Stockholm (NordSIP) – When the Laundromat recently highlighted the environmental impact of the fast fashion industry, we also touched upon the poor working conditions suffered by many workers in the garment industry. The overwhelming majority of institutional investors have implemented minimum criteria for labour rights, either by directly referring to the International Labour Organisation (ILO) standards or by signing up to the UN Global Compact principles. However, supply chains are highly complex, and reliance on third parties’ adherence to their commitments is certainly not a given. The erosion of workers’ rights, when taken beyond a certain point gives rise to what is known as Modern Slavery. The 183 year-old UK-based non-governmental organisation (NGO) Anti-Slavery estimates that around 50 million people worldwide are in some form of slavery.
Due to a lack of dedicated in-house resources, institutional asset owners often rely on their external managers to maintain acceptable Environmental, Social and Governance (ESG) standards in their investment portfolios. While some active managers with specialist ESG strategies will conduct their own research into companies, many managers will still rely wholly or partly on third party ESG ratings or high-level corporate commitments. As we have seen with fast fashion, certain sectors are more prone to exploitative working practices than others. These include mining, agriculture, construction and other sectors reliant on low-skilled and itinerant labour. The term slavery conjures up images of chains and shackles, but the reality is more nuanced, hence the term “modern” slavery. Alongside forced labour, modern slavery involves bonded labour, forced marriage, human trafficking, domestic slavery as well as a host of other scenarios masquerading as legitimate employment but designed to entrap workers.
In two months’ time, the 2022 FIFA World Cup kicks off in Qatar. The appointment in 2010 of the tiny Gulf state as World Cup host was controversial, not least due to its lack of football stadia and extremely hot climate. However, those issues were swiftly overshadowed once the subsequent construction project began. Despite its vast natural gas-fuelled wealth Qatar’s native population is very small, and the country relies on hundreds of thousands of foreign workers to keep the economy running. These are typically brought in from poorer countries such as Bangladesh, Nepal and Pakistan. This is done under the local “Kafala” system, which requires incoming workers to have a local sponsor. This is where slavery finds the opportunity to raise its ugly head, under the guise of legitimate employment. Many workers start off already in debt to employment agencies. In many cases their passports are confiscated, leaving them at the mercy of unscrupulous employers, who feel free to pay lower than promised salaries, or withhold pay entirely. Extremely poor accommodation, working conditions and safety standards compound the problem. Following a sustained campaign by NGOs, the Qatari authorities promised in 2017 to reform the Kafala system and address the exploitation of foreign workers. However, the jury is very much still out with respect to the actual implementation of these reforms on the ground. On September 20, 2022 several NGOs wrote to FIFA’s 14 corporate partners and World Cup sponsors asking them to support the compensation by FIFA and the Qatari government of the migrant workers who suffered exploitation, injury, and death during the construction project.
What should investors do to address the problem of slavery? It can clearly take many forms and be obscured by the smoke and mirrors of corporate or governmental statements supporting international labour conventions. So far only four of the 14 companies sponsoring the 2022 World Cup have responded to the NGOs’ request. The question of slavery should be on institutional investors’ engagement agenda with portfolio companies. VISA, Hyundai-Kia and the other sponsors may not be directly responsible for the workers’ plight, but there are at the very least reputational risks to consider should they be in your portfolio. Following demands from the G7, the G20, the UN General Assembly and the UN Security Council, the Liechtenstein Initiative for a Financial Sector Commission on Modern Slavery and Human Trafficking was launched in September 2018. The commission released its Blueprint for Mobilising Finance Against Slavery and Trafficking, along with an investor Toolkit in September 2019. This sets out clear and immediate actions for financial market participants to take, which can then help contribute towards eradicating modern slavery. For that to happen by 2030, the commission estimates that 10,000 people need to be removed from slavery each day. While sportswashing has been the focus of this edition of the Laundromat, investors must keep a sharp eye on all areas of their portfolios, especially in industries that manufacture in the developing world or where the workforce is obtained via third party intermediaries.