Spotlight on Modern Slavery and Its Impact on Supply Chains

There is a growing recognition of the business risks related to modern slavery within a company’s operations and supply chains, as well as increasing regulatory expectations. As a result, this important issue is increasingly front of mind for many companies and investors.

Modern slavery generally refers to situations of forced labour or child labour. It is both a human rights and employee rights issue and occurs when a person faces a situation of exploitation and cannot refuse or leave due to threats, violence, coercion, deception, and/or abuse of power. According to the Global Slavery Index, in 2021 an estimated 50 million people were living in modern slavery on any given day, which is an increase of 10 million people since 2016. In addition to the moral and ethical issues associated with modern slavery, companies also face business risks. These include reputational risks (e.g. boycotts, protests, or customer backlash), legal risks (e.g., fines, criminal charges, and litigation, depending on jurisdiction), financial risks (e.g. supply chain disruption, increased operating costs, decreased productivity, higher cost of capital, loss of market share), and/or supply chain risks (e.g. disruption in the flow of goods and services, lack of efficiency and performance of supply chains).

The United Nations (UN) established the UN Guiding Principles on Business and Human Rights (UNGPs) in 2011 to set common human rights expectations for governments and corporations. While the UNGPs are not binding, since their establishment, various countries have put in place legislation that requires companies of a certain size to prepare and publish an annual statement outlining the actions they are taking to address modern slavery in their operations and/or supply chains. Canada is one of the most recent countries to put in place its own act to address modern slavery in supply chains (the Act), which was passed in 2023 and came into force as of January 2024. Corporate entities covered by the Act must publish and submit to the government a report regarding modern slavery risks and mitigating actions by May 31, 2024. Unlike in some other jurisdictions, failure to comply with this Act comes with a fine of up to $250,000 per offence and may lead to personal liability for board members.

While most of the regulatory actions for corporations focus on transparency and disclosure, these statements in and of themselves are not sufficient to address modern slavery. They do, however, provide investors and others with insights on the policies and practices companies have in place to identify and address the risks of modern slavery in their operations and/or supply chains. They can also serve to inform engagement with companies on these issues. While often thought to be more prevalent in developing nations, modern slavery occurs in every country in the world and many cases in low-income countries are in fact linked directly to demand from higher-income countries. Some of the products imported from developing countries that are most at risk of using modern slavery are electronics, garments, palm oil, solar panels, and textiles.

Investment teams, [1] such as those at RBC Global Asset Management (RBC GAM), [2] may consider material ESG factors [3] when making investment-related decisions within the portfolios that they manage, for applicable types of investments. [4] This may include human rights, employee relations and working conditions, discrimination, modern slavery, and/or supply chain risks. As active stewards of clients’ capital, investment teams also engage with issuers on topics that they deem to be material to their investments. [5] Through proxy voting, shareholder proposals that call on companies to respect internationally recognize human rights and comply with relevant international agreements regarding the protection of those rights can generally be supported. For example, we will generally support shareholder proposals that call on companies to disclose their practices, policies, and oversight for assessing, preventing, and mitigating human rights risks. This includes within the company’s investments, operations, and/or activities in countries with historical or current evidence of labour and human rights abuses.

For Canadian investors, improving transparency and disclosure on policies, practices, and actions related to modern slavery and supply chain risks are welcomed. As companies continue to expand reporting on these issues, it will be important to assess the depth and quality of such reporting in order to identify best practices and to engage with companies where gaps are identified. Ultimately, addressing modern slavery in supply chains will require concerted and coordinated efforts by governments and private sectors, which must go beyond disclosures.

[1] References to RBC Global Asset Management (RBC GAM) include the following affiliates: RBC Global Asset Management Inc. (including PH&N Institutional), RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited (RBC GAM UK), RBC Global Asset Management (Asia) Limited, and RBC Indigo Asset Management Inc., which are separate, but affiliated subsidiaries of the Royal Bank of Canada (RBC).

[2] References to RBC Global Asset Management (RBC GAM) include the following affiliates: RBC Global Asset Management Inc. (including PH&N Institutional), RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited (RBC GAM UK), RBC Global Asset Management (Asia) Limited, and RBC Indigo Asset Management Inc., which are separate, but affiliated subsidiaries of the Royal Bank of Canada (RBC).

[3] Material ESG factors refer to ESG factors that in our judgment are most likely to have an impact on the financial performance of an issuer/security and may depend on different factors such as the sector and industry of the issuer

[4] Certain fund products do not integrate ESG factors, including but not limited to money market funds, index funds and certain third-party sub-advised funds.

[5] In some instances involving certain fixed income investments, quantitative investment, buy- and maintain, passive and certain third-party sub-advised strategies, there is no engagement with issuers by RBC GAM.

RIA Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

Author

Maia Becker

Senior Director, Responsible Investment Team

RBC Global Asset Management

Maia is Senior Director on the Responsible Investment (RI) team at RBC Global Asset Management (RBC GAM) and leads ESG research and policy as part of the RI team. In this role, Maia works closely with global investment and distribution teams to provide strategic advice, insights and research on the integration of ESG factors into the investment approach, with a key focus on RBC GAM’s approach to climate change and net zero ambition. Maia is a member of the Environmental and Social Committee of the Canadian Coalition for Good Governance (CCGG), and Chair of the Technical Committee for Climate Engagement Canada. Maia first joined the Royal Bank of Canada (RBC) in 2016, playing a lead role in RBC’s environmental and social risk management program. Prior to joining RBC, Maia spent over ten years working with governments, companies, and non-profit organizations leading sustainability strategy, policy, and program development. She has also been recognized as one of Canada's Clean50 2019 for advancing climate risk management within Financial Institutions.

Nureen Nagra

Senior Analyst, Responsible Investment Team

RBC Global Asset Management

Nureen is a Senior Analyst on the Responsible Investment (RI) team at RBC Global Asset Management (RBC GAM), responsible for various RI initiatives including supporting investment teams with ESG integration, conducting RI analysis and research, participating in ESG engagements with issuers and executing on the firm’s proxy voting activities. Nureen joined RBC GAM in 2015 and has worked with retail and institutional clients in varying roles. Prior to working at RBC GAM, Nureen worked with institutional and high-net-worth clients at another large financial institution.