Investors should encourage firms to adopt best practice

If businesses continue to employ models which rely on underpaid work or slavery, their current earnings are unlikely to be sustainable, with additional brand damage translating into a loss of sales, according to Ausbil Investment Management.

The manger discussed how well the companies know their own supply chain and their business models at a time coinciding with the introduction of new reporting requirements for investors, given the Modern Slavery Act (MSA) passed Parliament last year.

Ausbil stressed a potential for further increased regulatory risk due to companies being exposed for underpaying workers in Australia, which would lead to a government inquiry into the franchise industry, given an increased global regulatory focus on forced labour.

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The Act, which passed the lower house in September and the Senate in November 2018, would aim to mandate companies above a certain threshold level to make modern slavery statements publicly available on an annual basis.

The Australian MSA would include mandatory reporting requirements which would cover the following:

  • The reporting entity;
  • The structure of the operations and supply chain;
  • Describing the risks of modern slavery practices in the operations and supply chains/any entities owned or controlled;
  • Actions taken to assess and address modern slavery risks, including due diligence and remediation;
  • How effective those actions have been;
  • The process of consultation with entities owned/controlled and any other relevant information.

“We understand that companies need to report beyond tier one suppliers in the supply chain and we also understand that, based on the definition of ‘operations’, investors that meet the revenue thresholds will need to report on slavery risk in their portfolio holdings,” the manager said.

According to Ausbil, investors could better spot risks and promote positive change through the integration of environmental, social, governance (ESG) factors which, in return, would help make better informed investment decisions and enable active ownership or engagement on ESG issues.

“The importance of issues such as labour rights and other human rights, including modern slavery, is closely linked with Ausbil’s investment philosophy,” the firm said.

“Ausbil believes earnings revisions drive share prices and we prefer companies with sustainable earnings and quality management.”

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