Eradicating Modern Slavery From the Supply Chain

Rosie Hirst:

If you read a company's modern slavery statement and they say they have never found any forced labor in their operations or supply chain, they're simply not looking hard enough. So, the punishment should not be for finding it, the punishment should be for not finding it and then for not fixing it and then preventing it.

Michael Torrance:

Welcome to sustainability leaders. I'm Michael Torrance, chief sustainability officer with BMO financial group. On the show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices and our world.

Speaker 3:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries.

David Sneyd:

Welcome to the BMO sustainability leaders podcast. My name is David Sneyd and I'm a vice-president analyst in BMO global asset management responsible investment team and my role on the team, I spend a lot of time talking to both our internal investment analysts and fund managers as well as companies about those ESG environmental, social and governance issues that are material to the longterm business performance. Companies can have exposure to these risks not just through their direct operation, but also through increasingly complex interconnected global supply chains. One such risk is the subject of today's episode, Modern Slavery with over an estimated 40 million people living in slavery in the world. Slavery is not a relic of the past, but something is still very much with us today. As long-term investors, we encourage companies particularly in high-risk sectors to take steps to identify and manage human rights risks such as modern slavery.

David Sneyd:

Taking action can mitigate any reputational regulatory risks that can adversely affect profits and ultimately our investments. In addition, working to tackle modern slavery directly supports the UN sustainable development goals, especially target 8.7 which calls for immediate and effective measures to eradicate the various forms of forced labor and modern slavery. I'm very happy to introduce, as a guest on our podcast today Rosie Hirst, who is no stranger to either this issue or to us here at BMO. Rosie founded Impacts, a leading consultancy specializing in improving labor practices in supply chains. She has a wide range of experience on the ground particularly in Asia, traveling regularly to meet Impact clients as well as supporting teams in the field, to implement changes in workplaces and engage workers and employees locally.

David Sneyd:

Impact operates in the UK, India, China and Bangladesh with a global network of associates and Rosie has built the organization from its inception. She is also a member of BMO's Responsible Investment Advisory Council or RIAC that oversees the application of the ethical sustainable criteria apply to our responsible fund range as well as advising on our broader responsible investment activities. Rosie, many thanks for taking the time to join us today.

Rosie Hirst:

Thanks very much.

David Sneyd:

Rosie, perhaps you can get us started today with just defining for us what is meant by this term modern slavery and from your experience on the ground, what does that look like for people in practice?

Rosie Hirst:

Yes, well modern slavery actually isn't a clearly defined term. The one that's clearly defined in the international apparatus is forced labor which is defined by the ILO as all work or service that is exacted from any person under the threat of a penalty and for which the person has not offered themselves for them entirely, which I've always found a very, very unhelpful definition. Luckily the ILO has also come up with 11 indicators of forced labor which make it a little bit easier to understand what forced labor modern slavery is. So, if I just quickly whisk through those, I think you'll see the picture of what we're talking about beginning to emerge. We're talking about people who basically have had their freedoms curtailed in such a way to put them at extraordinary risk of exploitation by their employer. The first one of these indicators is debt bondage.

Rosie Hirst:

If for example, you have had to contract a debt or indeed sell everything you own in order to get a job, you're stuck because you need to pay back that money in order to bear, whether it's to your employer or to third parties. Your freedom is curtailed in that way. Another way of curtailing freedom of course is restriction of freedom. If you're not allowed to leave the plantation or farm or factory that's another thing, withholding wages because obviously if you don't actually get your pay, you can't service your debt any way, so you will further liable to be super exploited if your ID documents are retained. If your vulnerability is abused in a number of other different ways, if you've been deceived, if they've said to you, "Come and have this job." And it's absolutely lovely and you go, okay then you get that and it's not.

Rosie Hirst:

That element of deception actually starts to move from forced labor into human trafficking in fact. We also find that people in the kind of conditions I've just outlined tend also to experience abusive living and working conditions. In my experience, I've never found somebody in debt bondage who has a perfect lovely job where everyone is charming and there's lovely accommodation to go with, always hand in hand you have abusive living and working conditions, often physical and sexual violence, intimidation and threats excessive over time and often people feel very isolated. When you have one or more of those indicators, some of them are stronger indicators than others, then we're talking about forced labor or modern slavery and I regret to say, "it's rather more common than one might like to think."

