Today's boards cannot remain ignorant of, or turn away from, the issue of modern-day slavery. Whether via overlooked unethical practices in the supply chain or elsewhere, the exploitation of individuals is recognized as a corporate challenge, with growing expectation that the board and corporation take a proactive stance on this and other social issues.
What role does the board play in ensuring their organization isn't participating, knowingly or unknowingly, in modern-day slavery? And how can you ensure you fulfill your obligations?
What Is Modern Day Slavery?What do we mean by modern-day slavery or modern slavery? It can be defined as the severe exploitation of other people for personal or commercial gain. The U.S. Department of State defines it as including "involuntary servitude, slavery or practices similar to slavery, debt bondage, and forced labor."
How Do You Identify Modern-Day Slavery?
One of the challenges of modern slavery is the fact that it can be challenging to spot. Modern-day slavery in America doesn't always come with outward signs of coercion. Today's corporate slavery is more subtle than that: the California Transparency in Supply Chains Act notes that human trafficking and modern slavery crimes are "often hidden from view and are difficult to uncover and track."
And modern slavery isn't always present among the suppliers or organizations you deal with directly. It may be hidden away further down your supply chain. The challenge of identifying modern-day slavery is one of the reasons it is so pernicious and so prevalent.
How Does Modern-Day Slavery Relate to ESG?
Modern-day slavery falls firmly into the panoply of ESG risks boards and directors face. Directors increasingly recognize that social issues are part of the fabric of their strategy; 68% of respondents to PWC's 2020 Corporate Directors' Survey felt that human rights considerations should form part of their strategic planning.
Modern-day slavery and ethical sourcing are central to sustainable supply chains. Failing to act here can derail corporates' ESG policies and jeopardize your ESG ratings and risk scores, something that is increasingly important when it comes to investor and buyer decision-making.
Provenance and sustainability are growing in consumer consciousness. Consider that 64% of consumers surveyed in 2019 believed they could make a difference via their purchases, and 31% of U.S. online adults say that the events of 2020 have made them spend more time thinking about global challenges like poverty and hunger.
As part of an ESG strategy, a proactive approach to modern slavery helps you win business, protect your reputation, and retain a discerning customer base.
Do Investors Care About Modern-Day Slavery?
If modern slave labor is of interest to consumers, you can be sure it's also significant for investors. Beyond ethical best practices, investors have a vested interest in corporations' approaches to modern slavery.
The way organizations manage the human rights risks in their operations and supply chains can be seen as shorthand for their overall management and governance rigor — central to investment decisions. Companies can face significant reputational damage resulting from poor supply chain management and the failure to address corporate slavery — another red flag for potential investors.
And with investors themselves increasingly subject to ESG reporting and measurement, they need to ensure their investments meet the grade in terms of current slavery risk. The risks they have identified, their actions, and the mitigation they are putting in place are likely to come under increasing scrutiny.
But there remains a gap in many organizations between the priorities of investors and the board's actions. Closing the gap between strategy and investor wishes on ESG — and therefore on modern slavery — can be a challenge but is vital for boards wishing to live up to investor expectations.
Why Is It Vital for Boards to Identify and Be Transparent on Modern Slavery?
As modern slavery raises the corporate and public consciousness, there's a growing trend towards legislation designed to stamp it out. The U.N.'s 2015 Sustainable Development Goals (SDGs) aim to eradicate modern slavery by 2030, with regional and country legislation the following suit.
The California Transparency in Supply Chains Act came into effect in January 2012, while the Modern Slavery Act of 2015 requires organizations of specific sizes conducting business in the U.K. to publish an annual slavery and trafficking statement each year. France, the Netherlands and Australia have also introduced legislation targeting slavery in the last decade.
Aside from the ethical considerations, expectations from investors, consumers and reporting frameworks are making transparency around modern-day slavery non-negotiable for today's organizations.
What Are the Risks of Modern Slavery Within the Company?Modern-day slavery poses several risks to your company, whether you knowingly or unwittingly support it, and whether the corporate slavery happens within your own business or among the vendors you work with.
- Reputation risk: The reputational risk of working with suppliers who have questionable business practices is identified as one of the threats your supply chain poses
- Regulatory compliance risk: The potential for regulatory breaches and the associated penalties
- Business risk: The above are both likely to reduce your attractiveness to both consumers and investors, and increasingly so as ESG reporting becomes the norm, causing damage to your balance sheet and corporate stability
Measuring and Reporting on Modern-Day Slavery
Modern-day slavery is a complex issue, often embedded deep in supply chains and at a distance from the businesses that seek to eradicate it.
Companies can struggle to measure and report on their efforts, partially due to the complexity and systemic nature of the problem and partially due to a historical lack of structured frameworks for measurement and reporting. Modern slavery has been "one of the most underweighted indicators of the 'S' stream" of ESG because it has been the most difficult to quantify.
This is changing, however. For all the reasons we've outlined here, modern-day slavery is garnering increasing attention; the need for consistent measurement and reporting will only expand as its centrality to investment and consumer decisions grow. It plays a fundamental role in the S of ESG; boards need to give it the same attention as issues like diversity and inclusion.
If you are struggling to apply tangible measures and structured reporting to your ESG efforts, including your approach to supply chains and modern-day slavery, ESG Solutions can help.
Our suite of ESG Solutions can make your goals actionable, measurable and achievable, using a data-led approach to increase rigor and ensure you can act, report, and improve ESG performance, including modern-day slavery.
Also, our ESG roadmap is a free resource that you can download. You can share it with your team when operationalizing your ESG efforts. The checklist ensures you dot the i's, cross all the t's and confidently take the next steps in your ESG journey.
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