Galvanising action on modern slavery in the real estate sector through effective investor stewardship

Modern slavery in property and construction

Modern slavery refers to a range of human rights violations, including human trafficking, forced labour, debt bondage, child labour and forced marriage. It is the commodification of a human being for the sole purpose of making money. Statistics and recent developments depict a sobering reality of modern slavery, particularly in real estate:

• Construction ranks second to the sex industry as the EU sector most prone to modern slavery, a 2018 report from the Chartered Institute of Building shows.
• According to 2021 figures from Unseen’s Modern Slavery and Exploitation Helpline, construction and building accounted for more than 30% of incidences of forced labour exploitation reported.
• In a report released on April 2022, the Independent Anti-Slavery Commissioner (“IASC”) spotlighted labour exploitation in construction, with a focus on Operation Cardinas, a high-profile case involving an estimated 300-500 Romanian victims.

UK's modern slavery law: Ripe for change

Modern slavery legislation continues to strengthen worldwide, and the UK is no exception to this trend. The EU is moving towards mandatory corporate sustainability due diligence, while a new UK Modern Slavery Bill was announced by the Queen’s Speech following the Financial Reporting Council’s research highlighting compliance failures in the area. Australian legislation is also undergoing a review and that legislation is being considered in New Zealand.

Taking stock of global regulatory developments, the opportunity that presents is to consider further strengthening the UK’s Modern Slavery Act (“MSA”), through the following mechanisms:

• Stewardship: Broadening of investor focus, beyond own supply chain, to cover financial portfolios, as called for by the Independent Anti-Slavery Commission and as done in Canada and Australia.
• Governance: Imposing both personal liability on directors under the MSA (like the UK Bribery Act) as well as import controls to combat supply-chain slavery, which the European Commission has begun contemplating following the USA’s lead.
• Reporting: Shifting the focus from process to actions, e.g., by mandating explanations where there is no incidence of modern slavery found, as proposed in New Zealand.

Modern slavery and effective stewardship

Ahead of new legislation, investors are pressing ahead to tackle modern slavery through stewardship. Relevant investor initiatives include Churches, Charities and Local Authorities (“CCLA’s”) Find it Fix it Prevent It initiative backed by investors with more than ￡7 trillion assets under management; Rathbones-led Votes Against Slavery campaign which targets FTSE 350 compliance under the MSA; the Investors Against Slavery and Trafficking Asia Pacific; and the Investor Forum’s collaborative engagement on working practices in the apparel sector.

There are also signs of change within real estate. CCLA’s campaign focused on the hospitality sector is expanding to include the construction and materials sectors. AustralianSuper and other super funds are directing investment toward properties that are Cleaning Accountability Framework-certified and free of forced labour in supply chains. ?We expect more to follow, as part of investors’ growing focus on social value.

• Fidelity International aims to develop a method to evaluate its contribution to social value by 2023, as one of its real estate sustainability targets.
• Nuveen Real Estate committed to undertaking a review of vulnerability to modern slavery across its supply chain.
• abrdn’s proprietary real estate ‘Impact Dial’ looks at labour rights, amongst other factors.

Challenges of tackling modern slavery: The devil is in the details

Modern slavery is insidious and extensive, which can often make it difficult to address. The property and construction industry remains a “hotspot” for modern slavery due to several factors, including:

• Long, complex supply chains with high reliance on contractors (including sub-contractors) and migrant workers, as well as an emphasis on cost drivers.
• Lack of training and scrutiny on modern slavery compared to other sectors.
• Metrics alone can be opaque in measuring employee voice, e.g., while useful, the number of jobs created may not give the full picture, including job dignity, working conditions, recruitment fees, freedom of association, and pay fairness.

However, we are starting to see innovative industry initiatives that go some way toward addressing these challenges. For instance, ISS ESG launched a new tool for investors to address modern slavery risk in portfolios.

Another to look out for is the Million Makers initiative, a collaboration between Unseen, Bluenumber and Be Slavery Free, seeking to revolutionise ethical supply chain auditing to empower workers to inform consumers and help businesses behave better by direct reporting from the grassroots up.

Reimagining more just, fair supply chains: Key considerations for investors

More specifically, the idea of finance to be a greater lever in moving the global economy on modern slavery is gaining traction, as shown by work from the IASC and its collaboration with TRIBE Freedom Foundation and Themis, and the Liechtenstein Initiative for Finance Against Slavery and Trafficking. Investors have an importantrole to play in creating more sustainable supply chains, whether through leading by example, capital allocation, or engagement.

There is a continued call on the financial services sector to integrate a risk-based due diligence approach to mitigating modern slavery in many of the aspects of the financial sector value chain, in the same way it is responding to climate change, in the following ways:

1. Consideration of the modern slavery risks across own supply chain, from manufacturing, through to procurement, implementation and maintenance.
2. Enhanced due diligence and engagement with managers and/or investee companies on modern slavery, with a focus on high-risk groups including women and children.
3. Collaboration through policy engagement and sector/value chain engagement.
4. Transparent, risk based approach with an increased approach to greater due diligence focused on mitigating and reporting on modern slavery. This includes ?portfolio companies, e.g., in MSA statements and stewardship disclosures.
5. Strengthened governance, at Board and senior management levels (through enhanced training for example) prevent and find human exploitation, including supporting and remediating survivors.

About the authors

This article, co-authored by Unseen’s CEO Andrew Wallis OBE?and EY’s Climate Change & Sustainability Partner; Loree M Gourley and Manager, Samantha Chew.

This objective of this BLOG aims to raise awareness of the issue of modern slavery in the UK, particularly in real estate, and to highlight the power of effective stewardship as a catalyst for change. ?

Many thanks also extended to; @mattbell, @shauncarazzo, @khadijaali, @alexandrabanks, @adamcarrel, @juliecarlyle, @robdoepel, @nataliaestupinan, @kimfisher, @ellasexton, @saadmsoazam and @michaelbateson.

Please feel free to contact Andrew Wallis, OBE [email protected] or me on [email protected].