David Sneyd:

Yeah, no, thank you for putting some definition on that. I think that's definitely true. I think the figure of estimated 40 million actually is a little bit outdated now and some claim is actually much higher and I think that's one of the things that's quite stirring about this topic is to think this is still something that's very prevalent and often under the surface amongst various companies and regions of the world. I mean, just to help us kind of understand why you particularly work, where would you say where are the regions geographically where it is most common and also other particular sectors, particular industries that you find in experience that are most prone for this to go on.

Rosie Hirst:

To twist your question the other way around, I think the largest risk factor for companies is the presence of migrant workers. That is workers either from abroad or from a very different region of the same country because almost always those workers will have made sacrifices to go and get those jobs and will be willing in inverted commas, willing to suffer worse conditions in order to earn the money they need to earn to send home. When you think of where do you see that, when you see it in spades in the countries of the Gulf of course, where the chance of a job overseas for a Nepali or a Bangladeshi person or someone from me and Mar or India or Pakistan or increasingly from countries in Sub-Saharan Africa seems like a golden ticket and where the laws regulating those migrants do actually put them almost in automatically into some of the categories I was talking about before, but there are other countries too aside from the Gulf where this sort of employment practice is commonplace.

Rosie Hirst:

Across Malaysia things are particularly bad, Thailand, Singapore and even in Japan, but we must remember that you do get isolated instances of modern slavery and forced labor right across Europe, US and of course the UK, but for us the hotspots of this particular type of forced labor are very much the Middle East and Southeast Asia. In terms of industry it's really anywhere, where there are migrant workers. For example, we're currently involved in construction, Marine construction, retail, effort production of a home CG goods because rubber gloves, Palm oil, other plantation crops for example tea and cotton. So it's very, very widespread, I think under reported and we're seeing that the regulatory environment is starting to catch up with certain firms and I'm delighted to see also that investors are beginning to see this as very, very central to the S in the ESG. I'm hoping very much that the light being currently Shown will result in some happier endings than we're seeing now.

David Sneyd:

Yeah. Thank you Rosie and I think you're certainly right that certainly investors and entire companies are getting more and more aware of the need to understand their exposure to forced labor, modern slavery and to act in some way. I guess if we were just put over to you to say, "If I was an investor or a company, what is the case for me to really care about this area?" When as you say, "ESG and even the S has a lot of very broad issues in it." And why should this be prioritized and something that's spent time on?

Rosie Hirst:

Absolutely and I think it's important to separate the moral and the business case. Yeah. I mean the moral case, clearly companies whose profits are predicated on modern slavery, that's morally repugnant and as I was saying, this is rather more common than we would like to think, just to talk a little bit about that. As we have seen wages increase in low cost countries, the demand for this type of labor which is available below the local market rates, obviously has gone through the roof and the suppliers on ending which means that the penetration of this type of modern slavery in supply chains and operations globally is increasing. This is morally department, but one of our problems is actually the immediate business case is not very clear because what happens when you free the slaves, is the slaves are free to run away and the conditions are often so bad and so dehumanizing that they have no hesitation in doing that and trying to take their chances elsewhere.

Rosie Hirst:

I think it's very important to have this discussion in Tandem with a discussion of decent work because of course there is very strong business case for human capital development even at unskilled levels, very strong productivity cases, very strong efficiency cases for treating people better. It's a hockey stick curve, you need to free the slaves and then March on pretty quickly to developing decent work in order really to put an end to this problem.

David Sneyd:

And one of the areas that we certainly look at and then you say there's a growing understanding of the area is also around kind of reputational risk and it feels like we recently, a few months ago had quite a big expo say's here in the UK regarding kind of one of the main internet close retailers. I think people were somewhat shocked that even in a UK city they can still be the prevalence of slavery like conditions. Do you think that's also feeding more and more into companies wanting to improve in this area in terms of the reputational risks associated? Is that something started, is that a big driver in what they're looking to improve and avoid modern slavery?

