The ‘M’ in ESG: Modern Slavery

The term ‘modern slavery’ has appeared in headlines in recent months following an independent review of Australia’s Modern Slavery Act three years after the act commenced in January 2019.

At the extreme, it refers to exploitation such as forced labour, child labour, servitude and debt bondage. But it also applies to offering workers fair wages, safe working conditions, and adhering to ethical labour practices. The under-resourcing of contracts applies here, too, experts say. These are all easy corners to cut when the economic thumbscrews tighten.

“Unethical employment practices in unskilled labour such as cleaning and security have always been complex as they are so vulnerable to cost-cutting,” says Andrew Harvey, head of property and asset management, NSW, JLL. “But the enormous pressure on outgoings that we’ve seen during, and post, COVID pandemic, especially in retail, is intensifying the issue, and the risk is that it becomes even more pervasive across supply chains.”

The 2023 Global Slavery Index estimates that on any given day in 2021, there were 41,000 individuals living in modern slavery in Australia – an increase from 15,000 in 2018.

Most modern slavery occurs in the private sector, which accounts for 86% of identified cases of forced labour, according to the International Labour Organisation. However, governments can be easily implicated due to business models based on outsourcing and multi-tiered supply chains.

In commercial real estate, the global multi-disciplinary property services company, JLL, highlights cleaning, fit-out, landscaping, security, and cafeteria, as areas where modern slavery is most likely to occur. 

“There is no doubt outsourcing adds complexity to real estate operations and supply chains, and impacts the visibility of labour risks,” says Ben Price, supplier diversity lead, JLL. “Large organisations will have long and complicated supply chains with multiple levels of sub-contracting driven by pricing. That creates the conditions for modern slavery to occur.”

Less tolerance, more transparency

In a blow to efforts to stamp out human exploitation, the review into Australia’s Modern Slavery Act found no hard evidence that it was creating “meaningful change for people living in the conditions of modern slavery”.

While lobbyists call for tougher legislation and reporting requirements, investors and consumers are holding companies to higher environmental, social and governance (ESG) standards – standards which incorporate modern slavery.

For example, amid the shift towards ‘green leases’, a push for stronger social responsibility clauses is gathering pace.

Of 800 corporate decision-makers across 12 countries surveyed by JLL about social value in 2023, 26% said they were collecting data and leveraging advanced analytics to inform their future social value strategy. This includes responsible sourcing and procurement of real estate services.

Companies are also adopting standards, such as the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines for Multinational Enterprises. And to avoid ‘box-ticking’, ramifications apply to companies not using their leverage to enforce these standards through their supply chains.

Taking action

While eradicating modern slavery is near impossible, companies are expected to do everything in their power to mitigate it. By law, companies in Australia with annual revenue over $100 million are required to report each year on the actions they are taking to assess and address modern slavery risks, ‘including due diligence and remediation processes’.

New Zealand, following a consultation with businesses last year, recently announced its reporting requirements will apply to organisations with annual revenue of at least $20m, in new legislation.

Germany’s new Supply Chain Act, which came into force in January this year, imposes due diligence obligations on German companies, as well as foreign companies with German branches, with the aim of stamping out human rights and environment-related offences within their supply chains. Given the footprint of these companies, the law is considered one of the most far-reaching of its kind, with violations under this act subject to major fines.

The international human rights group Walk Free notes that nearly two-thirds of all forced labour cases are linked to global supply chains, with workers exploited across a wide range of sectors and at every stage of the supply chain.

JLL has its own global modern slavery program, which identifies three major risks that are inherent to the business: Geography (JLL operates in countries that have a higher prevalence of modern slavery), complex supply chains, and high-risk service categories, including construction, cleaning, security, ground maintenance, and hospitality.

As well as continuing investment in onboarding and screening platforms, a strict supplier lifecycle management framework outlines how JLL approaches supplier due diligence across all steps of the procurement process, ensuring the company is addressing modern slavery risk for itself and clients.

Companies also want suppliers that can help them mitigate the risks associated with unethical sourcing, such as supply chain disruptions caused by labour disputes or reputational damage caused by negative media stories.

In an asset management capacity, JLL monitors the cost components of cleaning and security contracts, and benchmarks contract prices to identify major cost-cutting that might be cause for concern. Clients are then notified of red flags.

“There is a balance between remaining competitive and acting ethically,” says JLL’s Harvey. “While no supply chain is free of the risks of modern slavery, adopting transparent pricing, benchmarking outcomes, and engaging legitimately with industry providers and clients, can go a long way to improving conditions for workers and reducing risks to business.”