Investors need to engage more effectively with companies on forced labour and ensure that firms are meeting reporting requirements according to the latest Investor Briefing by pressure group, ShareAction.

The briefing includes examples of shareholder engagement with companies as well as policy makers which has led to action being taken against the use of forced labour by suppliers. ShareAction said companies which choose to embed positive human rights practices in their core operations are likely to provide higher quality investment opportunities and improved investor returns. Investors can play a key role in encouraging companies to adopt best practice in reporting, risk management and supply chain management. Best practice in reporting involves companies examining their supply chain practices and making disclosures that are tailored to those practices.

Being associated with suppliers that may be using forced labour can be a reputational risk that will affect investors ShareAction said, therefore eliminating risks is important. It gave the example of a campaign against the use of cotton sourced from Uzbekistan. In 2005, the Environmental Justice Foundation exposed child labour and forced labour practices in the state controlled production of cotton in Uzbekistan. As the country exports 70% of its cotton, with China being the biggest purchaser followed by Bangladesh the Uzbek cotton made its way into the supply chains of European and US clothing retailers. As a result of an action against the use of Uzbek cotton which wa supported by institutional investors, human rights organisations and others, more than 200 companies including Tesco, WalMart, Marks & Spencer, have committed to not sourcing cotton from Uzbekistan, ShareAction said.

The briefing also identified the use of shareholder resolutions by investors aiming to identify the poor labour standards of certain companies. In 2015, shareholder resolutions related to human rights issues were raised with US companies including Amazon, Expedia, Facebook, Sears Holdings, Kroger, Urban Outfitters and Staples, Shareaction said. In 2016, ICCR members filed 20 human rights and human trafficking resolutions, a slight increase over the previous year.

Another successful shareholder campaign was coordinated by the Principles for Responsible Investment (PRI) from 2013- 2015. ShareAction said that over the course of 16 months, investors engaged with 34 large global food and beverage companies on labour related issues such as forced labour, with the aim of improving areas ranging from supplier code of conduct, to traceability and grievance mechanisms. An analysis at the end of the engagement showed improvements at 23 of the companies.

Meanwhile ShareAction also said investors played a key role in pressing parliament for the enactment of the UK Modern Slavery Act , the briefing said. ShareAction said that in 2014, a group of 21 investors coordinated by Rathbone Greenbank Investments, with a combined total of £940 billion in assets under management co-signed a statement in support of the inclusion of a ‘Transparency in Supply Chains’ clause in the UK Modern Slavery Bill (now the UK Modern Slavery Act 2015). The investors also supported the clause being applied to companies with an annual turnover of more than £36 million as opposed to a higher threshold. As a result of investor support, these items became part of the Act, ShareAction said.

To drive awareness and continued corporate action on the issue of forced labour in supply chains, this year KnowTheChain will be assessing corporate policies and practices across three sectors: information and communications technology (ICT), food & beverage, and apparel & footwear, ShareAction said. In addition to benchmarks which dive deep on specific issues, there are emerging crosscutting assessments of company human rights performance; The Corporate Human Rights Benchmark (CHRB) is currently working on the first-ever ranking of the world’s largest publicly listed 9 companies on their human rights performance.49 It will rank the top 500 globally listed companies on their human rights policy, process and performance. The initial ranking of the first 100 companies is expected to be available in November 2016.

In light of the new and emerging reporting requirements, it is timely for investors to engage more systematically with companies to address forced labour, and emerging tools such as company benchmarks can support investors in doing so, ShareAction said.