The FTSE 100 in the first year of modern slavery reporting: room for improvement?
Section 54 of the Modern Slavery Act 2015 requires every organisation with a global annual turnover of £36 million or more conducting business in the UK to publish a yearly statement detailing efforts to investigate and eradicate modern slavery in its operations and supply chains. The Business & Human Rights Resource Centre (BHRRC) recently published their analysis of the first statements issued by FTSE 100 companies under the Act – a comprehensive study that highlights encouraging signs of good practice among a leading group but a lower level of compliance across the remainder.
Investors and delegates attended an event hosted by Rathbones in London on 17 October 2017 to discuss the BHRRC’s findings. The event was chaired by Anneliese Dodds MP and featured speakers from the BHRRC, Rathbone Greenbank Investments and Marks & Spencer.
The International Labour Organization currently estimates annual global profits from forced labour to be $150 billion. Additional research by the ILO and the Walk Free Foundation suggests more than 40 million people around the world are victims of modern slavery.
Phil Bloomer, executive director at the BHRRC, observed that the endemic nature of modern slavery is something that touches us all in some capacity as consumers. Mandatory disclosure under the Act is an important incentive for companies to allocate resources to investigate and eradicate modern slavery throughout their supply chains. The BHRRC’s Modern Slavery Registry provides a means to evaluate their progress.
Their first-year analysis, however, suggests that the majority of FTSE 100 companies are a way off providing strong leadership for the rest of UK PLC. With reporting standards scored over 10 performance levels, two-thirds of companies scored five or below. Just six companies scored seven or above with none scoring a 10. Additionally, 43% failed to meet all three of the minimum reporting requirements, whilst 50 companies provided no meaningful evidence of effective action. Rich reputational rewards exist for high-scoring companies while the risks for low-scorers are significant. Leading performers demonstrate a strong connection between moral imperatives and commercial viability – their enhanced due diligence provides others with a blueprint for greater effectiveness which may also help to ameliorate the trust lost in global markets. From M&S’s interactive supply chain mapping to the definitive forced labour policies of companies like Unilever, it’s important for organisations to embed their actions and risk assessments into their corporate cultures. It’s also imperative that they continue to collaborate with partners and suppliers at every investigative level.
While the Act has certainly inspired examples of good practice, it can be strengthened by learning from global legislation. Additionally, enforcement must be improved by demanding better standards of reporting and ensuring that good intentions are reflected in global product and service procurements: we are simply extending our collusion with exploiters otherwise.
Matt Crossman, engagement manager at Rathbone Greenbank Investments, provided some investor perspective, indicating the desire investors have to hold companies to their moral and social obligations – demonstrated in the case of modern slavery by the rapid assembly of a £940 billion investor coalition, driving the business case for greater transparency in supply chains.
The operation of a shadow economy based on modern slavery worth $150 billion a year represents a huge opportunity cost for investors. It’s therefore a significant challenge for them to address the apparent lack of motivation across the majority of companies surveyed to thoroughly investigate their supply chains. The ‘win-win’ scenario for investors is relatively simple: work to end exploitation and limit the likelihood of reputational risk. No company can assume it has no risk, nor can it afford to ignore the reputational consequences of inaction.
Investors have the power to voice their concerns through their voting rights where companies are failing to consider the systemic risks of their operations. Companies must also learn that the Act isn’t a standalone solution but a means to incorporate recommendations into investigative methods tailored to their own operations and supply chains.
With the highest score on the BHRRC’s reporting matrix, M&S was represented by Louise Nicholls, corporate head of human rights, food sustainability (Plan A) and food packaging.
Louise was encouraged by a significant increase in reports of modern slavery which indicated that more companies were joining the debate. As a consequence, the number of collaborative initiatives combating the problem has increased. One such collaboration involving M&S and other leading UK supermarkets is the Stronger Together initiative, providing employers and labour services with free resources to help identify and prevent exploitation. Collaborative initiatives help companies to enhance their risk management, triangulating shared intelligence to better understand how traffickers are evolving supply chains, particularly when partners are engaged in local environments. M&S’s own investigative response includes a fully transparent, interactive map of their supply chains detailing names, addresses and evidence of worker representation.
Modern slavery is a crime and a material reputational risk. The supply chain statement is central to managing that risk and a first step to changing corporate behaviours and stopping exploitation before it begins.
The discussion that followed the presentations focused on the availability of preventative resources, the performance and effectiveness of companies in the FTSE 350 with equally complex supply chains, and the improvement of key metrics to investigate and publicise company findings.