Taking action against modern slavery

Modern slavery is a lucrative business for those perpetrators. One study conducted by ILO in 2014 estimates it brings in around $150 billion a year in illicit profit. However, this industry also puts an immense pressure on public funds. A 2018 study conducted by the Government of the United Kingdom estimated that the cost the country faces due to modern slavery is up to 4.3 billion pounds per year, with one incident of the offense costing more than 300 thousand pounds. This high cost is related to the support given to the victim, the cost of law enforcement used and lost earnings. While the monetary cost to the public is high, the emotional toll it takes on the victims is unfathomable. People who experienced slavery are among the most economically deprived and socially marginalised people.

Often people look to developing countries to point the fingure and say that it is a problem in a faraway area. However, modern slavery is a problem that faces many industries across all countries. Previous risk briefings have highlighted some examples of hidden forced labor in developed countries, with a specific focus on the construction industry. This risk briefing will focus on global efforts to tackle the subject, highlighting some of the key policies, guidelines and best practices. Modern slavery and it’s forms are a truly global problem that require a global response from both the public sector and the corporate sector.

Addressing modern slavery in both the private and public sectors has been a subject for many years. One of the main international organizations that is tackling the issue at the state level is the ILO. In 1998, ILO set out the Declaration on Fundamental Principles and Rights at Work (1998). The fundamental principles are comprised of eight previous conventions, grouped into four topics. They set out the basic preconditions that all States should strive towards to improve the individual and collective conditions to work. The four groupings are:

• Freedom of association and the effective recognition of the right to collective bargaining
• The elimination of all forms of forced or compulsory labor
• The effective abolition of child labor
• The elimination of discrimination in respect of employment and occupation.

With regards to modern slavery, ILO primarily address this through “the elimination of all forms of forced or compulsory labor” and “the effective abolition of child labor”. 

The first of two fundamental conventions stretches back to the 1930’s with the ILO Forced Labor Convention, 1930 (No. 29). This convention set out the globally understood definition of forced or compulsory labor, highlighted those forms of labor that are out of scope of the definition, and stated that those which illegally exact forced labor are to be punished with a criminal offence, with it being the duty of those who ratify the convention to ensure that these penalties imposed by law are adequate and enforced. This convention has been almost universally accepted and ratified.

To supplement this convention, another one was created in 1957 called the Convention concerning the Abolition of Forced Labor, 1957, (No. 105). The primary purpose of this convention was to prohibit forced labor as a punishment for participating in strike, and to prohibit forced labor as a means of racial, social, national or religious discrimination. 

In 1973, ILO adopted the first convention to try to address child labor. The so-called “Minimum Age Convention (No. 138)” set out the conditions on which member States should set up progressive minimum working age requirements as to not impede on the physical and mental development of a child. The convention also stipulates that countries should not set the age below the age of 15, and 18 for work that could be considered harmful to the child. Some stipulations could allow countries to set the minimum age at 14, however this is limited to those countries that have insufficiently developed economic and educational facilities.

The second convention addressing child labor was adopted in 1999 titled “Worst Forms of Child Labor Convention (No. 182)”. This convention requires that countries shall immediately take measures to abolish the worst forms of child labor, and applies to all children under the age of 18. This convention is the first one in the history of ILO to have been ratified by all 187 member countries, after Tonga did so in August 2020. 

Taking a closer look at the German NAP, the Federal Government expects corporations to do better in terms of their human rights due diligence. They have set out five core elements that every company should implement in their due diligence, this includes releasing a human rights statement, implementing procedures for identifying actual and potential adverse impacts on human rights, measures to ward of potentially adverse impacts and to monitor these measures, reporting on human rights and the company's measures, and establishing a grievance mechanism.

A number of efforts have been adopted to eradicate forced labour and modern slavery in the UK. Legislative efforts include the UK Modern Slavery Act from 2015 (revised in 2018), which established offences relating to slavery, forced or compulsory labour as well as human trafficking. The regulation requires businesses to make an annual public statement on their actions to address modern slavery risks in their operations and supply chains.

A key challenge for companies falls within the steps of identifying actual and potential adverse impact on human rights and monitoring these, especially further down the supply chain. Through complex supply chains, large manufacturing companies have an obligation to address human rights not just in their base countries, but through their subsidiaries and their supply chains. In recent years, there has been a considerable effort to address human rights and modern slavery. One such industry that has a particularly long history of modern slavery is in apparel and sporting goods. However, some of the world’s largest companies in this industry have recently made considerable efforts to address human rights in their business and supply chains.

In recent years, with the support of industry-wide initiatives and regulatory pressure, companies have begun to implement human rights policies and perform human rights due diligence all along their supply chains. One best practice example comes from a German sporting goods company. The company has a comprehensive approach to addressing human rights throughout the organization. Their approach is one that is centered around due diligence and human rights risk assessments. The company conducts on an annual basis country risk assessments where it focuses on salient human rights issues with the country and gives them a ranking. These assessments involve a wide range of stakeholders, who’s results dictate their priorities and strategies to prevent and mitigate these risks, particularly within the supply chain. These country assessments primarily drive their audit review of suppliers and factories for the coming year.

Their all-around approach tries to address every aspect of the business, from sourcing materials from new suppliers, to engaging with existing ones. They have a system in place by which to engage with companies who violate their policies to try and remediate the issues, or to remove suppliers when remediation is not seen as a viable option. Their complete process is tracked and improved upon through periodic audits and annually third party audits. Their approach is quite transparent through annual reporting, also publishing a series of key performance indicators that cover various aspects of their approach.

This German example is only one of how companies in apparel, sporting and luxury goods industries are trying to address modern slavery. These companies are often supported by industry wide initiatives who assist them with further guidance or third party auditing and give out certifications, such as the Better Cotton Initiative, the Fair Labor Association and Better Work.  

Mitigating modern slavery is a topic for all companies, regardless of the industry. While Allianz has a low risk exposure to modern slavery in our own operations, we can be exposed via our client portfolio. This may lead to the reputational risk for Allianz brand or damage, if a client is involved in such practices. Therefore, Allianz takes the matter very seriously, and has made due diligence on the subject a key part of the underwriting process.

By becoming more transparent on the issue, our clients can also benefit from this. Through taking action on modern slavery, this can reduce liability exposures, enhance public and brand reception, and / or prevent or repair previous reputational damage in those clients, who have faced such problems in the past. By collaborating with our clients and brokers, we can raise awareness of the benefits of addressing modern slavery, while also building up expertise on the issue to help others as well.

As mentioned in the beginning, modern slavery is a global issue that requires all parties to work together. A joint approach to addressing human rights in non-life insurance has already made fruition through the new PSI Guidance for non-life insurance. This guidance provides various examples of risk mitigation and good practices, rates different sectors and so forth.

Within Allianz, the Group-level ESG guidelines for sensitive business sectors supports our underwriters  to identify human rights issues in our insurance portfolio across all sectors.  At AGCS, we support our underwriters and clients to identify and assess the material ESG issues and develop recommendations on how to mitigate these risks. To find out more information on our approaches, please see the ESG Integration Framework and the Allianz Sustainability Report.

AGCS supports its clients to identify and assess material risks and develops recommendations on how to mitigate these risks. In a fast changing world, AGCS identifies emerging issues and develops risk management strategies.  

Our consulting team is available at: AgcsSustainability@allianz.com

We are dedicated to deliver the best possible solutions to the management, control and reduction of ESG risks.