Modern slavery risk assessment
Since the Australian Government introduced the Modern Slavery Act in 2018, there has been an explosion of disclosure related to modern slavery risks, management, and collaboration.
|Statistics from the Australian Government Modern Slavery Register1|
|8048 Entities||3489 Mandatory||481 Voluntary||42 Countries||625,044 Searches|
|Number of reporting entities covered by statements||Statements lodged||Statements lodged||Where reporting entities are headquartered||Performed in the national database|
1Source: Modern Slavery Statements Register (modernslaveryregister.gov.au), 2 February 2022
The increased disclosure from companies under the Australian and UK Modern Slavery Acts has also led to greater awareness around modern slavery risks and more sophisticated and nuanced discussions amongst investors and during engagement with companies.
In a way, this has demonstrated that risks related to modern slavery in supply chains, investments, operations and product use have been overlooked in the past. It is likely still being overlooked in some jurisdictions where the legislation is not as demanding as Australia. But the truth of the matter is every single company in the world is exposed to risks of modern slavery.
We have summarised below some of the key outcomes from our FY21 modern slavery risk assessment, some insights from engagement with global and domestic companies on modern slavery, and some of the key improvements we’re expecting to see from the second year of Modern Slavery statements now being released.
Understanding modern slavery risks
In August 2021 we completed an analysis of 136 global and domestic companies we’d held in the previous year against the three key risk factors below. The intent of this analysis was to understand the potential extent and types of modern slavery risks that are typically present across our investments, and to help inform company engagement and further analysis or research.
|Risk Factor||Description||Inputs / Considerations|
|Upstream supply chain risks||Risks related to supply chain components, including key high-risk commodities, which support product development, manufacture, and company operations.||
|Downstream value chain risks||Risks related to the application and use of a company’s products or services. For example, risks to the financial sector through lending practices.||
|Operational risks||Risks associated with employees and/or contract workforce, operational locations including factories and distribution centres, and overall working conditions.||
2Source: Global Slavery Index (for example, regions with a weak rule of law or in areas of conflict)
Our analysis found that 25% of the companies we’d held had a potential high-risk exposure to at least one of the three risk factors. We also found that global equities generally have a higher risk exposure to operational and supply chain modern slavery risks than Australian companies.
Further observations for each risk factor are illustrated below:
Operational Modern Slavery Risk
- 63% of companies have operational assets in a high-risk region
- Consumer companies generally have the highest overall exposure to operational modern slavery risks (low-skilled/contract workforces, global manufacturing sites)
- Real estate, industrials and materials sectors have significant health and safety human rights exposure when operating smaller sites in high-risk geographies
Supply Chain Modern Slavery Risk
- 45% of the companies analysed have material exposure to cotton in their supply chain
- Consumer, industrial and information technology companies have the highest risk supply chains considering the presence of high risk commodities (for example, cotton, palm oil, latex, metals and minerals including lithium, coltan, cobalt, mica) and overall sector risk
Value Chain Modern Slavery Risk
- The Financials sector is the most exposed sector to value chain risk (downstream modern slavery risks)
- Real estate, industrials, and communication services have also been identified as sectors with potential value chain exposure
- Managing this issue needs to be a governance response rather than procurement or supply chain response
Source: Alphinity, Global Slavery Index
Insights through engagement and company research
Following the implementation of the Australian Modern Slavery Act, the level of disclosure amongst Australian listed companies has increased significantly. Globally, however, the disclosure of modern slavery risks and management is still limited and varies by company and region.
As part of our ESG assessment process we review relevant modern slavery policies, statements, and other general disclosures from annual reports, to form a view on the quality of each company’s modern slavery risk management activities. We also engage specifically on modern slavery as part of our ESG engagement schedule.
Through our engagement and research, we’ve made the following observations:
|Supply chain focus||
|Use of third-party risk tools||
|Collaboration is essential||
|ASX leading the way
What we are looking for in a good quality Modern Slavery Statement
After reviewing hundreds or Modern Slavery Statements and engaging with companies directly on modern slavery risk management, we have listed below the main criteria we will look for in good quality Modern Slavery Statement in 2022.
|Detailed and thorough risk assessments||
|Breakdown of workforce composition||
|Measurable roadmaps with metrics||
|Warts and all disclosures||
|Using collaboration to achieve outcomes||
Click here to listen to our latest webcast: Assessing modern slavery in 2022.