Finance, ESG and Modern Slavery – A Path Forward
Collaboration has been the key for societies to articulate clarity, challenge our thought processes, and build from one anothers research. The pace in which we’ve developed globally has been astonishing and serves as a mirror for what we are truly capable of when collaborating, but more importantly when commitment takes place. Without commitment, collaboration quickly dwindles away and we end up running 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 40.3 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 public and private sectors. This barrier exists as it is challenging to track, and detect without commitment and collaboration from both sides.
Meanwhile there happens to be 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 both short-term and long-term strategies to support collaboration and commitment in sustainable business practices.
The term corporate social responsibility (CSR) has been around since the early 1910s. And more recently the term environment, social and governance (ESG) which 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 business accountable , whereas ESG makes efforts measurable.
Interestingly, many brands focus on one metric over the other, when ideally, efforts should compliment each other. A common reason for this is that it’s easier to present short-term achievement 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 in millennials that are willing to pay a higher premium knowing they’re products or services were 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 before, so 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 to investing in ESG has never been more.
While competitive advantage and increased financial returns provides the carrot, we must not overlook the stick that is legislation. Global human rights and supply chain due diligence legislation, as an example, is focused squarely on companies’ ESG reporting. This is only set to increase and the EU, United States, and others indicate their desire to make such reporting a mandatory prerequisite to doing business in certain 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, they may even start to find themselves held accountable by law.
Interested to learn more on 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 firstname.lastname@example.org
Authors – Nolan Clack and Phoebe Ewen