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August 13, 2010

Trade Unions Focus on Forced Labor as an Issue for Sustainable Investors
    by Robert Kropp

A briefing paper by the Global Unions Committee on Workers' Capital calls for increased attention to forced labor as a social issue, and advocates a multi-stakeholder approach to mitigation. -- As a new briefing paper, entitled Investing in Decent Work by the Global Unions Committee on Workers' Capital (CWC) points out, there have been instances of aggressive engagement by sustainable investors in issues relating to forced labor.

Addressing forced child labor in Uzbekistan, for instance, a coalition of non-governmental organizations (NGOs) formed the
Responsible Cotton Network, a group that encourages socially responsible sourcing of cotton, in 2008. The Network, which includes Calvert and Boston Common Asset Management, has successfully pressured many clothing companies to exclude Uzbek cotton in their supply chains.

Other investor actions on forced labor issues include engagement with auto manufacturers to exclude Brazilian pig iron, calls for Chevron to disclose criteria for operations in high-risk countries such as Burma, and engaging with cocoa suppliers and chocolate producers regarding child labor in West Africa.

"Overall," however, the CWC paper observes, "Investors have had limited success in affecting broad-based or sector-wide commitments on the eradication of forced labor."

According to Priya Bala Miller, Project Manager for the CWC and author of the briefing paper, "There are investors who have been progressive on this issue, but a more comprehensive approach to building labor standards into investment decision making is needed."

"Although the responsible investment base is growing very quickly, with a lot of implications for labor rights issues," Miller told, "A trend has been noted in the industry that social factors tend to get less play."

The paper addresses some of the roadblocks in the way of investor attention to forced labor issues. As consideration of environmental, social, and corporate governance (ESG) issues becomes more widespread, the proliferating number of information sources vary greatly in "quantity, quality and accessibility," according to the paper. Also, a lingering "perception that social issues are not material to financial valuation" is exacerbated by "the fact that many social issues and their impact on financial viability are difficult to quantify."

"The risks highlighted in our research support the view that forced labor can negatively impact the creation of sustainable and responsible long-term value for investors," the paper states. It proceeds to offer a number of recommendations for investors who wish to assess the risks associated with forced labor in their investment decision-making.

The first step for investors is to learn from their fund managers if their portfolios include companies with significant exposure to forced labor risks, and if so, how those risks are assessed and what the strategy is for addressing those risks. Investors can also request that funds advocate publicly in the issue of forced labor.

Open communication among fund members, and direct engagement with companies on the issue, are additional steps that investors can take.

"Thus far, most of the action that has been taken has focused on reactive measures," Miller told Reactive measures, according to the paper, take place after allegations of forced labor have been verified.

"Trustees can take preventive measures as well," Miller continued, which would, according to the paper, involve more proactive management of risks. Institutional investors can take preventive measures by ensuring that companies in their portfolios have policies that address forced labor, implement those policies in practice, and ensure that their policies are enacted in their supply chains.

In addition, "There is real value in pursuing multi-stakeholder initiatives, by providing investors with necessary intelligence and helping to build an agenda," Miller said. Initiatives referenced in the report include the United Nations'
Principles for Responsible Investment (UNPRI), which, the paper notes, has experienced a marked increase in its number of signatories since the financial crisis.

Other multi-stakeholder initiatives include the
International Labor Organization (ILO), whose Special Action Program to Combat Forced Labor (SAP-FL) was established in 2001, and the International Trade Union Confederation (ITUC), which coordinates the Global Trade Union Alliance to Combat Forced Labor and Trafficking.

"This paper represents a starting point," Miller said, "An invitation to responsible investors to use the CWC to engage more substantially in labor rights issues."

"This is a new issue for us, Miller continued, "And will be a focus of our working group on shareholder activism. The goal is to mobilize institutional investors on the issue."

The CWC, Miller said, "Was formed in the late nineties, to align capital stewardship with the trade union agenda, and to encourage trade unions to be more involved with responsible investment." The Committee is a joint initiative of the ITUC, the
Global Union Federations (GUFs), and the Trade Union Advisory Committee to the Organization for Economic Co-operation and Development (OECD) .

According to Miller, the issue of forced labor will be on the agenda of the annual meeting of global trade union groups in San Francisco this year, to be held on October 2, which is the World Day for Decent Work. At that time, a second paper should be presented, which will feature, Miller said, conversations with investors who have been involved with the specific forced labor issues addressed in Investing in Decent Work.

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