Modern Slavery: The Hidden Risk Lurking in Investment Portfolios

Maria Nazarova-Doyle, Global Head of Sustainable Investment, IFM Investors

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

This website should not be taken as financial or investment advice or seen as an endorsement or recommendation of any particular company, investment or individual. While we have sought to ensure information on this site is correct, we do not accept liability for any errors.

Modern Slavery: The Hidden Risk Lurking in Investment Portfolios

Maria Nazarova-Doyle, Global Head of Sustainable Investment, IFM Investors

Modern slavery is one of the most urgent human rights issues of our time, yet it remains alarmingly under-addressed in the context of global finance. In 2021, an estimated 50 million people were trapped in modern slavery – an increase from previous years that reflects the growing scope and complexity of this issue. Despite worldwide commitments to eliminate forced labour by 2030, it continues to proliferate, embedded in supply chains, industries and, perhaps most alarmingly, in the investment portfolios of institutional investors.

This is not just a moral dilemma; modern slavery represents a real and tangible financial risk. When forced labour exists in a company’s supply chain, the consequences can be severe. These include disruptions to business operations, regulatory penalties, reputational damage, and exposure to legal liabilities. Moreover, modern slavery often signals deeper issues with corporate governance, weak risk managements, and a lack of transparency – each of which can significantly affect asset performance and portfolio stability. Unfortunately, detecting these risks is no easy task. Forced labour often operates in the shadows – within informal or offshore economies, or through subcontracted operations – where visibility is low and oversight is fragmented.

The Regulatory Landscape: Progress, But Still Gaps

In recent years, a series of regulatory developments have started to address modern slavery, marking progress on this long-standing issue. The European Union is moving towards a ban on imports linked to forced labour, and a UK Parliamentary Committee has urged the UK government to take similar action. Australia is also taking steps to introduce penalties for companies that fail to meet modern slavery reporting requirements. Currently, over 70% of businesses in major global markets are subject to some form of regulation on modern slavery or human rights.

While these regulatory efforts are encouraging, they are not without their shortcomings. A significant number of regulations focus on disclosure rather than tangible action. The rise in reporting obligations has led to an increase in the volume of data, but often, the quality remains lacking. Corporate reports typically rely on broad, generic language, with little evidence of concrete steps being taken to address modern slavery. Moreover, smaller businesses are frequently exempt from these regulations even though forced labour is often most prevalent at the lower tiers of supply chains, where oversight is weakest.

Data availability continues to be a barrier. Investors often rely on company self-reports or high-level risk assessments, which can fail to capture the true extent of modern slavery risks. This reliance on incomplete or inaccurate data means that even portfolios considered low-risk based on geography or sector may still harbour hidden risks that could lead to significant financial fallouts.

The Need for a Collective Investor Response

Some asset owners have begun to act. Australian superannuation funds are increasingly assessing asset managers’ capabilities to identify and mitigate modern slavery risks. UK-based pension schemes such as Nest are embedding human rights into their investment strategies.

But individual efforts are not enough. Modern slavery is a systemic issue that demands a systemic response. It requires collaboration between asset owners, asset managers, companies, regulators, governments, civil society, and affected communities. Investors need to go beyond basic compliance and integrate modern slavery considerations across the investment process. They must enhance their data sources, scrutinise supply chains more deeply, and use governance tools such as voting and engagement to drive meaningful change.

Addressing modern slavery in investment portfolios is no longer optional. It is essential for risk management, for fiduciary duty, and for the legitimacy of sustainable finance. Identifying and eliminating modern slavery must become a strategic priority.

IFM Investors recently published a white paper “Addressing Modern Slavery in Investment Portfolios”.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

This website should not be taken as financial or investment advice or seen as an endorsement or recommendation of any particular company, investment or individual. While we have sought to ensure information on this site is correct, we do not accept liability for any errors.