Industry

ILO: Forced Labour Lines Private Sector Pockets

Research finds negligible decline in state-imposed forced labour despite regulation, as Asia’s central position on issue draws eyes to Uyghur solar supply chain risk.

Private sector profits from forced labour have surged by 37%, a new report from the International Labour Organization (ILO) has revealed, with annual gains from the practice totalling US$236 billion. 

The research highlighted that 27.6 million people engaged in forced labour globally on any given day in 2021 – 2.7 million more than in 2016. A total 23.6 million were also in privately imposed forced labour, a 27% increase from 20.8 million five years earlier.

“Forced labour perpetuates cycles of poverty and exploitation,” said Gilbert Houngbo, Director-General at the ILO. “We now know that the situation has only got worse. The international community must urgently come together to take action to end this injustice, safeguard workers’ rights, and uphold the principles of fairness and equality for all.”

Earlier this month, the European Council and Parliament agreed to ban the entry of products made through forced labour into the EU single market. This included goods made outside the EU using forced labour, as well as products manufactured in the EU containing parts from forced labour abroad.

In 2021, the US also introduced the Uyghur Forced Labor Prevention Act to prevent importation of goods manufactured wholly or in part through forced labour in the People’s Republic of China – particularly in the Xinjiang Uyghur Autonomous Region.

According to the ILO report, more than four million people were victims of forced labour in Europe and Central Asia, while Asia and the Pacific accounted for more than half of the global total with 15.1 million.

The industrial sector benefited the most, with an estimated US$35 billion in profits derived from forced labour , followed by services with US$20.8 billion, and agriculture with US$5 billion. More than six million people in forced labour engaged in industrial sectors, including mining and quarrying, manufacturing, construction and utilities.

State-imposed forced labour and solar

A total of 3.9 million people were in state-imposed forced labour in 2021, according to ILO’s research – a figure that has decreased only marginally from 4.1 million in 2016.

One notable example of state-imposed forced labour has been taking place in China. Since 2017, the government has placed an estimated 1.8 million people – many of whom are from the Uyghur ethnic minority – in detention camps, prisons, and factories linked to the solar energy supply chain.

In January, the Investor Alliance for Human Rights (IAHR) helped launch investor guidance on how to address Uyghur-linked human rights risks in the green technology supply chain. Divestment has typically been used as a last resort by investors, as remaining invested in green energy is often critical to them.

“By divesting from or choosing not to invest in solar energy, we do not address the underlying issues – we avoid them,” Raphaela Schmid, Head of ESG and Sustainability at SUSI Partners, an asset manager specialising in energy transition, told ESG Investor. “As an investment manager, we are actively engaged in a dialogue with leading solar photovoltaic (PV) manufacturers to understand their strategies for diversifying away from regions associated with high risks of forced labour. These conversations, while challenging, are showing promise.”

The IAHR guidance noted that low-risk investors, such as pension funds, were unlikely to direct funding away from solar towards alternative technologies or innovative green energy solutions, which they viewed as less attractive investment opportunities. This was because alternatives were not guaranteed to match efficiency, affordability and return on investment, IAHR noted.

Absence of alternatives

According to International Energy Agency (IEA) estimates, in 2022, the Uyghur region accounted for 40% of the world’s polysilicon – an essential material in 95% of the world’s solar panels. Its Renewables 2023 report also pointed out that China commissioned as much solar PV capacity as the entire world in 2022.

The country has offered strategic incentives for green energy industries to move production to the Uyghur region – including cheap land, subsidised electricity and access to surplus labour programmes.

“Divesting could certainly impact the production of solar power, at least in the short to medium term, given the current dependence on China for critical materials and components used in solar panels,” Schmid warned. Those typically include polysilicon, wafers, cells, and modules.

“We are already seeing results from the ongoing diversification of supply chains, but the scale is not quite there yet,” she added. “Countries like the US, India, and members of the EU are investing in developing their domestic solar manufacturing capabilities, but these efforts are at various stages of development and may not immediately match the scale and cost efficiency of Chinese production.”

Susanne Marttila, ESG Officer at real assets manager KGAL, said the complexity of the solar PV supply chain in China posed challenges for investor due diligence.

“Between the mining of raw silicon and its use as a cell in the module factory, there are dozens of work and process steps with a large number of companies involved,” she said. “It is therefore currently hardly possible for us or our module manufacturers to create complete transparency over the supply chain and to safely rule out controversies.

Earlier this year, the world’s largest sovereign wealth fund Norges Bank Investment Management (NBIM) paid €600 million (US$651.4 million) for a 49% stake in a 1.3-gigawatt renewable energy portfolio in Spain that included seven solar plant projects.

An NBIM spokesperson stressed the importance of engagement, as opposed to divestment on the issue. “We have engaged with consumer, technology and energy companies in our portfolio on management of forced labour risks in their supply chains, seeking to understand their exposure and taking steps to identify, assess and manage forced labour risks,” the spokesperson added.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap