labour (especially, unsurprisingly, in consumer stocks), ahead of child labour and debt bondage. The disparity in results across size and sectors certainly provides future work both for the corporates themselves but also for engagement from investors themselves into the risks that lie within these firms.
As investors what does this all mean for us? How this all relates to the investment community happens on many levels. Firstly, the most obvious is the legal risk to entities, this can be the ‘black swan’ event that stuns a company with a huge fine, a supplier shut down or even the company itself shut down if the offense is bad. The potential for such an outcome could be from a lack of understanding of their supply chain or lacking of a framework to assess or even knowing that such risks exist. Secondly, reputational risk; once a brand or business is associated with undesirable practices or suppliers the damage can be irreversible.
Within all our Mint Australasian equity funds we integrate Environment, Social, and Governance (ESG) factors, including modern slavery disclosures, when assessing any investment. Many New Zealand-listed corporates already disclose key risks around modern slavery, which we look to incorporate into our assessment of them. As New Zealand moves to legislated reporting requirements around modern slavery, we are ready to adopt and integrate this within our own framework on top of the work and engagement that we believe is needed to understand each investment. Part of our philosophy is that we believe ESG considerations are key to making a fully informed decision in any investment process. When investing over a long-time horizon we believe that companies that are better at managing such risks should be able to have better and more sustainable outcomes.
Some of the higher-risk areas of focus we have recently engaged in have been the potential hiring of offshore labour (retirement sector for nurses and RSE workers in the agriculture sector) as we look to understand each corporates assessment of such risks and how they mitigate them within their current business models. Incidents around offshore workers have made far too many headlines, even as I write this another story of poor conditions in the kiwifruit sector is being debated out in the media.
As an eye opener, for an interesting read on forced labour issues, a Stuff Circuit Investigation6 looked into present and historic issues in the pacific around the fishing industry. This illustrates just how harrowing it can be for exploited workers but also how complex and interwoven supply chain issues can be. From an outsider looking in, it’s obvious how hard it is to have complete information. It certainly makes you think twice before chomping down on your next tuna sushi roll!
Disclaimer: David Fyfe is a Portfolio Manager in the Investment Team at Mint Asset Management Limited. The above article is intended to provide information and does not purport to give investment advice.
Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement here.
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