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Modern slavery is ‘coming back into focus’ for LPs

Regulatory and reputational risk make human rights an increasingly hot ESG topic, said LPs at Thursday's Responsible Investment Forum APAC Investor Day.

Human rights and slavery concerns in supply chains and contractors are coming back into the spotlight, LPs told a panel at Thursday morning’s Responsible Investment Forum APAC Investor Day.

“In terms of our reputational risk and the issues that are raised with us, human rights is really up there. It’s one of the issues that we get most focus on from stakeholders,” said Anne-Maree O’Connor, head of responsible investment at the New Zealand Superannuation Fund, which has assets worth NZ$58.18 ($41.37 billion; €35.15 billion).

Fiona Mann, senior investment analyst at LGIAsuper, with AU$12.9 billion ($9.4 billion; €8 billion) in assets, said the expectation for fund managers to report on modern slavery “is also reflected in the Australian market, where it’s a legislative requirement now to produce a modern slavery statement every year, and that includes funds. So we rely on serious discussions with our managers on what they’re doing on modern slavery so we can report it at our level too.”

Rizal Mohamed Ali, vice-president of the KWAP retirement fund, with assets worth RM136.5 billion ($32.8 billion; $27.9 billion), said: “For the issue of human rights and treatment of foreign workers, during our engagements, we scrutinise their housing facilities and we ask for disclosure as to the living conditions and the services they provide. And when there are issues such as companies that face an import ban by the US customs…we ask them to verify what the issues that they need to address are.

“And we expect very committed, time-bound initiatives that they plan to do to address these issues. We monitor these issues very closely; we’ve made it clear we will not tolerate poor labour practices. If we do not see any progress or if a company is not able to address these issues well, we will further engage with them and take necessary action.”

Increasing expectations

Ali added: “One positive outcome of the pandemic is that social issues are now given more prominence. For example, due to quarantine requirements, the living conditions of foreign workers are given more scrutiny and exposure. Hence, we noticed that a lot of our investee companies are stepping up in providing better treatments for foreign workers. But, as with many things in ESG, it’s an ongoing process and the expectation keeps on increasing. With time, I think the social pillar will improve significantly.”

O’Connor said: “Social issues have actually driven ethical and responsible investments – particularly in the area of human rights – since the beginning. One of the first examples of that was slavery. [Now] climate change has become such a systemic issue for us to focus on. But human rights has always been there, it’s just coming back into focus.

But climate change continues to be a major focal point for these LPs, who are calling for more regular reporting and interim targets.

Ali said: “We expect managers to disclose material ESG metrics to us, which should be done via stipulated periodic reports annually and quarterly.”