APAC Forced Labour Risks Driven by Complex Supply Chains

ASIFMA provides investors with guidance on identifying and addressing illegal practices along supply chains.

Involvement, however inadvertent, in the world’s US$150 billion forced-labour economy could cost companies more than just their reputations.

“Objectionable labour practices can have immediate ramifications, from bans on operation and loss of business, to diversion of resources to investigate and rectify issues,” warned the Asia Securities Industry & Financial Markets Association (ASIFMA).

“Further implications include negative market reaction, fines and imposition of stricter rules by regulators.”

Asset managers are taking an ever-keener interest in this issue, expecting higher standards from investee companies, it added, and urged companies to engage with them in open dialogue. Spurring this interest are legislative and regulatory moves round the world to tighten the rules on coercive and controlling behaviour towards employees, particularly those trapped unwillingly in their workplace.

New guidance from ASIFMA’s asset management group on the effect of labour practices on Asian companies notes that employment standards and regulations have long been promulgated by the UN’s International Labour Organisation (ILO), founded immediately after the First World War. Trade union rights are covered, as are equal opportunities and health and safety at work.

Issue for policymakers and investors

So are both child labour and forced labour. “However,” ASIFMA added, “labour remains a major issue for policymakers to tackle, in part driven by the increasing globalisation and complexity of supply chains.

The report cites ILO research findings that around 24.9 million people globally are victims of forced labour, often subject to debt bondage and human trafficking, with 63% of victims being women and girls. It is estimated indicate that forced labour generates US$150 billion in profits annually.

A large proportion of the practices keeping people in forced labour are illegal, said ASIFMA, and often associated with crime and corruption. “This is particularly true in Asia, where institutional investors are interested to understand how issues around forced labour and the use of migrant workers may affect their investee companies.”

The ILO agreed, stating: “In Asia and the Pacific forced labour, human trafficking and modern slavery remain a significant problem.

“According to the ILO’s most recent figures, more than 11 million people in Asia Pacific are victims of forced labour…Estimated another way, at least three in every 1,000 people in Asia-Pacific are in forced labour, trapped in jobs into which they were coerced or deceived and which they cannot leave.”

Scrutiny though social media

Traditionally, business sectors thought to be of higher likelihood of using forced labour have included the construction industry, farming and fishing, clothing, electronics manufacturing and mining. Domestic service has also been a major user of forced workers.

More recently, said ASIFMA, supply chains employing child or forced labour, such as those for technology companies, may involve the mining of the raw materials such firms require.

Yvette Kwan, Executive Adviser to ASIFMA’s Asset Management Group, said: “Institutional investors are particularly interested to understand how the issue of forced labour and the use of migrant workers may affect investee companies.

“Given the proliferation of social media and smartphones, adverse labour practices are likely to surface more frequently and publicly.”

ASIFMA said that investors increasingly want to know how companies identify the risk of forced labour and listed some tell-tale signs. These include the abuse of someone’s vulnerability; restriction of workers’ movements or their isolation; retention of identity documents; the withholding of wages; debt bondage; abusive living and working conditions; and excessive overtime.

“A business case”

Labour issues are “multi-faceted”, said ASIFMA, which can be made more complex still by multiple, geographically diverse supply chain participants. “With so many variables at play, investors do not expect companies to be flawless in their labour practices.” Rather, it added, they need to understand the approach companies take to these issues and the extent to which such approaches are embedded in corporate structures and decision-making.

Getting it right in this area can be good for corporate prospects, said ASIFMA. “Businesses have a fundamental responsibility to respect human rights and provide access to remedies when such rights have been violated. It is not only the right thing to do for workers along the supply chain, but there is also a business case for it.

“For example, it can strengthen supply chain resiliency and efficiency; address growing legal and regulatory risks, and reduce reputational risk and related business impacts.”

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