Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.
Tania: Hello, and welcome to Super Informed Radio, the podcast that unpacks the world of super, finance, and life's money matters. I'm Tania.
Lyndon: And I'm Lyndon.
Tania: Well, super and slavery. They're two concepts you mightn't naturally think that would go hand in hand, Lyndon—the idea that money being put aside for your retirement savings could be at risk of exposure to slavery in one form or another. But modern slavery is actually quite high in the agenda at the moment, not just for super funds but many companies in Australia and throughout the world.
Lyndon: That is right, Tania. So to quickly unpack this a bit, modern slavery is an umbrella term for a range of exploitative practices and labour rights abuses, like forced labour and human trafficking. It's something that can occur in any country and it's a big risk in the supply chains of large companies, particularly very global ones. Industries with high risks of modern slavery, according to the Government, include agriculture, construction, electronics, extractives (mining), fashion, and hospitality.
Tania: And why are we talking about it? Well, in 2018, the Australian Government passed the Modern Slavery Act, which means certain companies and businesses—including super funds—will soon be submitting statements to the Government on modern slavery each and every year.
Lyndon: So having said all that, this episode, we're going to get to the bottom of how we're managing our exposure to modern slavery through the companies we invest in. Tania and I spoke with two UniSuper experts in the field, our Manager of Sustainable Portfolios and Governance, Lou Capparelli, and Senior Investment Analyst, Sybil Dixon.
Tania: Let's take a listen.
Lyndon: Lou and Sybil, welcome to Super Informed Radio, thanks for joining us.
Lou: Hi, Lyndon.
Lyndon: Now, UniSuper has a robust approach to environmental, social, and governance considerations, also known as ‘ESG’, which is a pretty big concept for people to get their heads around. But if I'm correct, modern slavery would fall under the ‘S’, meaning the social aspect of ESG. Can you tell us, firstly, a little bit about modern slavery and how it's actually defined?
Lou:Sure, Lyndon. You're quite right, modern slavery does fit within the ‘S’, being a social issue that we do look at. The definition of modern slavery is worth understanding a little bit in context because most people think that other forms of exploitation can be seen as slavery. It's got a particular definition for it to be known as modern slavery. Under the legislation, there's basically eight types of serious exploitation that fit within the definition of modern slavery, and they are trafficking in people, slavery servitude, forced marriage, forced labour, debt bondage, and the worst forms of child labour and deceptive recruiting for labour or services.
For example, that wouldn't mean that just because you're getting paid below minimum award standards that that would count as a form of slavery. Yes, it's a form of exploitation, but it doesn't satisfy the definition for modern slavery. And, as we all know, there's already rules and legislation that work against wage underpayment, so that becomes a separate category of issues.
Tania: How does modern slavery impact on super funds and by extension, our members?
Sybil: So modern slavery is an issue for UniSuper and super funds in general at a number of levels. As with all companies, it's the supply chain of the things that we use. So the computers, these microphones that we're speaking into now—where have they come from, how have they been produced—and making sure that there's not slavery present in those supply chains.
But also, as a super fund, one of our largest exposures, and, you know, the job that we're here to do is look after people's retirement savings, and that is by investing in companies. And the companies that we invest in have their own supply chains. It's understanding and making sure that a) they're reporting under this legislation, but also b) making sure that they know how they are managing those risks in their supply chains as well.
Tania:And in terms of the legislation, are you able to just give us a bit more information about the actual Modern Slavery Bill?
Lou: Yeah. It's now the Modern Slavery Act. It was passed in December 2018 and it basically requires companies to produce an annual Modern Slavery Statement if their revenues are in excess of $100 million a year. UniSuper fits within that category, so we'll be required put out our own Modern Slavery Statement. We have to put out our Modern Slavery Statement after 30 June 2020 and we've got six months to do that.
Lyndon: What are some actual real-life examples of modern slavery risk in the supply chains of the companies we invest in that you've come across...?
