Authors

Stephanie Williams, Sustainable Investment Analyst, Schroders

Katie Frame, Active Ownership Manager, Schroders

Why Are Conflict and Modern Slavery Important Issues for Investors?

The Ukraine war reminds us of the devastating consequences of war beyond the direct death toll, displacing populations and upending livelihoods. Since the Russian invasion began on 24 February, Ukraine has witnessed one of the fastest exoduses of people in recent history. To date, nearly 6.7 million refugees have been recorded in Europe.

Although there is now evidence of Ukrainians returning to their home country, the extreme relocation triggered by the conflict requires the integration of substantial numbers of refugees into receiving European populations. Sadly, the headlines from Ukraine are the tip of an iceberg; the UN estimates that some 100 million people around the world have been forcibly displaced from their homes, in most cases as a result of violence.

Modern slavery and human trafficking have been a consequence of 90 percent of modern wars. In some cases refugees are picked up by traffickers when crossing borders, while others may accept offers of unsafe or illegitimate accommodation or work. Refugees’ vulnerability is often compounded by demographic factors: women and children are over-represented among displaced populations. As a result, businesses operating in regions receiving refugees must be aware of the risks of labor exploitation in their operations and supply chains.

Following the Syrian civil war in 2011, Turkey experienced an influx of refugees. Today the country holds the largest population of refugees globally—3.6 million of whom are Syrians. Many refugees were integrated into Turkey’s garment manufacturing sector. Even before the Syrian refugee crisis, the garment industry relied heavily on a cheap and flexible workforce made up of migrant labor. Now there are reports of widespread exploitation of refugee workers, with evidence of 60+ hour weeks and the majority of Syrian workers earning below minimum wage. In Istanbul, an estimated 85 percent of Syrians are informally employed. Global apparel brands have been criticized for their lack of adequate action, with only a few brands gaining praise for good practice.

With tangible civil liability and monetary fines on the horizon, as well as basic business responsibility, the importance of examining and managing potential human rights risks has never been greater, both for companies’ management teams and their investors.

As a wave of mandatory due diligence laws come into effect across Europe, human rights abuses such as modern slavery are increasingly under scrutiny. With tangible civil liability and monetary fines on the horizon, as well as basic business responsibility, the importance of examining and managing potential human rights risks has never been greater, both for companies’ management teams and their investors.

How Should Investors Engage on This Issue?

In Schroders’ Engagement Blueprint we set out our request for companies to commit to respect human rights and establish and implement a human rights policy in line with the UN Guiding Principles on Business and Human Rights (UNGPs), International Labour Organization, and other international frameworks. We also ask companies to introduce robust due diligence processes and effective remedy for abuse.

However, due to the heightened risk associated with human rights in and around conflict-affected areas, we expect companies to go beyond this. That entails adapting existing policies to the specific needs of conflict-affected areas and performing enhanced due diligence in these contexts. Such action comprises:

• Assessing actual and potential human rights impacts;
• Integrating and acting upon the findings;
• Tracking responses;
• Communicating how impacts are addressed.

As a starting point, there are two simple questions investors seeking to engage on this issue should ask companies:

1. How have your supply chains been impacted by the influx of migrant labor, and how are you assessing the associated risks of modern slavery?
2. What enhanced due diligence processes are you undertaking given this heightened risk?

Investors, like companies, have a responsibility to undertake enhanced due diligence in their investment decisions and stewardship of companies in conflict-affected areas. The consequence of not doing so can not only increase legal and financial risk but exacerbate human suffering and exploitation. These questions represent a vital first step in this heightened due diligence approach.

Originally appeared on BHRRC.