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Expect more modern slavery regulation, fundies say

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An Australian investment manager has called laws around modern slavery a “race to the top” across the industry and various governments, as funds wrestle with supply chain issues and external managers overseas.

The Commonwealth’s Modern Slavery Act passed in 2018, requiring companies running in Australia and generating a revenue greater than $100 million to report on the risks of contributing to slavery in their supply chains and in their operations, as well as their course of action on it. Companies have had to report to the government since July last year.

Speaking in a recent Bloomberg webinar about ESG investing, Mans Carlsson-Sweeny, head of ESG research at Ausbil Investment Management and Danielle Welsh-Rose, ESG investment director, Asia Pacific at Aberdeen Standard Investments both said they anticipate further legislation on modern slavery, in Australia and across other jurisdictions.

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Ausbil consulted with the Australian government on its act as an investor voice. 

“The government here, they have made the point that this is going to be a race to the top, that is how they’ve described the Modern Slavery Act,” Mr Carlsson-Sweeny said. 

“It started with the UK modern slavery act, and [it] was enacted a few years ago. Australia looked at that and improved that. Now the UK is looking at the Australian version and they might review theirs, so I think it’s going to be a bit of a race to the top even in a regulatory perspective. 

“And this also talks about mandatory due diligence laws in European jurisdictions as well. So I think… this is just the start. There’ll be much, much more legislation coming up in this field going forward.”

He has previously said local fundies are under tougher rules than their UK counterparts, with the Australian rendition of the act having “more teeth”.

Liza McDonald, head of responsible investment at First State Super (soon to be rebranded to Aware Super) also weighed in, noting challenges for the industry fund giant in dealing with more than 80 external fund managers. 

“We have investments across the globe as well and fund managers based in different jurisdictions. So reaching out to them and asking them what they’re doing, we have had examples of fund managers coming back and going ‘oh we only invest in US companies and it doesn’t apply to us’,” Ms McDonald said.

“Well, actually you’re managing money on our behalf. It applies to me and it applies to Aware Super. We need to understand what you’re doing. 

“And if you think that just by investing in US companies means you have no exposure to modern slavery risk, then we need to have a discussions because that’s not the case.”

'We're at the beginning'

Most investors are “relatively new to trying to understand modern slavery risks”, according to Ms Welsh-Rose. 

“I think we’re at the beginning, most of us, of this long journey into really understanding the complexities of supply chains and the interrelations between other issues,” she commented.

“But I think it’s beyond time that we focus on human rights issues and so I think it’s an interesting time for investors.”

However, an already complex issue can run up against further difficulties in the current COVID-19 crisis.

“Because of COVID-19, we are not able to do site visits, but not only are we not able to do site visits, but the auditors are not able to do site visits,” Ms Welsh-Rose said.

“We’re in this kind of situation where it’s very difficult to know what’s happening on the factory floor in many countries. And so, is that something we should be accepting in this period and then trying to pick it up later? 

“Or is it something we should be looking for an alternative, innovative solution to get into the bottom of what’s happening in the supply chains at the moment?”

Another challenge had arisen when the US government blacklisted a number of imports and blocked the American border from China and other Asian countries, citing human rights abuses and slavery allegations. 

“We were having a look at that and it was a very long list of companies,” Ms Welsh-Rose said. 

“And it was a situation where we were looking at it initially from our modern slavery investment, supply chain perspective, but then very quickly realised that we had to get other experts in our team involved who understood the geopolitical environment, because the reasons for blacklisting those companies were not necessarily entirely around slavery allegations in the supply chain. There was a strong geopolitical element as well.”

Fiona Reynolds, managing director of the Principles of Responsible Investing (PRI) has said the investment industry needs to do more on human rights, warning neglect of the issue may also be delaying effective climate action.

From a state level, boutique Ethical Partners Funds Management has urged the NSW government to implement its Modern Slavery Act from next year.

Mr Carlsson-Sweeny added the business community had shown support for the act when it was first rolled out, but he expects collaboration is set to increase between companies on the issue, forecasting retailers and banks will work together. The property sector is ahead of other industries, having already taken steps.

“I think in some sectors, there’s always been a natural focus or at least some sort of responsible sourcing efforts, because if you’re a consumer facing brand/company, well you live and die by your brand,” Mr Carlsson-Sweeny said. 

“But there’s still a lot of laggards in some industries.”

 

Expect more modern slavery regulation, fundies say
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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