Modern Slavery and Human Trafficking in the Finance Sector: A rising tide
While significant focus in the realm of ESG has been on environmental issues, it is equally important to be aware of the S in ESG. As the third largest criminal economy in the world following drugs and arms trafficking, modern slavery and human trafficking impacts roughly 150 million people all across the globe. This issue transcends geo-political boundaries, industries, and socio-economic status.
Modern slavery, defined as ‘slavery, servitude, and forced and compulsory labour’ (Modern slavery Act, 2015), includes human trafficking. When a person experiences slavery or trafficking, their autonomy and freedom to move are restricted through coercion or abuse. Often, their government-issued identification is taken away, either to control their movements or as a means of forcing them to hand over any money they earn through work. Victims are often exploited through labour, forced marriage, and sexual or domestic servitude. In the UK, the most common forms of slavery are labour and sexual exploitation, and debt bondage.
With an estimated 10,000 to 100,000 people in the UK experiencing modern slavery and over 600 victims rescued in Scotland in 2022 alone, this is clearly a pressing and localized human rights issue. Climate change, covid, and conflicts have fueled a 220% rise over the last 5 years, leading to”high slavery risk” goods imported into the UK reaching $18bn. There are even instances of this happening on UK soil, as with concerns of sweatshop-like practices at the Boohoo factories in Leicester in 2019 wherein the demands of fast-fashion outpaced worker’s rights.
The Role of Finance
As the ILO estimates that roughly 86% of those trapped in modern slavery are in the private sector, and a wave of due diligence and human rights legislation is being implemented globally, firms of all sizes need to think about their positioning in the international economic value chain and how modern slavery may impact their work. Human rights organizations are increasingly citing the displacement and economic hardship caused by climate change as a key contributing factor to a person’s vulnerability to trafficking and slavery.
How does this impact the financial sector? As financial institutions invest in, audit, and offer banking services for businesses internationally, they must be aware of their potential impacts. The sectors most closely associated with MSHT (agriculture, construction, fishing, food, manufacturing, and hospitality) are both common investment sectors and services that financial firms can invest in directly, such as hiring catering or construction firms for direct business needs. Further, slavery may be found throughout complex global value chains and international banking organizations must be especially careful to not offer financial services for the illicit proceeds of human exploitation.
The financial sector is uniquely placed to work through all three action areas set by the Scottish Government’s Trafficking and Exploitation Strategy. Identifying and helping victims (Action Area 1) and identifying and disrupting perpetrators (Action Area 2) can both be addressed through training and empowerment of frontline staff in banks. Addressing the conditions that lead to trafficking and exploitation (Action Area 3) is vital from a risk assessment standpoint, as financial institutions are uniquely positioned to impact financial services from an international down to a local level.
Tackling Modern Slavery and Human Trafficking
The UK’s Modern Slavery Act (MSA), implemented in July of 2015, consolidated and expanded upon preexisting MSHT legislation. Section 54 requires commercial organizations that operate within the UK with a minimum goods or services turnover of £36 million, regardless of where they are incorporated, to publish an anti-MSHT statement within six months of the end of their financial year. Efforts are currently in progress to strengthen the MSA, with critics arguing that firms may take a ‘box-ticking’ approach and fail to thoroughly vet their global value chains.
Of the organizations in the UK working to eradicate MSHT, the UK Independent Anti-Slavery Commissioner and Unseen UK provide detailed research, while Finance Against Slavery and Trafficking (FAST) offers actionable resources for financial institutions. The National Referral Mechanism (NRM) is in place to report any instances of suspected slavery, trafficking, or exploitation.
GEFI is honoured to have Dame Sara Thornton speaking on this topic at our upcoming Ethical Finance Global 2023 Summit in September. This is a difficult but important topic to address, but ethical finance means making the world safer for everyone and having the difficult conversations that need to be had.
