Tom Sanders: Modern slavery is a systemic issue that requires systemic solutions
Despite its prevalence, modern slavery in all its forms remains an often overlooked human rights concern. It is entrenched in the global economy and, by extension, in the portfolios of institutional investors.
As an asset owner representing 13 million pension savers across the UK, Nest cannot ignore the human cost nor the operational, financial, legal and reputational risks this issue presents. We must act not only because it is morally right, but because it is financially prudent and operationally necessary.
In 2021, an estimated 50 million people were living in situations of modern slavery – 10 million more than just five years earlier. These numbers are a stark reminder that global commitments to eradicate slavery by 2030 are, unfortunately, not on track.
IFM Investors' new report, Addressing Modern Slavery in Investment Portfolios, rightly positions this as not just a moral issue, but a material investment risk. It's a risk that can erode portfolio value, fracture stakeholder trust, and expose institutions to growing legal liabilities.
For investors like Nest, these risks manifest in multiple ways. Supply chain disruptions due to investigations or import bans can significantly increase operational costs. Weaknesses in addressing modern slavery are often symptomatic of broader governance and risk management failures. And with regulatory frameworks tightening around the world, non-compliance can result in direct legal consequences.
Beyond the human cost and direct business risks, modern slavery is a clear example of market failure – one that weakens the entire system. It enables some businesses to cut costs by exploiting people, while shifting the true economic and social costs onto the rest of the market and society. This distorts competition and misallocates capital. It also locks up the economic potential of those affected, leading to lost productivity, reduced output, and weaker long-term value creation - costs that ripple across portfolios and the wider economy. This creates system-level risks that we as universal owners cannot diversify away from, but collectively can manage down, reducing their likelihood and impact.
At Nest, we've made human rights – and modern slavery in particular – a strategic theme across our responsible investment activities.
Despite this, significant challenges in implementation remain. Unlike climate risk, the assessment of which benefits from clear metrics and maturing disclosure regimes, modern slavery risk is hidden deep within opaque supply chains. Poor disclosures and fragmented data exacerbate the problem. Even as corporate awareness grows, too many modern slavery statements still use generic language and lack evidence of substantive due diligence and action.
IFM calls for a more coordinated and comprehensive response. We support its call for investors to embed modern slavery considerations across the investment chain, move beyond company disclosures for data sourcing, and leverage governance rights through voting and stewardship.
Ultimately, modern slavery is a systemic issue that requires systemic solutions. Asset owners, managers, regulators, companies, and civil society must work together to build consistent, higher quality data, shared frameworks, and collaborative strategies.
Tom Sanders is a senior ESG analyst at Nest
