Collaboration has been the key for societies to articulate clarity, challenge our thought processes, and build from one another’s research. The pace at which we’ve developed globally has been astonishing and serves as a mirror for what we are truly capable of when collaborating and, more importantly, when commitment takes place. Without commitment, collaboration quickly dwindles away, and we run around in circles.

If commitment and collaboration are so important, what direction should we be focusing our efforts towards to make an impact on more sustainable business practices specific to modern slavery?

Globally, trafficking in persons is estimated to have 50 million people, accounting for 76% of modern-day slaves impacted by forced labour and bonded labour. With a rough estimate, 60% of these individuals are subject to the supply chains in the private sector.

An unseen barrier that is becoming more prevalent to prevent trafficking in persons has been the lack of collaboration between the public and private sectors. This barrier exists as it is challenging to track and detect without commitment and collaboration from both sides.

Meanwhile there is a misconception that there aren’t solid solutions available that organizations and countries can implement that will benefit their long-term profits, increase stakeholder values, and foreign direct investment.

The key here is investing in short-term and long-term strategies to support collaboration and commitment to sustainable business practices.

Corporate social responsibility (CSR) has existed since the early 1910s. More recently, the term environment, social and governance (ESG) appeared in 2006 by the United Nations as a principle for responsible investments.

Both metrics act as a pivot to achieve short-term and long-term efforts. CSR is looked at as a method to make businesses accountable, whereas ESG makes efforts measurable.

Interestingly, many brands focus on one metric over the other when, ideally, efforts should complement each other. A common reason is that it’s easier to present short-term achievements to stakeholders to gain acceptance of their good-doing; CSR (short-term). Whereas businesses can use their ESG reporting as a competitive advantage (long-term). Together, both CSR and ESG are a great method to promote sustainability, especially for millennials who are willing to pay a higher premium knowing their products or services are ethically sourced.

Investing in developing long-term and robust ESG metrics is emerging as a priority area for financial institutions and investors. This is no longer a sidelined issue or a “nice-to-have” as consumers and investors are increasingly demanding to know how their money is spent and the potential impacts of this on the world, no longer motivated by financial returns alone. As people are expressing their values with their money more than ever, financial institutions and investment funds are recognising the need to be ahead of this curve to avoid becoming irrelevant. Perceptions that ESG funds are less financially viable than others are now outdated, and the commercial appeal of investing in ESG has never been greater.

While competitive advantage and increased financial returns provide the carrot, we must not overlook the stick that is legislation. Global human rights and supply chain due diligence legislation, for example, is focused squarely on companies’ ESG reporting. This is only set to increase, and the EU, the United States, and others indicate their desire to make such reporting a mandatory prerequisite for doing business in specific locations. The European Union’s (EU) Non-Financial Reporting Directive (NFRD) introduces the concept of double materiality, whereby companies should disclose both information necessary for understanding their impacts on society and the environment, and the financial risks posed to the company by social and environmental issues.

Financial institutions and investors are, therefore, not only at risk of reputational damage should they be found to be overlooking ESG metrics in their decision-making, but they may even start to find themselves held accountable by law.

Interested to learn more about how we support financial institutions with their ESG and modern slavery efforts? Reach out to us for a free consultation with one of our modern slavery financial experts at [email protected]

Authors – Nolan Clack and Phoebe Ewen