Identifying and addressing the risks of Modern Slavery and Human Trafficking (MSHT) is an essential component of Environmental Social and Governance (ESG) compliance. While many companies operating in obviously high risk sectors for MSHT, such as manufacturing and construction, are adopting increasingly robust measures to counter the threat, a new report illustrates that the financial services sector is also vulnerable to MSHT. The report, published in collaboration with the UK Independent Anti-Slavery Commissioner, illustrates that MSHT risks are prevalent in the financial services sector and that it has some way to go to address these risks.[1]
Introduction
MSHT is estimated to generate $150 billion annually and is one of the top three international crimes alongside drug trafficking and trade in counterfeit goods. An estimated 136,000 individuals are currently experiencing modern slavery conditions across the UK. This report seeks to debunk a widely held assumption that financial services organisations are not impacted by MSHT risks.
While acknowledging that a minority of financial services organisations have properly assessed their risks as part of implementing a sound ESG strategy, the report invites the whole industry to confront its risks and contains some astonishing findings about the extent to which slavery is embedded within international supply chains. The report stresses the importance of business leaders setting a tone from the top and crystallising public commitments to eradicating MSHT.
Key messages in the report
Research undertaken by the authors of the Report indicates that the financial services sector has clear involvement with modern slavery and human trafficking, for example by trading in commodities generated by MSHT, or extending loans to, investments in or project finance to businesses with MSHT in their supply chains.
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Key questions
The report challenges all senior leaders in financial services organisations to answer the following questions:
Do you have cases of MSHT across your own business activities, within your supply chains, your customers or your staff?
How do you know whether or not you do have cases? When did you last check?
Is any of the capital you are lending or investing contributing directly or indirectly to MSHT?
What are you doing to manage the risk of MSHT in your business?
The report conveys a simple message that no organisation will be aware of the extent to which it is directly or indirectly involved in MSHT unless it takes proactive steps to analyse and profile its operations. A serious commitment to addressing the risks will be underpinned by appropriate due diligence on customers, staff and supply chains, investigating suspicious activity and factoring in MSHT risks into a robust ESG policy.
Legal requirement
In the UK, the Modern Slavery Act 2015 requires all organisations with a turnover of more than £36 million to publish an annual MSHT statement. The report stresses that these statements should not simply be a box ticking exercise but should instead be viewed as "a useful tool for businesses in planning, monitoring and reporting on their modern slavery due diligence". International legislative developments in this area have been on the increase (see, for example, the Australian Modern Slavery Act 2018 and the French Corporate Duty of Vigilance enacted in 2017), as governments seek to catch-up with public and investor scrutiny.
In September 2020, the UK Government announced new measures that will be introduced to strengthen MSHT statements. This will include mandating the inclusion of what are currently six voluntary areas, meaning that companies will be required to set out inter alia what policies and due diligence measures are in place and what steps it has taken to monitor its risks and conduct training. If organisations have taken no steps within an area, they must state this clearly and will be encouraged to provide a reason.
Additionally, a new Government-run reporting platform will be launched this year enabling organisations to publish their MSHT statements on it. The new platform is intended to increase transparency and accountability.
How can we help
Aside from the moral and legal repercussions of your organisation being implicated in MSHT, the reputational impact can be devastating. Investors are increasingly motivated to invest in sustainable, responsible companies with robust ESG compliance. An organisation's association with MHST will be a significant disincentive to investment and may also lead to an ineligibility to tender for certain contracts. Conversely, an appropriately devised and communicated ESG strategy which factors in all relevant risks, including MSHT, will help to increase the attractiveness of a business to investors and consumers alike.
If you have any concerns or questions about your MHST or ESG compliance, please do not hesitate to get in touch with our Corporate Crime & Investigations team or your usual Brodies contact.
[1] The report is the culmination of a yearlong research and outreach project led by Themis in partnership with The Independent Anti-Slavery Commissioner’s Office (IASC), and TRIBE Freedom Foundation.
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