Rathbones: Votes against slavery

Effective stewardship is integral to protecting and enhancing value for our clients. One very important part of this is our robust approach to proxy voting, supported by our coordinated engagement across the spectrum of environmental, social and governance (ESG) issues, and the progressive integration of ESG issues into our investment process.

Why do we tackle modern slavery?

Modern slavery is a pervasive risk to business, supply chains, society and our economy. An estimated 40.3 million people were held in slavery globally in 2016, including 24.9 million in forced labour. This equates to 5.4 victims of modern slavery for every 1,000 people in the world. It is estimated that US$150 billion is generated from the theft of labour each year, making it one of the top three international crimes, along with drug trafficking and the counterfeit goods trade.

Business has a huge role to play in eradicating modern slavery, and the UK’s landmark Modern Slavery Act  2015 sought to bring the business community into the fight. Section 54 (s54) of the Act required companies of a certain size operating in the UK to investigate and report on modern slavery in their supply chains. However, despite good intentions, the s54 reporting regime does not include specific enforcement powers, and it was clear that companies’ compliance with the Act was patchy. In this vacuum of enforcement, investors have a crucial role in advancing protection for fundamental human rights.

By addressing the issue of modern slavery – and related systemic issues such as money laundering – we hope to contribute to a just and equitable society. This is important to investors, because our returns to beneficiaries and clients rely on the proper functioning of these common assets.

How do we do it?

We believe stewardship is one of the most effective ways to address modern slavery. By using our influence as investors through engagement and voting, we can drive changes in behaviour that should not only address the risks at specific companies (such as reputational risk) but also promote positive outcomes in the real world.

In 2020, we gathered 20 asset owners and investment managers from across the globe with GBP£3.2 trillion in assets under management to challenge FTSE 350 companies that had failed to meet the reporting requirements of s54 of the Modern Slavery Act 2015. In 2021 Rathbones broadened the engagement, gathering support from a larger investor collaboration with GBP£7.8 trillion in assets under management to challenge 61 FTSE 350 companies that had failed to meet s54’s reporting requirements.

We expect members of the FTSE 350 to lead in this area, taking substantive action against the prevalence of slavery in their supply chains. FTSE 350 companies can have a multiplier effect, as their actions can incentivise further compliance down their supply chains.

Working together

The members of the investor coalition agree that more can be achieved by putting aside business-level interests. That’s why we, as convener, have taken on responsibility for leading the engagement with companies which we do not own directly, but which are owned by others in the group.

We worked with the Business & Human Rights Resource Centre (BHRRC), a respected international NGO, and the UK Home Office, to develop a target list of 22 FTSE 350 companies who were, in our view, failing to meet regulatory standards in terms of reporting modern slavery risks in their supply chains. We considered best practice to include having the link to the company’s modern slavery statement clearly visible on the homepage, for it to be signed by a company director, approved by the board and updated annually. Our aim was to achieve full compliance at these companies.

Our first step was to invite PRI signatories to sign and support engagement letters which were sent to the boards of the 22 target companies. A second step was threatening to abstain our vote when it came to approving the annual report and accounts of non-compliant companies at their annual general meeting (AGM).¹

The project is important in two ways. Firstly, it calls on members to use their strongest power of censure – voting against the report and accounts, an aspect of stewardship which is often under-utilised. Secondly, the project involved work with the BHRRC and the UK Home Office to develop a bespoke methodology for assessing compliance. We believe we are the first investor coalition to focus so clearly and comprehensively regarding AGM voting and modern slavery.

By collaborating, we were able to overcome barriers to addressing systemic issues (such as modern slavery), including the free-rider problem, where some avoid the costs of addressing collective problems, while reaping the benefits. We also recognise that our voice is stronger and more informed when we work together. 

Results of engagement

As outlined in our 2020 Votes Against Slavery report, we assessed all FTSE 350 companies (before developing a smaller target hit list) and found 285 modern slavery statements. Of this number, 190 met the three reporting requirements outlined by the legislation.

There was a 66% overall compliance rate in the statements we found and assessed. Compliance with individual reporting requirements is outlined below:

• Homepage link: 85% (244 statements)
• Board approval: 80% (230 statements)
• Director sign-off: 94% (270 statements)

By 31 December 2020, 20 out of 22 target companies were compliant as a direct result of our engagement – a hit rate of 90%. Frasers Group (previously Sports Direct International) and Alternative Credit Investments (previously Pollen Street Secured Lending) were the two remaining non-compliant companies. Both of these companies were included in the second version of the Votes Against Slavery project in 2021 - 59 out of 61 target companies became compliant by the end of 2021. (Frasers Group was still not compliant by the year end although they became compliant by January 2022.)

In 2022 the project will continue, with a new list of target companies considered to fall below standards of best practice.

Better public reporting on this challenging area benefits all system participants. We asked target companies to consider modern slavery reporting as an annual process to improve best practice, not a one-time, box-ticking approach. Our research has shown that most companies on our target list continue to see this as a single, perfunctory exercise rather than a continuous, beneficial process.