Human rights abuses a risk beyond emerging markets

Meredith Booth

By

18/04/2018

Human rights abuses in company supply chains are not found only in emerging markets,  one of the world’s top responsible investment professionals says.

NZ Super Fund head of responsible investing Anne Maree O’Connor, who was recently ranked eighth among the world’s most influential responsible investment specialists in the 2017 survey of Independent Research in Responsible Investment, says the focus is shifting to developed countries where abuses of migrants’ rights are emerging, from the horticulture sector to hospitality and healthcare.

O’Connor says human rights abuses are a “pernicious thing” that needs to be “stamped out at the root” through vigilance from investors and company boards, particularly those of large multinationals that source from many countries.

“For most of our funds invested in global equities, we have for the last decade run screens across our portfolio using [items] such as MSCI ESG research tools to flag concerns,” O’Connor says. “We have a red and orange flag for stuff to help us identify companies that are really falling down, particularly on safety aspects.

“You have to understand that human rights [abuses] are a risk to business as well. They can have a negative impact both on the labour side, if you think about safety, operational risk from site closures, from protests, from land disputes, and there’s regulatory risk.

“There’s real brand and reputational risk on the human rights side and that impacts both business-to-business and particularly business-to-consumer reputation and relationships and, ultimately, revenue.

O’Connor says this translates into fiduciary risk for institutional investors, and managers must understand those risk factors in their analysis.

Recently, developed markets moved to boycott Thai-originated seafood because of the vulnerability of its workforce; 90 per cent of which were migrants who had been trafficked into the country.

Companies and retailers linked to slavery by their supply chains, including Tesco, Aldi, Iceland and the Co-op, were pressured by consumers to boycott the country’s seafood exports until a solution was found.

O’Connor says this is just one example of risks to companies and their investors.

The NZ Super Fund, which has almost $40 billion under management, has made investment exclusions based on human rights, particularly within the resource and security forces sectors in high-risk areas.

“We’ve been quite involved in engagement on that issue and we were part of producing a report in 2010 with guidance on responsible businesses in conflict and high-risk areas.”

Britain’s Modern Slavery Act, introduced in 2015, has been a template for companies on how to stamp out and deal with abuses within the supply chain. Australia will consider its own legislation this year.

“The UK slavery act has focused on reporting because each situation generally requires its own special solutions to change it,” O’Connor explains. “It’s hard in law to prescribe the actions to take.

“Companies here in Australia can look at counterparts in their particular sector and [determine what] was a useful statement.”

She says that, while it is great to have “soft and hard law” guidance on human rights, such as UN principles and industry standards, Australasian companies must also map where there are labour force vulnerabilities.

“It’s not just an emerging market issue, and I think that is where the focus is shifting,” O’Connor says. “At the end of the day, it’s the practical solutions and the principles with your supplier contractors and franchisees. Of course you want them to abide by the law but you should also map about where there are vulnerable people. Abuse could happen.

“It’s about opening people’s eyes. There have been enough cases of migrant abuse in Australia and New Zealand. It’s across quite a few sectors, wherever you can get a situation where you have people who are culturally isolated by language or status.”

O’Connor spoke to Investment Magazine ahead of addressing this topic at the 2018 Australian Council of Superannuation Investors Annual Conference, to be held in Sydney on Thursday May 17.

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