• “Forced to wash in a canal because he didn’t have access to water.”
• “They would often tell them that if they stepped outside the house they would get arrested by the police.”
• “These were conditions that you wouldn’t want to keep your dog in, let alone another human being.”

This is how West Midlands police described the brutal reality for those trafficked from Poland following the break-up of the largest modern slavery operation uncovered in the UK to date. Perhaps even more shockingly, a Sunday Times investigation revealed some of the gang’s victims worked picking and packing fresh produce on a Worcestershire farm that supplies several of the UK’s biggest supermarket chains.

Research has found that 77 per cent of UK brands when interviewed anonymously believe modern slavery is likely to exist within their supply chains.[1] Evidence from charities and academics suggest the figure is probably even higher. The International Labour Organization (ILO) meanwhile estimates around 25 million people globally are working in some form of forced labour, many for years at a time.[2]

In an effort to improve those dire numbers, several countries have in recent years enacted modern slavery legislation. But prohibition is not enough. Companies need actively to look for instances of forced labour. Investors like Fidelity International have a crucial role to play in keeping modern slavery reduction at the top of corporate agendas, regularly engaging with management on what they are doing to tackle it. By speaking directly to companies about modern slavery, we also hear what works and can share best practice with other businesses.

Modern slavery auditing varies across sectors and companies

Our sustainable investing team has closely monitored the clothing sector for several years, and found a mixed picture. Some companies have strong practices in place, having tackled the issue for decades. In the 1990s, sports shoes were a byword for sweatshop manufacturing. Thanks to efforts to tackle this adverse reputation, some footwear and apparel companies are now leaders in understanding their supply chains. Adidas, for instance, fully discloses its global supplier list and has established processes for monitoring factories, with deeper dives and spot checks in higher risk areas - although it acknowledges it cannot cover every tier of the supply chain in all corners of the world. The company also makes conscious efforts to reduce labour exploitation risk by having costing policies that allow for fair wages and planning orders in a way that tries to avoid suppliers facing excessive peaks that put pressure on workers.

Other companies we speak to are less advanced. One told us it only monitors its direct suppliers. Our response was that we expect firms to be aware of all their suppliers, direct or indirect, and to monitor them regularly. The company said it had opted to look at carbon emissions in its value chain first, considering it a less sensitive topic. Nonetheless, as this will involve upstream analysis of scope 3 greenhouse gas emissions, the company did commit to using those conversations to start talking to suppliers about their suppliers’ labour practices.

Another company we engage with, a luxury goods seller, conducts well over a thousand supplier audits each year, yet shows a weak understanding of where its biggest risks lie. It also fails to clearly disclose which supply chain management practices apply to which of its brands. In our most recent engagement, we suggested improvements to the way it structures its oversight and that it should communicate its efforts at the group level, an idea to which the company was receptive. We will follow up on this next year.

Aside from the humanitarian imperative, failing to address issues like modern slavery carries reputational and commercial risks. Boohoo is a clear example, losing a substantial amount of market value in July 2020 following allegations of exploitation in Leicester, UK. German branches of Primark have also seen sales struggle in recent years amid poor perception of the brand’s sustainability credentials.

Working with other investors

In addition to engaging with companies one-to-one, we have joined collective efforts. As a proportion of total population, forced labour remains most prevalent in Asia Pacific, according to the ILO. To help tackle this, in late 2020, Fidelity International became a founding member of Investors Against Slavery and Trafficking, a coalition with collective assets under management of over US$4 trillion that engages with Asia-based firms. We began actively engaging with companies in Q2 2021 and will continue to drive change whenever we have the opportunity.

We are also part of ‘Find It, Fix It, Prevent It’ in the UK, a coalition of investment managers working with companies to help them develop processes for rooting out modern slavery in their supply chains. The first focus area is hospitality, and we are leading the engagement with the UK business of a global fast-food chain regarding their suppliers’ oversight of modern slavery.

During our first call, we pressed the company to go beyond its direct suppliers and improve its knowledge of what goes on at suppliers higher up the value chain. We were encouraged to hear it was setting up a new team dedicated to supply chain management. We recommended it take the opportunity to run its own supplier audit programme to augment the information it gets from third parties. We prefer companies to do their own monitoring because it puts accountability where it belongs - with the company itself - and makes it clear that the company is responsible for addressing any issues found.

Since our call, the fast-food chain has updated its modern slavery statement. It has begun a supplier ‘deep dive’, a first step in making the entire supply chain visible. The new supply chain monitoring team is also up and running and has begun engaging with high-risk suppliers. As per our recommendation, this in-house team will carry out audits to augment those done by third parties. 

The fight against modern slavery will be long and hard. But companies owe it to humanity to look for problems in their supply chains and be transparent about what they find and how they address it. Investors too have a duty to encourage and support these activities, helping companies make positive changes in their supply chains and avoid the reputational risk of police forces showing up at their suppliers’ premises.

[1] ‘Corporate Leadership on Modern Slavery: How have companies responded to the UK Modern Slavery Act one year on?’ Hult Research in partnership with The Ethical Trading Initiative, November 2016
[2] ‘Global Estimates of Modern Slavery’, International Labour Organization, September 2017