In a world where diversity and inclusion has been come synonymous with out of fashion wokeness and where the environmental stream of ESG has lost its way, it is important not to forget how important addressing the S part of ESG is fundamental to mitigate just some of the levers that result in modern day slavery and human trafficking. Indeed, the ‘S’ isn’t a fleeting trend but a core pillar of responsible business, directly impacting human lives and dignity.

The E in ESG

ESG is often mistaken only for its environment impacts (“orangutans and rainforests”). This can be diluted even more when the “net-zero” initiatives focusing on carbon are considered to be the whole ESG challenge when it is only one part of a slice of the E, which is only a part of the overall ESG objective. While undeniably crucial, the environmental focus, though significant, sometimes overshadows equally pressing social concerns.

• Environmental Impact: This refers to how a company’s operations affect the natural world, including air, water, land, and ecosystems.
• Resource Management: It involves evaluating how a company uses and manages natural resources like water, energy, and raw materials.
• Waste and Emissions: This includes assessing the company’s waste production, emissions (including greenhouse gas emissions), and efforts to reduce pollution.
• Climate Change:The E in ESG also considers a company’s role in combating climate change, including efforts to reduce its carbon footprint and transition to a low-carbon economy.
• Other Environmental Factors: The “E” can also encompass other environmental issues like deforestation, biodiversity loss, and pollution.

The S in ESG

The ‘S’ in ESG primarily addresses social factors related to a company’s impact on people, particularly workers in its supply chain. It is often issues within employee relations, Human Rights and supply chain transparency that are aligned to modern day slavery. If salaries are low/zero for workers, especially those in the extended supply chain, then the S is breached, if working conditions do not meet standards then the S is breached, if the supply chain does not act responsibly then the S is breached. These breaches aren’t just minor infractions; they are often the mechanisms that trap individuals in exploitative conditions, leading to modern slavery.

• Labour Practices (both direct and indirect): This includes fair wages, benefits, safe working conditions, and opportunities for growth and development for all workers, including those employed by a company’s suppliers and subcontractors. When these are absent, particularly with low or zero wages and unsafe environments, it creates fertile ground for forced labour and human trafficking.
• Diversity, Equity, and Inclusion (DEI): Ensuring that all employees have equal opportunities, regardless of their background, and that the company reflects the diversity of the communities it serves.
• Human Rights: Respect for human rights throughout the supply chain and in all business practices, including labor practices and responsible resource procurement. Neglecting human rights, especially in labour practices, can directly enable modern slavery by allowing the exploitation of vulnerable populations.
• Community Engagement: How a company interacts with the communities in which it operates, including philanthropy, community investments, and addressing community concerns.
• Responsible Sourcing and Due Diligence: This involves ensuring that a company’s supply chain is free from forced labour, child labour, and other human rights abuses, requiring thorough vetting and ongoing monitoring and coordination with suppliers.
• Supply Chain Transparency: Ensuring that suppliers adhere to ethical labor practices and environmental standards, and that the supply chain is transparent. A lack of transparency allows hidden abuses to flourish, making it difficult to identify and stop modern slavery.
• Ethical Practices: Adhering to ethical business principles, including fair competition, anti-corruption measures, and responsible marketing practices.
• Health, Safety, and Well-being: Promoting the health and safety of employees and ensuring that they have access to resources that support their well-being.

The challenge with the S is always the depth of the relationship and the transparency of source. It’s a complex web, where vulnerabilities are often hidden deep within global supply chains. it’s not just about the average punter buying from a retail establishment they feel they trust, it’s about the supply chain all the way from the garment (a shirt) to the component parts (buttons, labels etc) to the underlying raw materials. This intricate network means that even seemingly minor components can have a dark origin rooter in forced labour.

So why is this important?

The ‘S’ in ESG isn’t just about avoiding risk; it’s about building a better, more equitable world for everyone. For consumers and businesses alike, embracing the ‘S’ represents and opportunity to drive positive change and contribute to a global economy that respects human dignity.

For the consumer, it’s about looking at oneself in the mirror and buying from trusted retailers, avoiding (where possible) those with negative publicity directly or within their supply chain. This requires a proactive approach: researching brands’ supply chain policies, looking for ethical certifications, and demanding greater accountability from companies. By making conscious purchasing decisions, consumers become powerful advocates for ethical labour practices and help create market demand for slave-free products.

For Financial Institution (FIs) the challenge is twofold.

Firstly it is essential to have an understanding of their clients and an adequate understanding of the underlying supply chain. The risk the FI faces is that perpetrators of modern slavery may generate profits that would be considered proceeds of crime; their actions may constitute money-laundering predicate offences and could also be a source of terrorist financing. By association, any monies handled by an FI from these sources are a facilitation of money laundering, which can lead to fines and/or restrictions of business. Financial institutions, therefore, have a critical role in due diligence, not just for compliance but to actively disrupt the financial flows that enable modern slavery. By strengthening their due diligence and understanding of supply chain vulnerabilities, Fis can become key partners in preventing illicit financial flows and fostering responsible investment that champions human rights.

Secondly, ESG has gained massive traction over the last 5-10 years, with Bloomberg reporting 14,500 funds explicitly labelled as ESG. Notwithstanding the mix of assets in ESG funds, the focus on ESG funds is to be applauded; however, if a fund breaches any of the E or S as described above, there could also be a complaint of mis-selling to the customers/institutions who have invested. One could argue that all the time ESG funds make a healthy return then the investors may be less focused on the underlying makeup of the funds, however if the returns diminish, then additional scrutiny could be applied with associated cries of “foul” with reputational and financial consequences of mis-selling being raised to the banks. This means that ESG funds, particularly those heavily marketed on their social impact, must genuinely uphold these values to avoid accusations of ‘social-washing’. For the investment community, genuine commitment to the ‘S’ in ESG means more than just a label; it means investing in companies that proactively build ethical supply chains, creating long-term value not only for shareholders but for society as a whole. This collaborative approach fosters an environment where responsible practices are rewarded and human exploitation has no place.

A Shared Commitment to A Slave-Free Future

Consumers and FIs cannot ignore the S in ESG without accepting the reputational impacts and, for Fis, the additional financial consequences of doing so. Instead, by actively embracing the ‘S’ in ESG, businesses, financial institutions, and consumers collectively become part of the solution. This is an invitation to engage, to learn, and to partner in building a future where global supply chains are free from exploitation. Together, we can turn the tide against modern slavery and create a more just and prosperous world.