Modern slavery in supply chains haunts our investments

Modern slavery has recently made news headlines, but what actions can treasurers take to guard against this abhorrent crime? Peter Hugh Smith writes that both investors and fund managers have a role to play.

The recent scandal around online fashion retailer, Boohoo, has highlighted again—Covid or no Covid—there are many people with insufficient protection from exploitation in the workplace.

And it was in part thanks to the pandemic and the economic downturn that ensued, that in August this year CCLA spearheaded an initiative that brought together investors—such as Brunel Pension Partnership and the Local Authority Pension Fund Forum, with total assets of over $3trn—to focus on the plight of migrant workers in the Gulf region.

Migrant workers around the world are facing a difficult time. Particularly in the United Arab Emirates, where migrants make up to 90% of the workforce, the response to the pandemic has exacerbated this vulnerability. Many of those who were contracted arrived to find their jobs cancelled, while others had their positions terminated as the companies they worked for struggled financially. Large numbers of people were left unpaid and without the basics of accommodation and food, ultimately surviving on charity.

Out of pocket

All of this is worsened by the fact that the majority of migrant workers were already thousands of pounds out of pocket, having paid recruitment fees to secure their jobs in the first place.

Workers in places such as Bangladesh, Nepal, India as well as from African and Eastern European countries pay local agents to secure highly coveted jobs abroad, promising great rewards.

These agents will hook them up with recruitment agencies to progress through the steps required to gain entry to work and establish themselves in the host country, but only after having deducted fees, some legitimate others not. The sheer cost of such fees is out of most people’s reach which means they sell assets and borrow from friends, family and local lenders who charge exorbitant rates of interest.

The International Labour Organisation regards the payment of recruitment fees and costs as a significant indicator of forced labour, with debt bondage estimated to be a factor in over half of the 25 million cases of forced labour worldwide. According to UN data, a quarter of the forced labour victims globally are migrant workers.

Moral responsibility

Tragically, for the migrant workers in the Gulf region, when their contracts were cancelled and their employers let them go, they were left with steep debts and no way to repay. Given CCLA’s ongoing work around addressing modern slavery, we were approached by human rights defenders and felt it our moral responsibility to act.

We spearheaded an investor collaboration to write to multinational companies with operations in the Gulf region to enquire about their recruitment practices and the welfare of their migrant workers. We approached companies in the key sectors of hospitality, construction and oil and gas which meant we were writing to companies whose stock many of us hold, for example, Starbucks, Hilton, Kier, and Shell.

We are starting to get responses which typically acknowledge that there are policies in place which forbid the payment of recruitment fees. While this is laudable, it does not really get to the root of the issue, which is that the payment of recruitment fees happens in another country and often a number of steps removed from the company itself. It is often hidden from the companies and we feel that these companies need to do more to uncover it. They need to interview their migrant workers, understand whether recruitment fees have been paid and reimburse these workers.

Doing more

And we as investors also need to do more. Within local government, modern slavery is often considered by those with roles in procurement or social care, however, we believe that it is also an important factor to consider when investing in funds. Investors have an important role to play in asking questions of their investment managers and urging them to ask investee companies to dig deeper and seek to uncover potential issues.

We call upon the local authorities to consider whether their investments may inadvertently benefit from modern slavery and to ask questions of their fund managers such as: where is the money being invested? What precautions have been taken to guard against modern slavery in the portfolio? Has the manager signed up to the “Find It, Fix It, Prevent It” initative which aims to encourage investee companies to take a closer look at their supply? If they have not, please send them our way here.

There is so much more we can do and together we are stronger pushing for change.

Peter Hugh Smith is chief executive of CCLA.