Lou: Lyndon, I might take that one because I've got an absolute easy case for most people to get their heads around. We're big investors in Woolworths and Wesfarmers. Wesfarmers owns Kmart and Target. Woolworths owns BIG W. I'm sure we've all bought t-shirts and other garments from those discount department stores. And there's a real issue there with what is the supply chain that procure those t-shirts. So it's all very well for us to, you know, pat ourselves on the back that we've found a $3 t-shirt, but the question we have to ask ourselves is where was that garment manufactured.
Lyndon: And so your roles, do you go and meet with these companies to try and make sure that, their modern slavery risks are being mitigated? Or is that something that they're already entrusted to do and we're just checking that they're doing it?
Sybil: It often comes up in different ways. So often, like many of you out there, you'll sort of hear or read about something in the newspapers, whether or not it's a Four Corners report or an expose in The Age. When these things happen, I will look at our portfolios and the investments that we have in that particular industry.
In the case of fruit-picking, I'd look at the investments that we have and go, ‘OK, where do we have exposure to fruit picking?’ So there's Wesfarmers, which used to own Coles—now Coles is its own independent company—and Woolworths, but also there's groups like Costa Group which are fruit growers. And then I'll reach out to those companies so we can better understand how they're managing these risks, what, sort of steps they've put in place to make sure these things don't happen. If, in the case that it's clearly linked to their practices, we’ll ask what has gone wrong (in that, the steps that they've put in place to mitigate these practices haven't worked).
Lou: I don't want this to be looking like we're piling on Woolworths and Wesfarmers, but the main reason we're talking about them is that there's topical examples within their nature of their businesses and most people, given that they are stable businesses, can relate to it and experience it and are probably engaging with Woolworths or Coles or Wesfarmers businesses a few times a week. So from that perspective, it's worth highlighting. But it's not just these sorts of issues around fruit picking and garment manufacturing. There are other issues which we'll get into.
It's also worth noting that both Woolworths and Wesfarmers are already complying with the requirements of the Modern Slavery Act and they've been doing it voluntarily for a few years already. They've put out their own Modern Slavery Statement, talking about and addressing these particular issues and they highlight any incidents that they've had and how they're addressing and remediating them when they see them. They've got supplier codes of conduct and really go deeply into their supply chain across all of the billions of dollars of purchasing that they make. We think it's pretty well-managed.
Sybil: And I think it's important to add that the aim of the Modern Slavery Act is to try and eradicate slavery. It's not a finger-pointing exercise. It's not about, you know, stopping or going, “Oh, my goodness, a bad thing has been found in your supply chain, therefore, you're a terrible company.” It's about identifying where these risks are, seeing where you can better manage them, and hopefully improve the circumstances by which your employees and your supply chain operates.
A really great example would be Adidas and Nike which were known in the mid '90s as a hotspot for child workers and those sorts of poor behaviours. Now, they're some of the better performers. I think it's also important to note that in terms of disclosures, it's not ‘the cheaper the thing is, the more likely it is to happen’.
I was looking at the advocacy group KnowTheChain, with the sportswear apparel, and you've got the leaders of Adidas, who are seen as sector leaders—with a score of 92 out of 100 with respect to how they disclose and monitor and manage—whereas Prada came in with 5 out of 100. Now, that's not to say that Prada has modern slavery in its supply chain. All it is to say is that they haven't disclosed well around how they manage that risk.
Tania: I think it's good for people to also think about where their products are coming from, rather than just turning up to Kmart and Woolies and Coles and expecting things to be there. Thinking about that supply chain is really important.
Lyndon: So in talking about, examples of where these issues can occur, in some of the research and stuff we were doing before we jumped in front of the microphones, cobalt mining in the Congo came up as something that we might all unwittingly be exposed to in one form or another or not. Can you take us through, like how might my super be somehow exposed to modern slavery risks in regards to cobalt mining?
Sybil: So the technology supply chain is very long and diverse. With any sort of supply chain, the longer it is, the harder it is to control what goes into it. The more intermediaries you have, the more risk you're exposing yourself to. The technology supply chain uses lots of different metals and minerals in all different sorts of ways, to come up with... so you dig the stuff out of the ground, and then it goes through various different stages of refining, and then it finds itself into a factory when it get turned into something and then it goes into another factory where it turns into something else and then, all of a sudden, it all gets put into something that you then wear on your wrist.
