It may seem shocking, but a simple trip to the local store to pick up fresh produce or clothing could enable human exploitation. For investors, those same connections can exist within their portfolios—and it takes more than a passive effort to root them out.

Modern slavery—the use of forced labor and other human rights abuses in company supply chains and operations—is officially illegal. But it remains all too prevalent in many countries, including developed nations (Display). According to one estimate, 40.3 million people—one in every 185 people on the planet—were victims in 2016. Most were women and girls.*

Consumers are becoming more aware of the problem and starting to push back—for obvious ethical reasons. So are investors, as they apply an environmental, social and governance lens to companies to strengthen their fundamental research and foster higher conviction in their holdings.

To get the research right, investors must combine a big-picture view of countries and industries with an exacting, up-close lens on every aspect of a company’s business model and supply chain—because ties to modern slavery can be hidden and complex.

The True Cost of a Weekly Shopping Trip

How pervasive is this social evil, and how challenging is the battle for investors to surface and address it? A simple trip to the store tells the tale.

It starts with the type of car shoppers drive. At least four automakers—two in the US and one each in Europe and Japan—have used Brazilian pig iron to make their car doors. The pig iron supply chain starts with the burning of hardwood to make charcoal. That wood comes from trees that are often cut down illegally, and the charcoal is made using slave labor in the Brazilian rainforest.

The car’s shiny paint finish might exact a human toll, too. One ingredient could be mica, a silicate mineral that has been linked to child labor and debt bondage in Indian mines. Keeping that car finish clean could come at the expense of exploited workers in car washes, an issue drawing much attention in the UK. Even mobile phones used to stream music on the way to the store could contain cobalt from the Democratic Republic of the Congo, where mining is widely linked to modern slavery.

Even the parking lot may not be free from connections to exploitation: at least one Australian retail chain has discovered modern slavery practices, such as wage theft, among contractors supplying workers—many of them immigrants—to collect shopping carts.

What about the shopping list itself? More than 80% of garlic exported globally comes from China, where prison labor is common in supply chains. Berries grown in Australia may be linked to reported cases of itinerant workers being abused. Fish from Thailand may be suspect, too: several companies in the country’s fishing industry treat employees fairly, but there are many instances of other firms using slave labor.

These examples are all consumer-related, but modern slavery is widespread in global industrial supply chains, including shipping and airlines. For example, Chinese prison labor is known to have manufactured headphones used by airline passengers.

Shedding Light on a Moral Issue—for Society and Investors

Because modern slavery is run by criminals, it relies on secrecy and corruption to survive. Those shadows can make it hard for companies to trace modern slavery risk in their global supply chains—and even, sometimes, in their own business operations. One result? Consumers and investors might become unwitting parties to the crime.

How can investors bring this practice and its victims into the light?

The key is comprehensive, in-depth research. That means knowing which red flags to look for at a big-picture level: for example, the countries where a company does business or sources its supplies and the nature of its business. It also means looking closely at how individual companies manage their supply chains and how their policies assess and reduce modern slavery risk.

It’s vital that investors engage directly with company leaders and management teams to encourage them to address modern slavery in their supply chains and operations. It makes good sense both morally and from an investment perspective—in our view, if a firm can’t manage modern slavery risk in its supply chain, it can’t manage its supply chain. And management is ignoring a global issue.

* Global Estimates of Modern Slavery, International Labor Organization and Walk Free Foundation, 2017. The research focused on the forced labor and forced marriage aspects of modern slavery.

This is the first of a series of insights on how to assess and address potential exposure to modern slavery through the investment process, analyzing companies’ direct business operations and their global supply chains.

Michelle Dunstan is Global Head of Responsible Investing and Portfolio Manager of the Global ESG Improvers Strategy at AllianceBernstein (AB). Saskia Kort-Chick is Director of Research and Engagement at AB.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time.

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