Investor Discussion on Forced Labor in the ICT Sector

In June, KnowTheChain hosted a webinar for global investors to share findings of its recently published Information and Communications Technology (ICT) benchmark and discuss what investors can do to address forced labor in their portfolios. A recap of some of the discussion points is below and you can listen to the webinar recording here. What is the risk to investors? Moderated by Kilian Moote, KnowTheChain Project Director, the webinar was kicked off with an introduction of the regulatory and reputational risks of forced labor across sectors for investors. ShareAction’s Jon Hoare pointed to examples from their latest investor briefing on forced labor, such as the case of Signal, a US marine-services company which lost a dozen civil forced labor lawsuits. Signal was subsequently ordered to pay $20 million in compensation and later filed for bankruptcy. Forty-seven percent of the company was owned by two US public pension funds, the Teachers’ Retirement System of Alabama and the Employees’ Retirement System of Alabama. Where does the ICT sector stand? Carlos Busquets from the Electronic Industry Citizenship Coalition (EICC) shared insights into how the ICT industry is addressing forced labor. The EICC, which has more than 100 member companies, is working to develop a global end-to-end framework for responsible labor practices to assist workers throughout the hiring process, including pre-departure orientation, labor agent certification, supplemental audits to address forced labor, and worker grievance mechanism. Two KnowTheChain project partners, Megan Wallingford from Sustainalytics and Felicitas Weber from Business & Human Rights Resource Centre, shared key findings of the ICT benchmarks and how the benchmark can be used as a tool for engaging investee companies: by identify leading and lagging companies, as well as best practices and gaps in the sector. Notable gaps among the lower scoring companies include two companies which do not have a public supplier code of conduct, and four companies whose supplier code does not include international labor standards prohibiting forced labor. Among the higher scoring companies, notable leading practices include Apple, which ensures that recruitment fees paid by workers in the supply chain are reimbursed (fee paybacks have amounted to over $25 million since 2008), and HP which reduces high-risk purchasing practices by establishing multi-year agreements with its major suppliers and providing suppliers a 12+ week rolling forecast. What are investors doing? Matt Crossman from Rathbones provided an investor perspective. Investors expect companies to be proactive about understanding and managing supply chain risk, rather than waiting for scandals to hit them. Encouraging corporate disclosure is a means to reduce and address this risk. However, even disclosure regarding a company’s action to address risks in the first tier of supply chain tends to be limited. Benchmarking can be beneficial by providing consolidated information, and also incentivize increased corporate disclosure, thus enabling more informed decision making by investors. However, supply chain risks are systemic in nature, and change is needed at a policy level. As such, European investors with £940 billion have backed the development of the UK Modern Slavery Act. Further, Rathbones has partnered with civil society organizations to analyze the efforts of 33 FTSE 100 companies to address forced labor. What’s next? For the ICT sector, the KnowTheChain ICT sector benchmark provides a clear picture of achievements and gaps in the industry, aiming to incentivize a race to the top. Webinar participants pointed out that ICT companies might have a bigger role to play by providing tools such as apps, and supporting technology innovation to address forced labor. Few companies have done so already. Examples include Google, which through its Global Impact Award has supported a project on data collection to disrupt human trafficking, the technology firm Twilio and Salesforce Foundation which supported the development of the SMS-based helpline for victims of human trafficking or Microsoft, which has developed the freely available PhotoDNA, which helps to identify online images of sexually exploited children to aid law enforcement. Further regulation such as the UK Modern Slavery Act can drive corporate action. While there are some good reporting examples to date, an initial analysis of early statements found that on average reporting is weak, with only a few companies reporting on all suggested areas. Investors can and should play a role to encourage more robust reporting. The KnowTheChain benchmarks can help investors to evaluate how comprehensively companies address forced labor, which remains a pervasive risk in global supply chains. Listen to a recording of the webinar >>