Publication date: March 10, 2023

KIELTYKA GLADKOWSKI took part in Dow Jones Risk and Compliance webinar devoted to ESG.

The webinar focused on the issues modern slavery in the framework of Environmental, Social and Governance (ESG) compliance. The aim was to shed a light on modern slavery as a topic, its effect on human rights legislation, the global economy and how various organizations are combating force labour practices.

Modern slavery topic needs a bit of contextualization to begin the discussion because it is not standardized, it has no legal definition. It can be figured out that it is a mix of human trafficking, slavery and servitude. This is a major cause for concern because despite being banned in all countries of the world, there is a considerable grey area of crime in this respect. The main way it is produced is by situations of forced labour. Hence, it is believed that it is a great part of world’s supply chains. Modern slavery is calculated to reach 50 million people nowadays, with an uplift of 10 million people in the last five years. Around half of them are forced workers. In terms of economics, it is about half a trillion dollars profit per annum on forced labour.

“If you think about your food consumption and ownership of clothes and electronics, it could reasonably be said that 40 to 60 slaves work for you”. This is because of the global supply chains works and the level of forced labour in the world.

There is a correlation between the weakening of the law and forced labour, those countries are unable to hold those who are profiting off of forced labour accountable are the ones in worst risk situation. In fact, it can be sensed that when there is a destruction of natural resources because of exploitation, forced labour thrives. Some of the principal sectors of this type of slavery are illegal deforestation, illegal and unreported fishing, brick making, mining and other natural resource extraction.

The experts think that the measures than are underway can only succeed in environments that support their effectiveness by deterring criminal interference.

There are three dominant themes emerging in legislation involving modern slavery:

  • Organizations are required to conduct human rights due diligence across the value chain;
  • Organizations are required to identify adverse ESG related issues in their value chain;
  • Law, regulations and guidance typically call for risk-based approach to combating modern slavery.

The power of law is like a slow tsunami, it will eventually reach all parts of the global supply chain. Large companies will end up being investigated in the countries where modern slavery and forced labour most frequently occur. It is therefore important for companies and executives to be aware of, and to combat where it is occurring in their supply chains, because in addition to the ethical issues of allowing it, it can have severe economic consequences. There are more than a few recent examples where disclosure of such occurrences in the supply chains of large companies has led to millions in stock market losses and fines.

The best strategy to combat modern slavery within companies is based on two pillars. The first step is to have a preventive strategic, this is, to have concern on where one’s supply comes from, if there any irregularities on the supply chain. The second pillar is the reactive strategy. In this phase, it is needed to contact with the authorities, NGOs, and experts on working with types of situation to get the best solution to resolve this situation.

The European Union has already taken action to force large companies to take such decisions and to monitor and prevent modern slavery at all stages of their business. This is the new Directive on Corporate Sustainability Reporting Directive. Following ESG framework, the EU requires all large companies and all listed companies to disclose information on their risks and opportunities arising from social and environmental issues, and on the impacts of their activities on people and the environment. As a part of the European green deal, this new directive modernises and strengthens the rules about the social and environmental information that companies have to report.

The new rules will ensure that investors and other stakeholders have access to the information they need to assess investment risks arising from climate change and other sustainability issues. They will also create a culture of transparency about the impact of companies on people and the environment. Finally, reporting costs will be reduced for companies over the medium to long term by harmonising the information to be provided.

Modern slavery primarily fits under the social part of ESG, This problem is not isolated, it is relevant for all organizations. Somewhere in the supply chain of all products or services, there are subcontractors and sub-subcontractors and different levels of people providing services within a business.

There has to be highlighted the problem of social response. As society, we need to concern about how we consume products and services and where they come from. The law and the initiatives are great to combat this question, but without a willingness to combat and end the situation, they are wet paper. Responsible consumer is a key element of this willingness.

Responsible exploitation of natural resources and investment in sustainability and renewable energy sources will be a crucial element in eliminating slavery. These are often more sophisticated, regulated and monitored processes that tend to prevent the exploitation of vulnerable communities by criminal gangs. Incentivising green investment in the least developed countries should be a necessity for international and national organisations.