Modern Slavery, Human Trafficking, and Child Labor in Corporate Supply Chains: Creating Oppression-Free Portfolios

Abstract

Environmental, social, and governance (ESG) standards do not permit complicity in modern slavery, human trafficking, or child labor (Principles for Responsible Investment [PRI] 2021, 4). And yet, the breadth and depth of oppressive labor practices in US and global corporate supply chains is, in a word, staggering. Across industry and geographic boundaries, throughout corporate America and the world, modern slavery, human trafficking, and child labor support a myriad of goods and services produced, supplied, and consumed daily. The coffee you drank this morning; the car in your driveway; the shirt, pants, dress, or shoes you’re wearing; the phone in your hand and computer on your desk; the salad you might have had yesterday and the shrimp you may be served tonight; the hotel room prepared for your recent night’s sleep and chocolate on your bedside; the mask you’ve been wearing because of COVID-19—all may have been grown, harvested, mined, sewn, or assembled, in part, by adults and children, some as young as four or five, compelled to work unwillingly under threat of bodily harm, torture, or even death.Modern slavery, human trafficking, and child labor, which we label for this paper “oppressive labor”, is a global societal problem demanding a strong public reaction from responsible investors. Investing in companies harvesting oppressive labor is neither ethically nor morally responsible, contravenes fundamental notions of social justice contained in modern ESG standards, and may result in disappointing financial performance in those companies found to be so engaged. Investors wishing to follow ESG best practices should disinvest from companies whose supply chains are linked to oppressive labor practices. We construct oppression-free portfolios with acceptable tracking errors to four popular indexes.