Introduction: Modern slavery and the investor imperative

Modern slavery remains deeply entrenched in the global economy, affecting supply chains across almost every sector and continent. According to estimates from the International Labour Organisation (ILO), Walk Free, and the International Organisation for Migration, an estimated 49.6 million people were living in conditions of modern slavery in 2021. For investors, this issue should be viewed through a double materiality lens: it is both a fundamental violation of human dignity and an increasingly relevant threat to enterprise value. Poorly managed forced labour risks can result in regulatory action, supply chain disruption, litigation, and reputational damage, leading to margin pressure, earnings volatility, and weaker long-term performance.

The operating environment: Why has modern slavery become a more material issue for investors?

Legislative expectations on companies are moving quickly from broad transparency requirements towards mandatory due diligence and enforcement-based regimes. In the United States, the Uyghur Forced Labor Prevention Act (UFLPA) has reshaped supply chain behaviour by creating a rebuttable presumption that goods from Xinjiang are made with forced labour. As of mid-2025, the UFLPA Entity List included 144 entities. Australia has proposed reforms to its Modern Slavery Act that would introduce criminal liability for large companies failing to prevent exploitation and civil penalties for non-compliance. In the EU, the Corporate Sustainability Due Diligence Directive (CSDDD) and the Forced Labour Regulation—enforceable from 14 December 2027—codify international standards into binding law. Modern slavery risks span far wider than often assumed, occurring across agriculture, construction, mining, and logistics, necessitating systematic assessment across a breadth of portfolios.

Entrenched challenges: Why existing approaches fall short

A significant gap remains between the responsibilities companies face and their capacity to identify forced labour. Many investors rely on ‘observable basics’ such as the adoption of policies, training, and audits. However, these process-based inputs do not necessarily capture whether measures are effective in addressing actual risk. Multi-tier supply chain visibility remains a major hurdle; forced labour is often embedded three to five tiers removed from the final product, such as in raw material extraction or processing. Furthermore, traditional analysis often misses business model drivers—such as a value proposition based on the lowest cost goods or high-speed delivery—that create structural vulnerabilities and cost pressures throughout the supply chain, increasing incentives to rely on poorly protected labour.

Approaches to tackling challenges and optimising opportunities

This report highlights two complementary analytical frameworks to improve risk identification. Schroders’ Modern Slavery Risk Model allows investors to assess risk at scale by combining data on country prevalence, sector-level risk patterns, and company disclosure. It produces three outputs: prevalence risk (drawing on Walk Free’s Global Slavery Index), scrutiny risk (likelihood of regulatory or public disruption), and risk management quality. An application of this model to two food retailers showed that Company A (China) faced significantly higher operational prevalence risk (0.09 people in slavery per employee) compared to Company B (UK, 0.00). Geographic factors and exposure to higher-prevalence regions are key drivers of these scores, highlighting the need for targeted engagement where exposure is highest.

Shift’s Business Model Red Flags (BMRF) framework provides a more granular lens by identifying 25 indicators of increased risk across a company’s value proposition, value chain, and cost structure. For instance, Red Flag 18 (sourcing low-paid labour from providers) identifies how third-party recruitment agencies can charge excessive fees, creating debt bondage. This framework provides structured lines of enquiry to help investors probe beyond standard policy responses and address the root causes of identified risks, such as commercial features that incentivise shortcuts on labour practices.

Further approaches to prevention and mitigation

Impactful mitigation efforts at the company level must go beyond audit-based compliance to address root causes. Effective strategies include meaningful worker voice mechanisms, supplier development programmes, and purchasing practice reforms. A 2024 Schroders case study on purchasing practices found that companies with shorter payable days benefited from improved future share price performance, higher earnings growth, and lower volatility. Addressing living wages and income adequacy is also vital, as poverty increases vulnerability to forced labour. Engagement with a global food company highlighted the importance of expanding living income assessments beyond cocoa to other agricultural raw materials and sourcing regions to mitigate structural vulnerability.

Conclusion: From complexity to action

Closing the gap between macro-level risk models and company-level analysis is the primary challenge for investors seeking to act with precision. While emerging regimes like the Corporate Sustainability Reporting Directive (CSRD) may improve data availability, investors, standard-setters, and companies all play a role in making disclosure more decision-useful. Documenting policies alone is insufficient for addressing modern slavery; a credible response requires investors to understand where harm is most likely to occur, why it occurs, and how active engagement can help change the structural business practices that allow exploitation to persist.