Executive summary

The 2023 Global Estimates of Modern Slavery reported 50 million people living in modern slavery, a rise attributed to crises like the COVID-19 pandemic, conflict, and climate change. The World Bank predicts 216 million people will be internally displaced by climate change by 2050, increasing their vulnerability to modern slavery. Investors need to consider these human rights impacts when assessing capital allocation.

Introduction

Climate change is a significant human rights issue, threatening livelihoods and driving material social risks that investors should consider. The ‘just transition’ from fossil fuels to renewable energy, while crucial, presents challenges like potential job losses and exploitation in renewable energy supply chains. This briefing aims to illustrate the links between climate change, the energy transition, human rights, and modern slavery, offering tools for investors to identify and respond to these risks.

Investor risk exposure

Climate-related risks can manifest as modern slavery risks in several ways: sudden-onset events like storms can displace people, increasing their vulnerability to trafficking; the phase-out of fossil fuel industries can lead to job losses and exploitation; and the transition to renewable energy can create new forms of modern slavery in mineral extraction and land acquisition.

Climate change acts as a ‘stress multiplier’, exacerbating existing vulnerabilities, particularly for women, children, and the rural poor. Companies operating in climate-affected areas need to recognise the increased precariousness of workers and migrants.

Climate-related modern slavery risks can be financially material to companies, manifesting as legal, reputational, and operational risks. Legal risks arise from evolving regulations on human rights and environmental due diligence. Operational risks include supply chain disruptions due to climate-induced migration and the potential for forced labour. Reputational risks stem from increased stakeholder awareness and activism around these issues.

Tools for investors to assess climate-related modern slavery risks

Existing approaches to managing climate risk

Existing frameworks for managing climate risk often lack a comprehensive approach to assessing climate-related social factors. This briefing introduces two new tools to supplement existing frameworks like the Task Force on Climate-Related Financial Disclosures (TCFD) and guide investors in identifying and addressing these risks.

Tool 1: Supplementary recommendations to assess climate reporting and management

This tool offers recommendations for companies to disclose how they identify, assess, and manage climate-related modern slavery risks. It covers governance, strategy, risk management, and metrics and targets. Companies should disclose board oversight of these risks, the impact of these risks on their business, and how they integrate risk management into their overall strategy. They should also disclose metrics used to assess these risks, such as the percentage of operations in high-risk areas and the number of migrant workers employed.

Tool 2: Investor stewardship guidance

This tool provides guidance for investors to incorporate climate-related modern slavery risks into their corporate engagements. It recommends that companies have public policies addressing these risks, that boards have oversight of these policies, and that companies establish regular communication channels with investors. It also suggests that companies should be able to articulate their understanding of these risks, the frameworks they use to identify them, and how they develop and maintain a risk register. Additionally, companies should adopt a proactive approach to managing these risks, set clear targets for reducing them, and be able to articulate how their actions have reduced these risks.