Investors ask Australian companies for more modern slavery disclosures | ESG

According to recent research, Australian state-owned companies are not providing investors with enough information about their supply chain risks, especially how they are addressing incidents of modern slavery.

A February report from the Monash University Center for Financial Studies (MCFS) and ISS ESG that reviewed mandatory reporting under Australia’s Modern Slavery Act 2018 by ASX 300 companies found that the reporting generally contained few supply chain details beyond the first link, or level 1.

In 59% of cases, the statements did not indicate whether the company’s supply chain disclosure extended beyond Tier 1 to include indirect suppliers. Research cited in the report noted that modern slavery non-compliance incidents were 18% higher at Level 2 and 27% higher at Level 3.

“The lack of visibility into indirect suppliers, coupled with the more frequent use of unauthorized subcontractors, often to meet the end buyer’s production costs and deadlines, creates vulnerabilities to modern slavery,” notes The report.

three investors Asian investor respondents did not disclose the minimum number of layers through which they required supply chain reporting or stated that they had no minimum.

Anne-Maree O’Connor, head of responsible investing at New Zealand superannuation fund NZ Super, said fund stakeholders expected surveys of “second, third or even fourth effects order”.

“We rely on serious and detailed discussions with our managers about what they are doing on modern slavery so that we can report it at our level as well,” said Fiona Mann, head of listed equities and ESG at LGIA Super. Asian investor.

“We don’t have a set number of ‘layers’ when it comes to review,” said Dr Raphael Mertens, chief risk officer and head of ESG for Allianz Real Estate. Asian investor.

The challenges of building an image

Liza McDonald, Head of Responsible Investments at Aware Super, said Asian investor that cultural differences complicated the collection of data on modern slavery.

“When we look at issues around modern slavery, we might rather refer to concerns about supply chains and potential human rights abuses,” she said. “There are cultural considerations that you have to take into account in each region. Everyone is different and you should adapt your approach accordingly to ensure you get the most out of your engagement. »

Mertens said measuring social factors in general, not just tracking the risks associated with modern slavery, was something investors found challenging. It could mean they might resist being leaders in shining the spotlight on the issue in the future.

“From a pure investment perspective, what becomes particularly difficult in social is measuring impact. While we have been able to develop a series of science-based metrics reaching net zero and managing the decarbonization, one of the biggest challenges with the social aspect is measurement and benchmarking,” he said.

fall short

O’Connor spoke of a gap between companies that reported modern slavery information well and those that effectively managed risk. “What you really want is for the business to be well run, not just [for the information] to disclose,” she said.

Mann and O’Connor highlighted improvements in modern slavery reporting as a result of national regulations in Australia, such as the 2018 Act.

“Modern slavery will not be outdone because [it] is legislated both in Australia and overseas. Each reporting period will improve the data available on this topic, as well as the visibility of ESG as a critical component of business performance,” Mann said.

Mertens said the difficulties that companies or sectors that perform poorly on social measures such as modern slavery are creating for investors are increasing.

“We are aware of how our broader stakeholder base will increasingly react to our relationships with companies and tenants in sectors known to fall outside of an acceptable ESG profile. It also links to politics. We are already doing such assessments but, in the context of social and reputational issues, this will most likely accelerate,” he said.