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What Investors Can Do About Human Trafficking

03/06/2019

January was National Slavery and Human Trafficking Prevention Month. It’s probably fair to say most people had no idea about, much less observed, a month dedicated to eradicating one of the world’s most shocking crimes.


But if January came and went without much extra attention paid to this issue, February certainly brought it into sharp relief: The uncovering of a human trafficking ring in Florida—a police sting that resulted in charges filed against a number of prominent individuals—was hard to ignore.


Also hard to ignore are the wider statistics. According to a 2017 report from the International Labor Organization and the Walk Free Foundation, an estimated 40 million people worldwide are victims of modern slavery, 25 million of whom are being exploited for labor purposes, largely in the construction, manufacturing, agriculture, and fishing industries.


The more statistics you read, the more you despair. Is there anything we as investors can do to help? The answer is yes. But first let’s clarify what we mean by human trafficking.


What is human trafficking?

The United Nations Office on Drugs and Crime defines human trafficking as recruitment by threat, use of force, or other forms of coercion and deception for the purpose of exploitation. For example, imagine someone who’s lured to another country with the promise of a job that pays well. Once they arrive, however, their employer confiscates their passport and forces them to do grueling work in a factory for little or no pay, threatening them or their family if they refuse.


In other words, human trafficking is modern-day slavery. It can occur even when people aren’t transported across borders, and it’s found in every country in the world. Although it can take many forms—from forced prostitution to forced conscription of child soldiers—forced labor is the most common. It’s also the form most relevant to investors’ holdings in public companies.


Do public companies play a role in human trafficking?

Although no publicly traded companies intentionally support human trafficking, they can become unintentionally complicit in it by inadequately overseeing their supply chains. To combat this, companies must remain vigilant with regard to their suppliers’ hiring policies and practices to avoid and discourage these conditions in the workplace. Organizations like Know the Chain and the Corporate Human Rights Benchmark provide publicly available assessments of companies in sectors that tend to be most at risk for these issues.


look at the human trafficking by the numbers

Source: International Labor Organization and Walk Free Foundation, “Global Estimates of Modern Slavery: Forced Labor and Forced Marriage” (2017)


What can investors do about human trafficking?

Investors can help fight human trafficking by considering how they vote on or engage with the companies in their portfolio. For US companies, voting opportunities typically occur in the form of shareholder proposals. In 2018, for example, a proposal at Motorola requested that the company ensure its supply chain was free of forced labor, and a proposal at Monster asked the beverage maker to reexamine the risk of modern-day slavery in its sugarcane supply chain.


According to the Sustainable Investments Institute, shareholder proposals related to human rights are up in 2019, with 44 overall compared with 31 at this time last year. Of these, six are supply-chain related. Not all will appear on the final ballot for a vote—proposals may be withdrawn when companies respond favorably. But investors can be mindful of how they vote on those that do.


Of course, investors who want to influence companies that are falling short of expectations must continue to own them to do so. But what if a company seems impervious to change or an investor doesn’t have the patience to see the change through? In this case a human-trafficking screen that ensures investment only in the better actors may be appropriate.


The bottom line

While human trafficking isn’t something investors can solve completely on their own, they can play an important role by encouraging the companies they invest in to do better—and holding them to account when they don’t.

Potential Parametric solution

Parametric’s Proxy Voting Guidelines take the position that companies must adhere to internationally recognized labor and human rights standards and can be useful when investors choose to maintain ownership in any laggards. For investors who prefer to avoid such companies, we also offer a human-trafficking screen, a ready-to-go solution that ensures only securities with acceptable labor practices are owned. Since inception, the screen has identified 50 to 100 companies with unacceptable supply-chain standards.



Jennifer Sireklove

Jennifer Sireklove, CFA, Managing Director, Investment Strategy 

Jennifer leads the Investment Strategy Team at Parametric, which is responsible for all aspects of Parametric’s equity-based investment strategies. In addition, she has direct investment responsibility for Parametric’s Emerging Markets and International Equity strategies and chairs Parametric’s Stewardship Committee. Previously she helped build Parametric’s active ownership and custom ESG portfolio construction practices. Prior to joining Parametric in 2013, she worked in equity research, primarily covering the energy, utility, and industrial sectors at firms including D.A. Davidson and McAdams Wright Ragen. Jennifer earned an MBA in finance and accounting from the University of Chicago and a BA in economics from Reed College. A CFA charterholder since 2006, Jennifer is a member of the CFA Society of Seattle.


The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss.

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