Investor engagement to fight modern slavery and human trafficking
This report provides insights on how investors can engage with businesses to fight modern slavery and human trafficking. Such efforts are underpinned by building and utilizing leverage on companies. It provides guidance on identifying salient modern slavery risks and making divestment decisions if efforts to engage are unsuccessful in addressing modern slavery and human trafficking risks.
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OVERVIEW
This report highlights that investors can utilise leverage to seek to prevent, mitigate and remedy harm related to modern slavery and human trafficking. The report recommends following the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines for Multinational Enterprises to build and use leverage effectively. Investors may need to consider exclusion or divestment if mitigation efforts are unsuccessful in addressing modern slavery risks. Acquiring the capability to benchmark and evaluate influence is also recommended.
Stewardship rules and expectations shape investor leverage activities. To protect and enhance the value of investments over time as stewards of financial capital, institutional investors have a responsibility to deliver risk-adjusted financial returns to their beneficiaries over the long-term. The report suggests investors should consider the social impacts of investment decisions given that stewardship expectations increasingly require this. Some jurisdictions and Sustainable Investment Forums (SIFs) have adopted a ‘comply-or-explain’ approach.
The FAST Risk Mapping tool can help investors identify the highest risk areas in their investment portfolio. It is recommended to engage with investees to address modern slavery risks. This involves setting clear expectations, incentivising investee companies to identify, reduce and address modern slavery risks and harms in their own value chains, and building and using trust. Several initiatives have emerged in which institutional investors work together with investees to foster engagement.
Exclusion and divestment may reduce modern slavery risks. In some cases, divestment and exclusion may be the last measure in a process of graduated engagement and leverage where investors have no recourse but to divest where large-scale, systemic forced labour is discovered, for example. The possibility of divestment and/or exclusion lessons offer an important form of leverage, depending on clear expectations, and compensation focus on reducing modern slavery risks to people. Care should be taken with divestment and exclusion decisions, and the reasons for decision-making clearly explained to both investees and other stakeholders, including affected people.
Overall, Finance Against Slavery and Trafficking provides insights into the role of investor engagement in the fight against human trafficking and modern slavery. It highlights the importance of leveraging influence to mitigate risks and regularly benchmarking leverage to assess effectiveness. The report provides recommendations on engaging with high-risk investees, stewardship, and making responsible divestment decisions.