It is perplexing how modern slavery can be such a thriving global business when so many companies claim in their annual modern slavery statements that they have ‘zero tolerance’ for it.
It is equally remarkable how companies with operations in geographic slavery hotspots and/or high-risk industry sectors can so very rarely identify incidents (or even potential incidents) of modern slavery in their own businesses or in their supply chains.
Modern slavery is a profitable global business which exists and thrives on a huge scale. Every year, at least US$150 billion in annual profits are reaped from forced labour, according to the International Labour Organization (ILO).
Modern slavery cannot just be blamed on immoral criminals or ‘bad apple’ employers. Forced labour is a stable and predictable feature of many global supply chains, based on a ‘supply’ of vulnerable workers and a business ‘demand’ for their labour.
The recent Report of the statutory review of the Modern Slavery Act 2018 in Australia agreed slavery has become embedded in the global economy. “There is a strong commercial incentive for businesses to search worldwide for low-price products, components and labour services. Underpaid work in one country can yield lower-priced goods and services in another country,” the report said.
The report also said there was no hard evidence that the Act has caused meaningful change for people living in conditions of modern slavery.
“Across the thousands of pages of modern slavery statements on the Register for Modern Slavery Statements, there is only a handful of examples of modern slavery incidents being detected or people given specific protection or remedial help.
“Nor is there any clear story that the Act has successfully combatted any of the drivers of modern slavery – such as poverty, economic shocks, gender inequality, exploitative business practices, and weak governance and regulatory inadequacy in other countries,” the report said.
The Australian Sustainable Finance Progress Tracker 2023 report released last month by the Australian Sustainable Finance Institute (ASFI) agreed that the “legislation is failing to drive substantive improvements in companies’ approaches to eliminating modern slavery in their supply and distribution chains”.
When the gloves don’t fit
Last month, the NSW Anti-Slavery Commissioner, James Cockayne, mentioned the issue of modern slavery in personal protective equipment (PPE) factories in Malaysia, noting that ASX-listed Ansell (along with Kimberly-Clark) is facing litigation in the United States.
Thirteen Bangladeshi workers allege Ansell and Kimberly “knowingly profited” from forced labour at a Malaysian factory owned by one of their suppliers, Brightway.
Over a number of years many reports have been published highlighting forced labour incidents and issues in Malaysian PPE factories. Only recently, one of Ansell’s other Malaysian suppliers, Top Glove (the world’s largest manufacturer of rubber gloves), was forced to reimburse migrant workers US$30 million to address forced labour practices exposed at its Malaysian facilities.
Ansell acknowledges it “operates in a highly complex globalised industry landscape associated with incidents of modern slavery” and cites weak rule of law, migration, conflict and poverty as major contributors.
In its 2023 Modern Slavery Statement Ansell provides some insights into this ‘landscape’. Ansell said increased PPE demand during the COVID-19 pandemic lead “to a number of labour rights abuses reported in the PPE supply chain”. But then with the easing of the pandemic “increased production capacity, coupled with decreasing demand, has reduced margins across the industry. This puts greater pressure on costs”.
Ansell also pointed the finger at PPE customers with big purchasing power – for example, large public and private healthcare systems – who force price competition among PPE suppliers putting “pressure on wages and employee conditions as companies try to meet production targets and maintain margins,”
So, it would seem that no matter the state of this landscape, workers are prone to forced labour and/or substandard working conditions.
Some might ask why a company like Ansell doesn’t extricate itself from some of its supplier relationships. The company explains that “in line with commentary from human rights experts, including United Nations Guiding Principle 19, Ansell does not automatically cancel supplier contracts upon allegations of adverse labour rights impacts. Instead, we engage with suppliers to monitor labour rights impacts by supporting the development and implementation of corrective actions”.
Moral high ground
Ansell’s explanation – which is the standard response of a vast number of companies – raises some broader and deeper questions for asset owners about Australia’s Modern Slavery Act, including whether the Act is fit for purpose in combating modern slavery.
An article in the Journal of White Collar and Corporate Crime entitled “Modern Slavery as the New Moral Asset for the Production and Reproduction of State-Corporate Harm” argues the Act is built on a “humanitarian narrative” that paints corporations participating in high-risk modern slavery supply chains as “benevolent actors”.
The article (which uses Ansell as a case study) argues modern slavery statements can “cement the positioning of corporations and states with a narrative of benevolence (such as shaping a better market and fairer supply chain) that allows for the maintenance of the status quo”.
“Many corporations are investing in human rights-related promises that allow them to operate in the medium to long-term with impunity even when declaring risk in their supply chains,” say the authors.
The Act’s alleged tragic flaw seems to be that is premised on corporate self-regulation, Corporate Social Responsibility (CSR) practices and market-based solutions for what is “essentially a market-generated problem”.
The report on the Act’s review may have even tacitly acknowledged the problem. The report said it looked at the question of creating an enforceable duty to prevent modern slavery but formed the view it would be “inexpedient” to do at this stage.
In explaining why, the report said the “Modern Slavery Act currently rests on a platform of voluntary compliance and administrative oversight. This report proposes that the administrative oversight dimension of the Act be significantly strengthened. The proposal for an enforceable duty to prevent modern slavery rests on a different platform of judicial enforcement”.
The Responsible Investment Association Australasia’s 2023 Responsible Investment Benchmark Report revealed that 84 per cent of investment managers had engaged with investee companies on human rights (including modern slavery), making it the top priority after climate change.
However, the report also noted that only 41 per cent of investment managers report on both their engagement activities and on the outcomes of these engagements.
In its 2022 Engagement Report the Australia Council of Superannuation Investors (ACSI) said it engaged with 21 companies on modern slavery. ACSI noted it had engaged with Ansell over many years on workforce issues and said it “has seen improvement in both reporting and practices by the group”.
However, across the ASX universe there is little evidence to show that modern slavery is being meaningfully addressed, begging the question about the quality and impact of investee engagement by asset owners and managers, despite their best intentions.
Last month, James Cockayne suggested “investment innovation” may in the future see second-generation ESG funds that invest in “modern slavery improvers”. Some might be concerned that this could an avenue for asset owners and managers to also become ‘benevolent actors’.
If you can show you have been engaging with your errant investees – and they can show they have been engaging with their errant suppliers – there may not be too much pressure to really alter the modern slavery landscape.