The finance sector has played a key role in providing access to finance to vulnerable people exposed to modern slavery risks. However, little is known about capital market actors’ policies and practices to address modern slavery in their value chains.
This Policy Brief is tailored for UK-based policymakers and is based on the findings of a research project on Capital Markets and Modern Slavery co-funded by the UK Foreign, Commonwealth and Development Office (FCDO) and the Modern Slavery and Human Rights Policy and Evidence Centre (Modern Slavery PEC). This research was conducted by the Bingham Centre for the Rule of Law and Finance Against Slavery and Trafficking Initiative (FAST) at the United Nations University Centre for Policy Research (UNU-CPR).
Two other outputs resulted from this research project. The first, Accelerating Change: The Potential of Capital Market Actors in Addressing Modern Slavery, is a briefing for capital market actors, which provides them with key learnings from their peers and five practical recommendations to address modern slavery in their value chains at any stage of their journey.
The second, Capital Markets and Modern Slavery Evidence Review, is a report that synthesises the existing publicly available evidence on the role of capital market actors in addressing modern slavery. A condensed version of this was published as a blog: How effective are investors at addressing modern slavery in supply chains?
The views expressed in this Policy Brief and the above-mentioned outputs are those of the authors and not necessarily of the Modern Slavery and Human Rights Policy and Evidence Centre, the Finance Against Slavery and Trafficking Initiative, the United Nations University Centre for Policy Research and the UK Foreign, Commonwealth and Development Office.
1. Most capital market actors, mainly driven by financial and reputational risks, are addressing modern slavery risks related to health and safety, child labour, and wages in their value chains, as part of their larger ESG risk agenda. To address these risks, capital market actors are focusing on corporate engagements and building corporate capacity.
- Modern slavery risks are generally not a top priority for capital market actors compared to environmental issues and Equality, Diversity, and Inclusion (EDI).
- The term ‘modern slavery’ is not explicitly used by most capital market actors when referring to modern slavery risks, partially due to a lack of awareness and understanding of the term, and because the term is not being widely used in national legislation in some countries.
- Human rights issues are generally not embedded into investors’ due diligence processes or explicitly linked to environmental risks.
- There is limited engagement with people with lived experience of modern slavery and other non-capital market actors when addressing social risks.
- Most capital market actors are focused on mitigation of modern slavery risks in their value chains with little efforts on remediation. In terms of reducing vulnerabilities, most capital market actors focus on providing access to finance.
2. Capital market actors face several challenges to address modern slavery risks in their portfolio, including data availability, measurement, and reliability.
3. There is limited evidence on the factors that may influence the extent to which capital market actors implement their ESG policies and practices that aim to address modern slavery in their portfolios (effectiveness type 1: implementation) and influence change in company behaviour (effectiveness type 2: influence), but the findings suggest that:
- Human resources, knowledge, and senior level buy-in accompanied with robust governance structures, can influence effective implementation of anti-slavery policies and practices within an investment firm (effectiveness type 1).
- Collaborative corporate engagements with investees can influence positive changes in corporate practices such as policy developments or changes, increased disclosure, increased compliance with supply chain transparency regulations, increased awareness of modern slavery risks, increased commitment to address these risks, and due diligence improvements (effectiveness type 2).
- Targeting investees’ board of directors, or senior leadership, and contextualising the engagement can potentially increase the effectiveness of collaborative corporate engagements (effectiveness type 2).
4. There is very limited evidence on the factors that may make a difference in actually reducing the incidence of modern slavery (effectiveness type 3: outcomes) but the findings indicate that the institutional environment (the social, economic, political, and economic context) where companies operate worldwide may play a key role.
Key recommendations for UK policymakers
1. Set clear regulatory expectations for capital market actors by strengthening and enforcing existing modern slavery and human rights regulation in the UK—including procurement and supply chain transparency legislation—and consider the development of Human Rights and Environmental Due Diligence legislation. Ensure these regulations are aligned to international normative and regulatory frameworks and aim for these to be informed by people with lived experience.
2. Develop tailored guidelines for national and international capital market actors and institutions to address modern slavery, increase awareness of their roles to prevent, mitigate and remediate modern slavery, and incentivise individual and collective action. Consider engaging directly with specific capital market actors at senior levels.
3. Incorporate Global South capital market actors, trade unions and CSOs in the development of social data standards and ESG guidance and frameworks.
4. Support research including by funding research that can shed more light on the role of capital market actors in addressing modern slavery in their value chains.
5. Collaborate with capital market actors, governments in the Global South, multilateral agencies like the Office of the High Commissioner for Human Rights (UN Human Rights) and the International Labor Organization (ILO), or via a Global Commission, in building the institutional infrastructure needed to ensure capital market actors’ efforts are effective at preventing, mitigating, and remediating modern slavery in value chains.