Sustainable investment pioneer, CCLA Investment Management has launched the CCLA Modern Slavery Benchmark which assesses the largest UK companies by market capitalisation on how they are taking steps to eradicate modern slavery in their operations and supply chains.
The benchmark is a tool for investors to support engagement efforts and to help investors understand which companies are active – and to what extent – in the fight against modern slavery. The benchmark creates an assessment of corporate modern slavery performance and disclosures. It is aligned with statutory requirements, government guidance and international voluntary standards on business and human rights.
Recent data published by the International Labor Organization and the Walk Free Foundation in their Global Slavery Index estimate that 50 million people worldwide are in a state of modern slavery with 28 million of those in forced labour. Forced labour is entwined in businesses. Most sectors are affected through their global operations and supply chains where they maybe knowingly, or not, are linked to human rights abuses. Nearly two-thirds of all forced labour cases are associated with global supply chains with most forced labour occurring in the lowest tiers of supply chains, such as the extraction of raw materials and in production stages. The UK annually imports $26.1 billion products at-risk of being made using forced labour including $15 billion of electronics and $10 billion in garments and textiles [NOTE 2].
Dr Martin BUTTLE, Better Work Lead, CCLA, said: “As investors we are in a strong position to contribute to ending modern slavery in businesses. We recognise that human rights, and specifically modern slavery, is a material risk for companies and that they need to do more to find, fix and prevent it on a global scale. While benchmarks may be a crude measure, the gathering of such data is important and enables more meaningful, targeted and potentially fruitful discussions between investors and companies to tackle modern slavery within a company’s own operations as well as its supply chain.
“Our intention is that the benchmark, through regular repeated assessments of companies on their modern slavery commitments and practices, will provide an accountability mechanism by allowing investors and other stakeholders to assess whether companies are effectively managing the business risks associated with modern slavery. We also believe it will provide a vehicle for companies to learn and to share examples of good practices and create a mechanism to leverage business competition to drive improvement.”
Key findings
The benchmark report is based on companies’ public disclosures and the assessment assigns them to one of five tiers [NOTE 3]. Kingfisher, Marks & Spencer, Next, Reckitt Benckiser, Tesco and Unilever all appear in tier one as leaders on human rights innovation. These companies have displayed an evolved and mature approach to human rights due diligence, with extensive discussion on the risks, case studies on systemic modern slavery risks in the sector, and discussion on meaningful activity to find, fix and prevent modern slavery.
It was notable that all of those companies appearing in tier one and half those appearing in tier two were consumer discretionary and consumer staples. These sectors are at greatest risk of modern slavery and are more answerable to consumers. Performance tiers three and four were dominated by financials, industrials and materials. Across the tiers, there was significant difference between the most and least active in addressing modern slavery in their operations and supply chains.
All of the companies assessed disclosed policies to manage the risk of modern slavery in their supply chains, mainly through a combination of desk-based risk assessment and onsite audits. There was however, limited information on assessing those risks and even less on identifying them.
Results indicate that while all companies have policies in place, companies now need to focus on implementing the policies and taking action when they find modern slavery. It was clear that the provision of remedy to victims was still weak with companies tending to achieve low scores. Just under a third (30) of companies assessed disclosed the steps taken to end ongoing risks where a violation was found and only nine reported outcomes of the remedy process for victims. Only one company disclosed evidence of providing remedy that was satisfactory to the victims. These results are a notable improvement from the Business & Human Rights Resource Centre’s findings in 2018 where they found that no company disclosed what remedy was provided or would be provided as part of a corrective action plan or other remediation process.
Forty-two companies disclosed a policy relating to responsible procurement practices but only 14 provided examples of their practices.
Only around one quarter of companies (25 companies) reported finding modern slavery in their supply chain which is concerning because data tells us it is much more widespread. According to the Global Slavery Index, while the prevalence of forced labour is higher in low-income countries, it is closely connected with the demand from higher income countries and is in the supply chains of goods. For example, electronics from China and Malaysia account for the highest value at-risk imports in the G20 countries, with spending by these countries at $243.6 billion in 2021 [NOTE 4].
On a more positive note, CCLA found that 20% more companies have a grievance mechanism than when the Business & Human Rights Resource Centre (BHRRC) completed their analysis in 2018 showing that about 75% of the companies surveyed reported a grievance mechanism at that time.
Recommendations
The benchmark report outlines recommendations for companies, investors and policy makers urging all parties to closely monitor developments in legislation on corporate sustainability due diligence in Europe and the introduction of import bans in the United States and Europe.
Specifically CCLA urges companies to:
- ensure there is board level responsibility for governance on modern slavery
- conduct and disclose operational and supply chain risk assessments which include assessment of forced labour risks in direct operations and across supply chain locations, going beyond tier one
- disclose and provide details of suspected cases of modern slavery and the steps taken to provide remedy for victims and the outcomes
- adopt and disclose responsible procurement practices in line with international best practice
Dame Sara THORNTON, Consultant – Modern Slavery, CCLA, said: “While the UK’s modern slavery legislation is not perfect, the Modern Slavery Act remains important. Its requirement for disclosures on modern slavery enables investors to see which companies are taking action to end modern slavery.
The UK government has undertaken to tighten the requirement of modern slavery statements and to provide more guidance. This is both necessary and overdue. Most companies want to do the right thing but they need policy makers to level the playing field, to signal clear expectations and to ensure that those who ignore the law are sanctioned.”
Rt Hon Theresa MAY MP, said:
“The Modern Slavery Act 2015 included ground-breaking law on transparency in supply chains. Section 54 of the Act required businesses with an annual turnover of more than £36m to disclose what they had done to address modern slavery in their organisations and supply chains and to publish an annual modern slavery statement. When we introduced it, we hoped that investors would use them to inform active engagement with companies to encourage and support them to make improvements. CCLA’s benchmark is a great example of investors taking the lead and using modern slavery statements as a catalyst for positive change and I welcome it.”
Peter HUGH SMITH, Chief Executive, CCLA, said: “At CCLA, we believe there is huge potential for action by businesses to reduce modern slavery around the world and we believe that all businesses have some exposure to modern slavery. Large, listed companies are in an influential position to set standards, implement policies and find, fix and prevent modern slavery and we will use this benchmark to engage and to push for improvements. In the event that companies in Tiers four and five do not engage, we will vote against their financial statement and annual accounts.
“We believe that investors have special responsibilities. Although not currently required to undertake due diligence on their portfolios, we believe that investment portfolios should fall within the scope of modern slavery legislation and we encourage investors to join Find it, Fix it, Prevent it and to engage with portfolio holdings around what is not only an important human rights issue but a material risk to investors.”
Since 2012, CCLA has taken active steps to address modern slavery. More recently, in 2019, it founded the Find it, Fix it, Prevent it investor coalition – today backed by 65 global investors representing £15 trillion in assets under management – to bring together investors, academics and non-governmental organisations to share knowledge, set targets and monitor the progress of addressing modern slavery in businesses’ supply chains. In 2020, CCLA led a group of investors to write to 54 companies in the Gulf nations, to request details about their approach to safeguarding migrant workers, following concerns about workers’ welfare and cancellation of contracts during the Covid-19 pandemic. In 2022, CCLA convened a group of investors to sign an investor statement calling for retailers and firms in and directly sourcing from the UK agricultural supply chain, to protect migrant seasonal workers from paying recruitment fees leaving them in danger of debt bondage.
