AB: How Investors Can Detect and Disrupt Modern Slavery

As we wrap up National Slavery and Human Trafficking Prevention Month, we recognize that this social issue still persists around the world. Watch this video of AB’s Director of Social Research and Engagement, Saskia Kort-Chick explaining how investors can detect and disrupt modern slavery by starting with awareness, and how to turn awareness into action: https://www.youtube.com/watch?v=5Pg9r9LPgAU

Generally, companies are comfortable talking about things like board composition or remuneration plans. Most companies these days are aware of their carbon footprint and are comfortable talking about that. But it’s much harder for a company to have an open conversation about the potential human rights–related issues occurring in either their operations or their supply chain. We’ve been engaging with companies on modern slavery-related issues for a number of years. We’ve engaged with over 19 companies at more than 120 meetings.

There’s a couple of lessons that we’ve learned. So let me start off. In 2021, we included modern slavery in our thematic engagements campaign. There were a couple of objectives as part of that. We worked with investments analysts from the various actively managed equity portfolios and a number of fixed-income analysts. They picked their own target companies who they wanted to focus on to have a conversation around their modern slavery practices. What we learned is that companies with high-risk exposure generally have a better understanding of the risk and are better at managing that. Those companies with less obvious exposure are generally less aware of the risk.

Generally, companies do not want to be associated with human rights abuses either in their own operations or in their supply chain. What we have found, that if you communicate clearly on what your expectations are and not try to single out a particular company and clearly give indication of where you think a company can improve, we have had very positive engagements, and we actually have seen companies making progress on some of the issues that we’ve asked them to take action on. I think in the markets, there’s generally a misunderstanding that modern slavery- and human rights–related risks are not necessarily material.

We may have a slightly different view there. One, if you look, for example, at event-driven ESG risk related to modern slavery, there are plenty of examples whereby you can see that it has had an impact on the company. For example, there has been a financial institution which failed to report a large number of transactions related to child exploitation. As a result, both the CEO and the chairman ended up leaving. During the pandemic, a number of rubber glove producers had been hit with import bans in the US. That had an impact on the companies themselves, as well as on the broader medical industry, which source rubber gloves.

Then finally, there have been plenty of examples in the apparel industry that have hit the news lines. If you look at all of those event-driven issues, they do have an impact on companies, and we as active investors are trying to understand these issues. Looking at how companies are managing these issues, we can take that as a proxy for supply chain management more broadly. From the engagements that we’ve had with companies, managing their supply chain well, including modern slavery-related risks, may lead to a more flexible supply chain and may lead to more supply chain stability. All of these factors combined we take into consideration when we’re assessing how companies are managing modern slavery-related risk and how that can impact the financials of a company.

We think that the financial industry can play a role in detecting and disrupting modern slavery. It obviously starts with raising awareness. People need to understand that this social evil still persists. Then it needs to be tied into action, and there’s plenty of action that we can take. For example, we’ve tried to take this through engagement, but we also recognize that this is a big socio-economic issue, and we cannot do it alone. So there’s plenty of industry initiatives that focus on collaborative engagements, as well as investor statements that ask investing companies to provide more transparency. You can also think about collaborating with NGOs and expert organizations both for action as well as raising awareness internally.

Learn more about AB’s approach to responsibility here