Why slavery needs to be a priority

In my last column, I discussed how the widening income inequality gap is becoming a pressing challenge for investors today. As I noted then, institutional investors are increasingly realising that inequality can negatively impact their portfolios. This can be seen clearly on a global scale with modern slavery and human trafficking.

A $150 billion illicit industry with one in 185 people affected in 2016, modern slavery is prevalent across the world. Structural inequality is, of course, at the heart of modern slavery and a lack of access to credit is a major driver of vulnerability to such exploitation.

Investors and the broader financial sector are taking note, not least because of the increased regulatory attention on modern slavery issues. In the UK, a Modern Slavery Act has been in place for several years. Similar legislation just came into force in Australia at the federal level and, in parallel, in the most populous state of New South Wales. Several other countries are considering similar legislation and several European countries have adopted mandatory due diligence requirements that also cover the financial industry. Investors have increasingly strong reasons to understand how the presence of modern slavery and human trafficking in the operations and supply chains of companies within their investment portfolio creates risk for them.

At the same time, there is a growing recognition that firms that have strong anti-slavery practices in place may provide important investment opportunities – not only for social impact investors, but also more broadly.

Yet until recently, the role that the financial sector can play in this fight has been something of an afterthought for anti-slavery actors. This, despite the crucial rolethat the City played in financing structural transformation of the British trade and finance systems to move them away from reliance on slave labour in the Nineteenth Century. The financial sector intersects with these forms of exploitation in a variety of ways, from unwittingly laundering illicit funds generated from slavery to investment in businesses engaged in these forms of exploitation. Labour trafficking can be embedded deep in value chains.

As the Chair of the Financial Sector Commission on Modern Slavery and Human Trafficking, known as the Liechtenstein Initiative, we are working to put the financial sector at the heart of efforts to identify, target and disrupt these crimes and their underlying causes.

The Commission is a public-private partnershipbetween the Governments of Liechtenstein, Australia and the Netherlands as well as a consortium of Liechtenstein banks, philanthropic foundations and associations. United Nations University Centre for Policy Research serves as the Secretariat. The Commission consists of 23 Commissioners, including survivors, leaders from hedge funds, commercial and retail banks, institutional investors, development financing organisations, global regulators, the UN and NGOs. This very structure reflects the need to approach this issue through a collaborative multi-stakeholder approach.

We launched the Commission at the 73^rdSession of the UN General Assemblyin September last year, with Australian Foreign Minister – the Commission’s co-convenor – remarking that, “it is not enough to be reactive and simply detect illicit financial transactions; investment decision-making must actively consider the risks of modern slavery.”

This was further reinforced in the comments by the Minister’s fellow co-convenor, Professor Muhammad Yunus, Nobel Laureate and microcredit pioneer. He spoke about the deep economic root causes for such vulnerability and growing levels of inequality worldwide.

That is precisely why the Commission is looking at both reactive and proactive measures as well as current limitations and opportunities from existing frameworks and regimes, as well as new innovations that the financial sector could utilize.

Our first meetingin New York focused on financial sector compliance issues, particularly Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) norms, supply chain due diligence and reporting. We considered the opportunities within and limitations of current regimes, including the need for better data to inform risk analysis. The Commission was mindful of the risks of over-zealous de-risking. Terminating business partnerships could actually push businesses into illicit financing arrangements and, counterproductively, make people more vulnerable to modern slavery and human trafficking.

In January, the Commission met in Liechtensteinto turn its attention to responsible lending and investment. The Commission was briefed by experts on how financial institutions can use and build leverage and also on how the financial sector can provide remedy to survivors. The briefing paper for this consultation, commissioned from Shift, analysed how the United Nations Guiding Principles on Business and Human Rights provide a framework for innovation by both public and private sector financial institutions to address modern slavery, human trafficking and related human rights concerns.

The Commission will visit Australia in April for our third global consultation. Our meeting in Sydney will explore financial innovation, including innovative financing instruments and financial technology that can empower communities and decrease their vulnerability to these types of exploitation. Beyond our Australian consultation, we will then meet in the Netherlands in June 2019 for our final consultation before the release of a roadmap to inform accelerated engagement by the financial sector in September 2019.

Our final product will include a roadmap with strategic expressways for action, providing opportunities for every corner of the sector to play its part. We will be actively disseminating this to key groups and institutions worldwide. As we know all too well from other efforts, compliance with existing legislation is not enough. We must take strong proactive steps if we are to achieve the Sustainable Development Goals, which will – for investors and the global community alike – end up paying dividends down the road.