Rosie Hirst:

Yes. I think the reputational risk is huge and the embarrassment risk is huge. However, I think more important than the reputational risk is the regulatory risk particularly in the US. There have been very strong moves foot to block the importation of goods made by forced labor into the United States of America and this has had a size mega effect. Over my 25 years of working in this field, I have never seen companies snap so fast to trying to ensure compliance as when faced by sanctions from the US department of Homeland security. I think that is changing the landscape. What we have seen, for example some of the major importers of rubber gloves were banned from important to the United States earlier on last year which is very interesting during the time of pandemic.

Rosie Hirst:

But the problem then is, we found those gloves then found their way into European and Australian and other markets and I think that is causing quite a few ripples and in government circles. We heard last week that the EU is exploring the notion of using customs regulations in order to ban the import of goods made by forced labor and I know Australians and Canadians and others are thinking along the same lines. But of course, once you have this regulatory stranglehold it's much more than mere reputation. What then happens is a strangulation of sales and certainly we find that companies who face that risk head on are very, very fast to make changes. The next thing that needs to happen is those companies which do success for you to make changes, need to be rewarded by the market. Leadership needs to confer competitive advantage and I think if we can achieve that, if the repentant sinners who have been able to demonstrate that they have solved this problem in their operations and supply chains, if they can gain competitive advantage from that, then I think we'll really be rocking.

David Sneyd:

And you mentioned there about those who you've gained an advantage and have looked to solve the problems. With your experience, I know you do a lot of work with companies as part of your work at Impact and what is it that companies can really do in this area? What does best practice that like what really can we expect of companies particularly given the scale of this issue in certain jurisdictions? What can we really hope that they look to do?

Rosie Hirst:

Yes. For me, the most important factors are number one, proper diagnosis. So, not just sending in the standard auditor who won't pick up the signs of modern slavery and saying, "It's fine." Real diagnostic work using experts to identify modern slavery is the first step and to be honest, if you read a company's modern slavery statement and they say they have never found any forced labor in their operations or supply chain, they're simply not looking hard enough. So, the punishment should not be for finding it, the punishment should be for not finding it and then for not fixing it and then preventing it. In our view, the second important factor that there needs to be in companies' responses is having found it, fixing it, which means remedy. This is following the UNGPS, the UN guiding principles on business and human rights.

Rosie Hirst:

What companies must do at this stage is to repair the harm, which means making sure that the affected individuals are made better. So, having that debt's repaid and ensuring that their documents are returned and their conditions are no longer abusive. That is quite a lot of work, but companies that can demonstrate that they've done that and that they have repaid the debts should be rewarded, I think because that's real demonstration of writing the wrong. The third step is, not to be done before the second step either. The third step is, now you've learned about it, now you've understood it. You know where it is, you know how to fix it, how can you prevent it in the future? And that is all about for looking in terms of the way staff are recruited in supply chains or in own operations and the way that they are treated.

Rosie Hirst:

I think the orthodoxy is to have a quick look, say it's not there and do a bit of supplier training to demonstrate that you're doing your best and that simply is just not good enough and more and more companies will find themselves with unresolved issues of modern slavery, unless they take a much more robust diagnostic approach. It's interesting actually when you look at what the U S government is now requiring, it is requiring incredibly detailed information about products coming into the United States in order to be able... So, companies can mitigate the risk of having their goods withheld and that is two types of documentation.

Rosie Hirst:

It's documentation of chain of custody from raw material through to finished products, but it's also very detailed information about the way workers are treated at each step of the chain and I think that the detailed guidance was actually only released last week to some shock and I think this is going to make far more demands on companies, but in a way it's quite a good thing because it gives investors far more specifics to ask about because there's now a kind of evidentially level to meet regulations of a very large country which I think provides a framework which investors can ask more educative questions about this topic.

