Professional investors overwhelmingly support a Modern Slavery Act in Australia, as the focus has shifted from supply chains in emerging markets to our own backyard in recent years, Colonial First State Global Asset Management (CFSGAM) states.

Pablo Berrutti, the company’s head of responsible investment, Asia-Pacific, says recent scandals involving franchises such as Domino’s and Caltex, along with the use of hired labour in agricultural supply chains by Woolworths and Coles, have brought labour and human rights risks for investor portfolios much closer to home.

He says the Modern Slavery Act will help improve information across the market and, consequently, engagement with companies by investors and other stakeholders. Five of the leading industry bodies have made submissions in support of the legislation.

“We need a race to the top on this issue, which affects over 40 million people and over 150 million children around the world,” Berrutti says. “The best way to start that race is through greater transparency.”

Berrutti recently invited the authors of the report Wage Theft in Australia to speak to CFSGAM investment teams to identify several areas of high risk on which they can focus.

“We also identified some areas of potential risk and have engaged with the companies that have greatest exposure,” Berrutti says. “These issues will require ongoing monitoring and engagement from investors. Companies we have spoken to have also expressed different views around the viability of the franchise model, following the regulatory changes.”

He says transparency, collaboration and good governance are the main ways to deal with poor practices in company supply chains, and that there is room for improvement in both private and public markets.

“Transparency still has some way to go but the release of audit results by some firms and disclosure of material suppliers are good steps forward, as they invite greater accountability but also demonstrate a commitment to improvement,” Berrutti explains.

The professional investor must demonstrate a commitment to engage with the issues, rather than walking away, he argues.

“It is easier for an investor to respond to a scandal on the front page of a newspaper than it is to develop a long-term conversation on human rights,” Berrutti says. “Ultimately, investors need to set expectations that companies follow the Ruggie Principles on Business and Human Rights and provide adequate disclosure.”

Human rights covers a broad area for companies and investors, from indigenous rights in the resources sector, to diversity and pay gap issues. Berrutti would like to see Australia follow the UK in requiring pay gap disclosure.

A group of 40 investors attended the first meeting of the Responsible Investment Association’s human rights working group, showing a high level of engagement and genuine interest in the issue.

“I think recognising that our clients and beneficiaries expect us to make money for them ethically and that they do not want to profit from human rights abuses has to become a cultural cornerstone of our industry,” Berrutti says. “A strong commitment to stewardship is the best starting point in this regard.”

Pablo Berrutti spoke to Investment Magazine ahead of addressing the 2018 Australian Council of Superannuation Investors Annual Conference, to be held in Sydney on Thursday, May 17.

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