This report is broken down into four parts to help organisations identify modern slavery risks in the financial services sector, provide tips for the financial services on addressing and managing modern slavery risk, and guidance on how to create transparent modern slavery reporting. The paper finishes with a case study focused on the Australian banking sector and how to develop common modern slavery typologies and indicators.

Modern slavery can be defined as a range of serious human rights violations, which is also considered a crime in Australia. Some activities included in these violations are human trafficking, slavery, servitude, forced marriage and forced labour. Modern slavery risks are especially heightened where labour regulation and social safety nets are weak.

The first section provides helpful definitions of modern slavery risk and current mandatory reporting criteria required by the Modern Slavery Act 2018 (Cth). The Act states that entities with a consolidated revenue of AU$100 million or more are required to submit an annual modern slavery statement on what they are doing to identify and manage modern slavery risks in their operations and supply chains.

The next section helps identify modern slavery risks in the financial services sector. The paper recognizes business risk in financial products and services connected to modern slavery by lending to, insuring, perpetrating, or benefitting from modern slavery in their supply chains. Outsourcing also poses a risk as there are challenges in monitoring the way the workforce is managed and creates a higher risk environment for violations.

The third section focuses on the risk to people and to the financial service business itself. Business exposure risk can be categorised into four domains which are:

• Regulation and standards
• Reputation and relationships: imposed by stakeholders and increased scrutiny from the media and civil society
• Company purpose: with employees increasingly demanding their employers consider the human rights impact of their business
• Investor and lender scrutiny: which comes from increased awareness and investors expectation of responsible investment

The final section provides some practical responses that the financial service sector can employ in their business to help reduce modern slavery risk. It suggests that the business should identify key modern slavery risk factors namely:

• Vulnerable populations
• High-risk business models
• High-risk categories
• High-risk geographies

Once, these factors are identified businesses should map how they will address these issues in line with current modern slavery legislation.

The guide concludes with a case study that employs topics discussed above to enable users of the guide to understanding the implications of modern slavery and how they can be managed in the financial service sector’s supply chains and business operations. It also includes a checklist for users to use when addressing and identifying financial institutions’ human rights violations, and what steps they are taking towards minimising their risk.

1. In 2014, the International Labour Organisation (ILO) estimated that proceeds from forced labour globally amounted to US$150 billion per year. The COVID-19 pandemic, as estimated by the ILO, has exacerbated the risks of modern slavery with approximately 555 million full-time jobs being lost during the first two quarters of 2020.
2. Digitalisation has accelerated the vulnerability of individuals leading to greater modern slavery risk. It has been increasingly harder for financial institutions processes to verify the identity of customers and detect potential victims.
3. Finance Against Slavery and Trafficking (FAST) initiative has labelled modern slavery as a tragic market failure whereby the profits used by a few criminal actors, but the full social and economic costs are borne by society as a whole.
4. Financial service sector businesses should conduct both human rights due diligence and traditional business due diligence. The key difference between these two is that human right due diligence focuses on risks to people rather than risks to the business. Employing a risk-based approach to human right due diligence, means that businesses should prioritise the most severe risks to people first. However, taking this approach may require a different approach as typical metrics used to identify vendor risk may focus on highest-value supplier but the biggest risk to people may be outside of the businesses’ high-value and strategic suppliers.
5. The most commonly infringed human rights of workers in the financial service sector are the right to enjoy just and favourable conditions of work, freedom from discrimination and harassment in employment, right to health (physical and mental), right to safety, and right to decent work. The abuse of the right to work can significantly affect the enjoyment of other human rights.
6. Modern slavery often occurs in situations where there are already a range of other violations of the human rights of workers. The paper suggests that businesses employ a holistic approach as supported by the 2011 United Nations Guiding Principles on Business and Human Rights (UNGPs). Using this approach will allow for early identification and response in contexts where human right violations are taking place.
7. The UNGP’s and in turn the OECD guidelines have a few expectations of businesses concerning human rights violations, they include businesses who ‘cause’ human right harms through their own acts or omissions, will cease or prevent the harm and provide remediation, businesses who ‘contribute to’ human right harms through their own acts or omission will cease or prevent the harm, using its leverage to mitigate any remaining harm and businesses who are ‘directly linked' to human rights harms, should use their leverage to prevent or mitigate harm and increase leverage where it is lacking and consider playing a role in providing remediation
8. Civil society and communities also play an important role modern slavery violations by the financial service sector. For example, non-governmental or civil society research can provide insights into allegations of human right abuses by financial institutions. This may be evident through their investment portfolios or through the practices of a borrower. Civil society groups are also proactively and should continue to use existing accountability mechanisms to call out poor corporate practices. There are a number of complaint mechanisms which have been used widely by communities, civil society groups and unions to raise concerns about breaches of the OECD guidelines.
9. The paper highlights that there has been an increasing number of collaborative initiatives which have sought to mobilise the financial service sector to play a key in identifying and addressing modern slavery risk. Using collaborating initiatives is a useful way for financial institutions to increase their leverage over the businesses which they are engaged in. using their influence will allow for better expectations regarding modern slavery risk management and other ESG considerations. Furthermore, having a collective dialogue between businesses can help regulators and policy makers make policy that creates a level playing field for financial institutions seeking to manage their modern slavery risk.