David Sneyd:

Do you think there's ever a case where that say a company has tried to work with a supplier, tried to get greater access, tried to improve conditions, but actually either because maybe they don't have the right amount of purchase power or some stubbornness on behalf of the supplier they actually do not wish to improve? Do you think it's appropriate that companies just sort of disengage with a supplier altogether and when do you think that is appropriate for a company to consider doing?

Rosie Hirst:

I think that a company must first have attempted to engage with other customers of the supplier. In our experience, if you can master 50% of the value of sales for company, you can get them to change and certainly that doesn't seem to be any issue with tortious interference when it comes to convening groups of customers where who work with same supplier. I think that companies need to partner on specific supplier by supplier remedy packages before throwing in the towel. Now it may well be that companies particular as I said, those currently important to enter the US but also soon Canada and other countries as well, they may no longer be able to buy because they may not be able to sell or indeed import that product anymore, but staying in until such time, staying in supporting financially until such time as the problem is sorted, is emerging best practice in this area.

David Sneyd:

And you talk a lot about collaboration. Do you find that that collaboration is happening between different purchases of a certain supplies? Is that behind this, often as the consumers or even as investors, a lot of that is behind the scenes and actually the work that's done on figuring out supply chains and everything else. From your experience of being on that side, is there a culture of collaboration currently in place and looking at these areas?

Rosie Hirst:

There is more and more collaboration, but I'd like to make a distinction between sitting round in a meeting room collaboration at policy level, which is fine and dandy. I'm not against it in any way and it's in fact, it's a necessary thing to do and collaboration on remedy. Collaborator facing the issue and sorting it out case by case there needs to be more of that in order to get the traction. Because of course, unless the market can be reset, unless the supply and demand of labor can be reset such that the market does not prefer very low quality forced labor, until that can be done, collaboration is key.

David Sneyd:

And on the spirit of collaboration being key. I know a lot of the work that you do in your organization does very much involves talking all the different stakeholders involved in the relationship. Both in terms of communities and the employees themselves as well as the employers and the purchases, be helpful just to hear in a typical case that you may be looking at, who it is that you would be engaging with and what it is that each of those different parties contributes to the conversation?

Rosie Hirst:

Absolutely. I think the most important point at the diagnostic stage is to get that worker's voice central because one of the most extraordinary things about modern slavery is that it hides in plain sight. So, perfectly nice people can go to work every single day and from that comfortable air conditioned offices, just not recognize that the conditions of the staff in their operations are akin to modern slavery. The first point is to shine a light on that, which means interviewing a lot of workers and talking to workers about their experience. How did they get that job? How did they come to be there? What money proper changed hands? What documentation changed hands? What's it like now? Et cetera. I mean we classically interview 10% of the workforce using expert worker interviewers who have the language skills, who come from the same places that the various different groups of workers come from and that helps us build up a picture of the different stories, the big picture of the different stories of all the workers and what points they are experiencing those indicators of forced labor.

Rosie Hirst:

Now, alongside that is obviously very important to understand the management perspective from supervisors, security guards on up as well as understanding all the policies and how they work. From that it's possible then to map the performance of a particular employer against those indicators of forced labor to identify where the sticking points are, which particular types of groups of people from which origins are experiencing which indicators of forced labor at what time and then at what point in that journey and then it's all about working together to sort those problems out. Now some of those problems are about management attitude and a relatively simple to sought out In fact.

Rosie Hirst:

Some of them are about money. For example, does their business model need them to pay people less than the market rate or less than the legal rate in which case that could be a conversation about price, there could be a conversation about efficiency. There are also issues of course with things happening in other countries far away. I could be sitting in Southeast Asia and I could be hiring from say Bangladesh and all kinds of things could be happening for those workers along the way, at the moment I might think that's not my business, but I think what employers are starting to see is, this jolly what is that business? Because if they don't take responsibility and proper oversight on the journey of employees from where they come from to the factory or farm, then they find themselves liable for repairing that damage.

