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Responsible Investing

Fund managers want modern slavery law to match investor expectations

A group of Kiwi fund managers want the modern slavery bill to require companies to conduct due diligence and take action to stop exploitation in their supply chains.

Tuesday, February 13th 2024, 11:05AM

by Andrea Malcolm

Led by Mint Asset Management, fund managers with FUM of $295 billion and two peak bodies have written to Workplace Relations and Safety Minister Brooke van Velden calling for the Modern Slavery Reporting Bill to be made more robust.

Last July, Labour announced organisations with annual revenue over $20 million would have to publicly report what they were doing to address the risk of exploitation in their operations and supply chains.

At the time the bill, which was estimated to take six months to pass into law, had cross party support. However post-election, the new government is reviewing Labour’s plans with Van Velden saying Cabinet has yet to decide on the proposal and decisions on whether to progress the legislation would be made in due course.

Rachel Tinkler, Mint’s head of responsible investment, says in drafting the letter, fund managers worked with global human rights group Walk Free. Walk Free engagement manager Serena Grant will be in New Zealand next month and is seeking a meeting with Van Velden.

In the letter, the group says investors rely on comprehensive and accurate disclosures of risks to make well-informed investment decisions. “Neither of these things can be achieved without the inclusion of a due diligence requirement in NZ’s legislation.”

It says a robust law would impose a duty to take effective action to identify and assess risks, then track performance in addressing them and NZ could learn from Australia where the government has reviewed the Modern Slavery Act – a reporting law, as distinct from a due diligence law. That review concluded that transparency mechanisms are, at best of limited value, at work inherently flawed and recommended a due diligence system.

Germany, France, Norway and Switzerland have already implemented, or are introducing, due diligence-based laws.

“Failing to align NZ’s laws with international standards will put existing agreements and future trade negotiations at risk.

“As investors, we already expect companies to carry out due diligence in their modern slavery assessments. It makes sense to introduce legislation that supports these two trends.”

Impact on ethical investing?

Tinkler acknowledges the due diligence scope could be endless but the practical overlay would be that due diligence requirements are based on materiality.

“For example, a listed horticultural name with a high risk of workers being exploited orders staff uniforms from a supplier in China. We're not going to expect them to do due diligence on the [uniform] supplier.”

While horticulture, agriculture, tourism, hospitality and retail are sectors where these abuses are most prevalent, World Vision, which has also asked for due diligence to be included in NZ’s proposed legislation, says electric vehicles and clean energy transitioning includes forced labour and child exploitation. In the Democratic Republic of Congo (DRC), more than 40,000 children mine cobalt for electric batteries.

According to World Vision’s ‘Risky Goods - Supply Chain Risk Report 2023, half of all EVs and two thirds of lithium-ion batteries imported into NZ from China used lithium mined in the DRC. Solar panels are also implicated. Around 90% of the world’s polysilicon, a key material in solar panels, comes from China with a third coming from the Xinjiang region where more than one million Uyghurs are in state sponsored forced labour.

Tinkler says ethical or responsible investing is never black and white.

“In such a case, is 10% of their revenue made from solar panels or 90%? If it’s 90% the expectation is that they are working with other buyers to talk to those suppliers outlining their expectations in terms of codes of conduct instead of using an agency to employ people for them, and that they’re being more directive in terms of employment requirements of the people working in those factories and things like that.

“With these types of things, there's never an easy fix and there's never an easy answer. But companies taking on that responsibility, because they are purchasers of these solar panels, have a role to play in trying to reduce and mitigate any modern slavery that does come up.”

She says if modern slavery is discovered in a company’s supply chain, it’s not about “just dumping” that supplier. It’s about working with them to try to fix it.

Other signatories to the letter include Aspiring, Aurora Capital, Devon, Fisher, Milford, Kernel, Harbour, First Sentier, Future Group and Trust Management, the Responsible Investment Association Australasia and Investors Against Slavery & Trafficking APAC.

Tags: Milford Asset Management

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