Katie Frame | Financial sector’s role in quelling the rising tide of modern slavery

According to the International Labour Organisation (ILO), more than 49 million people worldwide are victims of modern slavery, of which 27.6 million are in forced labour.  The number of people in forced labour has grown over the last few years. This has been heavily driven by widespread disruption of global supply chains triggering a shift to more informal work channels and a rise in displacement resulting from conflict. A recent International Labour Organisation report estimates that forced labour generates around $236 billion a year for traffickers.

Modern slavery occurs in almost every country in the world. It encompasses the recruitment, movement, harbouring or receiving of people through the use of force, coercion, abuse of vulnerability, deception or other means for the purpose of exploitation. This includes slavery, servitude, child labour, forced labour, human trafficking, debt bondage, forced marriage, deceptive recruiting for labour or services, and slavery-like practices.

In a 2021 report, Dame Sara Thornton, UK Independent Anti-Slavery Commissioner, highlights the power that the financial sector has over global business practices – yet it has not yet integrated modern slavery risks into its business processes in the same way that it had environmental and climate risks.  She quotes work done by the Liechtenstein Initiative, the Blueprint for Mobilising Finance against Slavery and Trafficking1 published in 2019: "The report had argued that the world's bankers, investors, insurers and financial partners 'have unparalleled influence over global business... and that finance is a lever by which the entire global economy can be moved'.

"The rise in modern slavery across the world is a cause for great concern. All companies have important roles in addressing this issue and as asset managers, we have exposures and relationships across a wide range of sectors. We actively engage with management teams and take part in engagement initiatives with others in the industry to support stronger practices at the companies and assets we invest in, as well as those we work with directly," says Katie Frame, Active Ownership Manager at global investment manager Schroders.

Frame explains that modern slavery could occur across their business, with the biggest potential exposure linked to Schroders' investee companies. "As an active investment manager, this is also our area of greatest influence, and we have a role to play in combatting modern slavery and human trafficking through our investment decisions and the influence we can have on investee companies and the assets we manage," says Frame.

The sentiment is echoed by Dame Thornton, who recommends in her report that until governments legislate to extend Modern Slavery legislation to cover financial portfolios, to cover these areas voluntarily in their annual modern slavery statements.

For Schroders, centralised tools are the springboard for their investment analysts to look for evidence that companies are implementing policies and developing practices to manage environmental impacts, labour standards, human rights and anti-corruption risks. "The private sector faces growing scrutiny over its contribution to tackling human rights issues, including modern slavery. We consider human rights and modern slavery to be important elements in our analysis of many companies, particularly in industries or regions most exposed to weaker standards or practices and regions with greater risk of systematic human rights abuses, such as oppressive regimes or Conflict – affected and high-risks areas (CAHRAs). Companies operating in many countries face intensifying regulation and legal requirements in their management of human rights abuses directly and through their supply chain, making efforts to identify and mitigate human rights risks increasingly important to our assessment of investment risks," says Frame.

She says that Schroders also takes a risk-based approach to the sourcing, onboarding and monitoring of suppliers. "This might be through awareness raising, generating job opportunities, engaging with affected stakeholders and promoting best practice. In high risk and conflict-affected regimes, however, the risk of exacerbating negative impacts is also heightened, with growing societal scrutiny and potential reputational fallout for exposed companies. Therefore, we seek to undertake enhanced due diligence on companies in these regions and to consider expert opinion and advice, to ascertain if they are operating responsibly."

In 2023, Schroders developed an updated materiality map across its sustainability themes, including human rights. This materiality map was created using a data-driven approach, relying on various human rights indices across industries in order to help investors analyse the areas highlighted within the human rights portion of the materiality map. The materiality and metric mapping helps to hone targeted analysis by investment desks. The team also established a methodology and process to proactively identify and prioritise companies across the firm for engagement on social issues, including an assessment on human rights. Key considerations to identify and prioritise companies for engagement include an assessment of the materiality and saliency of social factors, a quantitative assessment of company performance on social issues, and a consideration of our exposure at the company through our ownership.

Frame explains that their engagement strategy seeks to identify companies with the greatest salient human rights risks. "We seek to work with investee companies to understand their overarching approaches to human rights and encourage them to implement the UNGPs. We believe that this means that businesses should formally commit to respecting human rights, carry out effective human rights due diligence, and provide access to effective remedy for any victims of human rights abuses," she says.

Active investment managers have the ability to influence the management teams of companies and assets held in the portfolios they manage. "Our insights and relationships mean we are particularly well placed to support and encourage more sustainable and successful business. We have also seen a wave of new human rights legislation emerge. As companies and financial institutions respond credibly to these changes, we expect that the focus on modern slavery will only increase," concludes Frame.

*Katie Frame is Active Ownership Manager at global investment manager Schroders.