Rosie Hirst:

Now we work in for various different ways. Sometimes we'll be working for the employer to help them solve this problem. Sometimes we might be working for people higher up in the supply chain, looking down at multiple suppliers or working across different companies working in partnership or sometimes working for government agencies, each of which have a different stake, but I think that crucial point is, put the worker at the center, if the worker expresses their problems and then says the problems have been solved, then the job is done and that is the happy ending that we want. But of course, normally that worker's voice is buried very deep and you can't get to it. It's actually remarkably easy to get to, if you have the right resources to do that. But I think all of the complication and technicalities go out to the window once you hear what workers have to say, because then what you need to do is very clear.

David Sneyd:

And as you say that's the test case for when there's been resolution is when that's the same work as cases are confirming it's no longer the case on how they feel and obviously you have not been traveling much in the last year, similar to the rest of us and so how have you found, I guess two parts COVID-19, how have you found that's generally affected supply chains overall and particularly in this particular area, have you found that that has led to, for example, declining in standards or has that helped and also in terms of what you do so much of it for you and your colleagues involves in a talking to so many people, getting on the ground and those kinds of things. How have you found transitioning what you do to kind of a bit more of the online world that we're living in right now?

Rosie Hirst:

Yeah, no, very good questions. I think impact of COVID has largely to make the lives of these people worse because what has tended to happen is that workers have got stuck. So, either they've already paid their fee to get a new job and there is no job or they're stuck in the job paying their debts off, but there's no work so they're not getting paid or they get locked down in a dormitory and they can't go anywhere or worst case, they die of COVID and certainly we do see that those of our clients, who've worked very hard on accommodation standards, which is why accommodation actually has become so crucial in this debate. If you have decent accommodation where people have enough space in order to be able to maintain social distancing or a decent standard, it's what we would see.

Rosie Hirst:

We found far less COVID spreading, whereas in those environments where you have big halls with 150 workers all sleeping together and not enough people sharing beds for example or indeed having no beds whatsoever, which is the case in sadly and some of the places where we work, they have been the places where there has been a lot more infection and of course we have seen both in Malaysia and Singapore then migrant blaming. What then happens is migrants are seen as dirty and reading the seat of infection and the anti-immigrant feeling has actually been intensified by COVID, which has been very unfortunate because of course, a lot of the issues we find to do with societal anti-immigrant, anti foreigner discrimination were treating people badly as fine because they're from overseas and they come from a poor country and are they doing any better?

Rosie Hirst:

And we've actually seen that sentiment harden in a really quite unpleasant way when it comes to moving being seen as a seat of contagion, which should tell you that we've actually not really found many difficulties in being able to continue our diagnostic and remedial work over this period and in fact, in some ways having an ongoing conversation, for example, between one of my Bangladeshi teams sitting in Dhaka talking to his coneflower in Doha or Dubai or Kuala Lumpur or Singapore over long periods of time means that you actually get better intelligence and sadly, we're actually finding more cases of fiscal and sexual violence being reported by workers, because somehow it's easier to do this over the WhatsApp to somebody you've spoken to a couple of times, than if you meet someone face-to-face in a slightly uneasy interview at work. Actually when it comes to building the dialogue between migrant workers and my team, we're actually finding out more than we were before. I don't necessarily think that physical and violence has got worse, I just think that regular check-ins online means it's easier for people to talk about it.

David Sneyd:

Appreciate, if you could just share with us, obviously you've been doing this a long time Rosie and I think over that time, I think you've made some real progress on remediation and some successes and victories. So, it'd be great if you could share some of those with us, just the things that you've felt you can also achieve in your time working in those areas.

Rosie Hirst:

Yeah. I think the thing that at the moment that we're proudest of is getting money back to workers. If you think about a Bangladeshi worker, that person has often paid $5,000 to get a job which has a monthly minimum wage, that's some... Before overtime of about $250. So, you chucked some very quick to calculate. It takes a very long time to pay off that loan before they start to have any benefit from their migration during which time of course they're being treated quite badly. The repayment of those debts to us is absolutely central. I'm delighted to say that over the last couple of years, we've been able to support the repayment of $106 million to around 70,000 workers and that's across many of the countries I was speaking about before.

