Investors and modern slavery

by John Cox Investment Advisory Manager

Email +44 (0)7483 422820

We recently developed a new report with the UK Government – entitled “Investing in a Better World” - that explores the extent to which people in the UK want to invest in a sustainable way.

Our research found there is significant appetite for sustainable investment across all demographic groups. The survey found that  3 in 5 people believe financial institutions should avoid investing in companies that harm people or the planet. For people with over £25k to invest, 74% said they were interested in making a sustainable investment either now or in the future. 

Many survey respondents said the idea of making a financial gain at the expense of exploiting people would not sit well with them. But one of the most egregious forms of exploitation - modern slavery - is sadly very common. Around 40 million people in the world are currently enslaved 1 .

If asset managers want to invest in a way which is commensurate with their clients’ values, our research suggests they should seek to ensure the companies they invest in are doing their utmost to ensure the supply chains they operate through are free from modern slavery. 

The dynamics that drive modern slavery are highly complicated. A common route into slavery in developing countries, for example, is through employment brokers, whereby workers become bonded to agents and have their documents confiscated while they pay off debts. However, brokers are often deeply embedded in communities due to workers’ need to navigate informal labour markets in the absence of well-paid jobs in the formal sector 2

In some instances, well-meaning but poorly designed corporate responsibility programmes can create detrimental outcomes for people they are intending to help, such as when exploitation is driven further down the supply chain.

The role of investors

These realities create challenges for investors. Beyond the moral case for avoiding investing in companies with poor anti-modern slavery practices, there is an investment risk if a company becomes embroiled in a human rights scandal. 

Some asset managers are taking a lead on this issue. They are seeking to understand the complexities around modern slavery and drive positive behaviours through their engagement and stewardship activities. CCLA for example recently joined with the UN Principles of Responsible Investment to create a group of investors, NGOs and academics dedicated to tackling the problem 3

Investors with over $15trn of assets under management have backed the Workforce Disclosure Initiative, which demands greater disclosure from companies on workforce practices in their supply chains 4. And investors are referring to Corporate Human Rights Benchmark to inform their analysis 5

The sustainable investment market

Investors like the ones involved in these initiatives have helped to grow the world’s sustainable investment market, which is now valued at £22.8trn 6. In the UK, 1 in 4 pounds invested by asset managers is “sustainably invested” 7

In practice this translates into a variety of activities. As part of our research for the Investing in a Better World Initiative, we found many sustainable investment experts worried about the quality of some sustainable investment products being brought to the market. 

Modern slavery is one of countless environmental and social considerations that asset managers need to consider if they want to launch a high quality sustainable investment product, each one with its own nuances and complexities. Doing sustainable investing well, requires considerable expertise. 

PwC Investment 

PwC’s Investment team can help asset owners including family offices, individuals and charities set an investment strategy that is aligned with their sustainability values, and identify managers that have genuine capability in this area. Alongside our core financial analysis, we can also monitor a manager’s ongoing performance to test how they are responding to the sustainability demands of a client.  Our sustainability team regularly helps clients to understand the modern slavery risks, and other sustainability concerns, in their operations and supply chains and provides support in the development of an appropriate level of response.

The level of demand for sustainable investing is only projected to grow, and with it the range of investment products that are available. Our unique perspective which allows us to see the market in its entirety means we can help asset owners to navigate the market. 

If you would like further information, please contact John Cox.

6 Based on figures from the Global Sustainable Investment Review 2018, GSIA, 2018
7 Investment Management in the UK 2018-2019: The Investment Association Annual Survey, The Investment Association, September 2019

by John Cox Investment Advisory Manager

Email +44 (0)7483 422820