Rosie Hirst:

There's Southeast Asia and the middle East. What we've done is developed a set of standards for the repayment of recruitment fees because there are no receipts. People have paid multiple actors, some of whom are corrupt actors along the way in order to get the job and previously I think attempts have founded on lack of evidence. We're suggesting is that you can find enough information and you can put together credible repayment packages that make a different real difference to workers and as I say, we've put these together in a set of standards which are now being debated by companies, by investors, by the ILO, by the IOM and we have high hopes that those might be taken into the international architecture. Now, if that happens, then we can make repayment to the norm. If we can make repayment of recruitment fees the norm, we can reset the market because obviously if you've repaid recruitment fees as an employer and this can be a great deal of money, you are then much more motivated to get it right next time.

Rosie Hirst:

So, to exercise property diligence over your recruitment in the future and to exercise proper controls over the behavior of your management and of the quality of the accommodation that you provide for your workforce. We see this repayment as being the key from a humanitarian perspective or remedy perspective because basically everyone who gets their money back, their migration has become worthwhile. They will get, some of them may have suffered for it, but they will get some of the dream that they traveled for in the first place and at the same time, their whole recruitment market should be reset. So, that is one thing that if I was to ask, if I was to have a wish for what investors would task companies with, it would be that repayment of recruitment fees because I can guess it's the inflection point it's going to make a big difference in the future.

David Sneyd:

It's great to hear that you've been seeing some fruits of your labor on this and as you say, that sounds so important for actually repairing things and also teaching lessons that could be taken going forward on how things can be further improved. I guess I'd ask you from where you are, what do you hope to see over the next five to 10 years in this field if we look out the medium long-term? Where do you hope that everyone involved in all the connective relationships get to in terms of both the companies and the suppliers for employees and for regulators? Set the scene for me for what you hope a future in this area looks like.

Rosie Hirst:

It's a huge question. I think what one would need would be proper regulation of migration for work corridors which protect the people moving along those corridors, the proper regulation of actors involved in moving people around the recruiting companies and agencies. You would look to decent wages and the implementation of decent wage legislation because of course where proper wages are paid, the risk of exploitation is far less and of course there are their knock-on effects. As I said, once you're in a decent work, decent wage environment, you can then have the productivity benefits, whichever one wants from improved human capital. Now, we do have to think about a few things here because there are some risks as well because of course this may mean a reduction in demand for low skilled and low cost labor. So, what will happen to those people? It may cause an increase in interest in automation. At the moment there's very little automation of the kind of jobs I'm talking about simply because the future is not predictable, order patterns are not clear and supply chains obviously with a lack of firstly integration means that the information you need in order to make those investments decisions are not there. I think I suspect that automation will become more important. I mean, for me this is another aspect of just transition actually. So, as we transition to a new type of economy establishing what is decent work and therefore how much we have to pay for things is going to be very important because at the moment it's a kind of Ponzi scheme. There isn't enough money in the global supply chain to keep the people in the global supply chain in decent work and that is just true. So, they'll have to be significant adjustments to make.

David Sneyd:

Great. Thank you for your time today and sharing your insights and your experience in this area. Certainly as investors, it's something that we are talking to a lot of companies about, a lot of other investors and very much kind of learning how what our contribution can be in terms of trying to improve settings and as you say, moving to this new space where decent work is imperative to the way the economy runs. Thank you for your time again, appreciate your insights.

Rosie Hirst:

Thank you.

Michael Torrance:

Thanks for listening to sustainability leaders. This podcast is presented by BMO financial group to access all the resources we discussed in today's episode and to see our other podcasts, visit us @bmo.com forward slash sustainability leaders. You can listen and subscribe free to our show on Apple podcasts or your favorite podcast provider and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and puddle creative. Until next time, I'm Michael Torres have a great week.

Speaker 3:

Views expressed here are those of the participants and not those of Bank of Montreal, it's affiliates or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy or security. This presentation may contain forward looking statements. Investors are cautioned not to place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only and does not constitute investment legal or tax advice and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment tax and, or legal professional about their personal situation. Past performance is not indicative of future results.