Some of these products—mining is an area where... and minerals extraction is an area of risk with respect to slavery and also underpayment and occupational health and safety and a whole range of risks. In the Congo, specifically, because it's a sort of conflict zone as well, so you're also potentially funding wars and various different nation states to finance these wars. So there are a number of different regulations and restrictions that many companies sign up to to say it's conflict-mineral free. But, you know, there is a risk that if companies don't have adequate supervision of their supply chain, that you can be unwittingly purchasing those.
Most technology companies—just off the top of my head, Apple, Google, Samsung—have signed up to a lot of these agreements (conflict-mineral free), and have reasonable oversight of their supply chains. California has its own Modern Slavery Act and so Google and Apple are required to report in accordance with their Modern Slavery Act. And also, for their branding, it's really important for them.
Lou: And I think it's also just worth highlighting that I would not have instinctively thought, in my capacity as a UniSuper member, that cobalt mining in the Congo was a thing that UniSuper would need to worry about. But it is interesting that we are investing in companies deriving products from somewhere in Africa and countries like Congo that you wouldn't normally think in day-to-day thinking about these sorts of issues.
Sybil: I guess also, just on that point, going back to the example about Woolworths and Wesfarmers and Coles and all of that—where do we draw the line at how far the supply chain goes or where the concern around the supply chain goes? Because presumably, at one time, we were like, "We're investing in you and that's your risk," but now, "We're investing in you and we want to make sure you're managing that risk."
Lou: Yeah, it's a really good point, Lyndon. And obviously, when you look at these things, you've got to do some sort of materiality assessment on how much of our investment portfolio, in our case, is invested in these sorts of companies. But then the other overlay you have to think about is where are the more likely risks to be in these modern slavery issues, and then you've got to find a mapping between what's material versus what are the most obvious risk factors to think about.
And so to the extent that we do invest in companies like Apple and Google and Samsung, then we would need to flag these modern slavery issues there. But what's good is that these companies themselves are required to put out their own Modern Slavery Statements or have policies around then even if they're not required to by legislation. And so we can look at that and at least know or take some comfort from the fact that they are looking at these issues and addressing them and trying to iron out where there's deficiencies in their supply chain and do what they can to address it.
Sybil: And I think it's also important to say that you got to start somewhere. You can't start with everything because it's just too much. So you'll start with your immediate suppliers, so if you're a UniSuper—who are we buying things from? And then the next step would be, "OK, we're fairly comfortable with how they're managing their risks and then maybe take it to the next level." Another area of risk would be contract cleaning—this was a big risky area for Australian real estate companies and you'd have multiple levels of contracting. Now, one way that they can control that.
Lyndon: By contract cleaning, do you mean the people that are cleaning shopping centres or?
Sybil: Precisely. So the people who are cleaning the office that we're in today. Potentially, the manager of this building would have a contract with, let's call it, a cleaning company. They would subcontract to a smaller one. Potentially, it's a national cleaning company that would then subcontract to a Victorian cleaning company, that would then subcontract to a Melbourne cleaning company. Now—every time you're putting in those layers of contracting, you're removing yourself from the person who's actually doing the work, but you're also having many layers of costs as well.
One way of controlling these risks is to say, "We only allow one layer of contracting." So you have a much more direct relationship with the workers that are working in your building. Now that's not practical in the case of a technology supply chain. So that's one method of control. And the other ways is just finding out more information—getting your suppliers to report, getting their suppliers to report, and so on and so forth. But it's about taking small steps and then building on it.
Tania: In terms of contract layering, would that affect fruit picking?
Sybil: Fruit picking is an area where we have an added complexity where often seasonal workers are employed, because… you know, apples and oranges only ripen in a reasonably short period of time every year, so you need a lot of workforce in a reasonably short period of time and you're not necessarily going to maintain that workforce throughout the year. So farmers will employ contractors to do the fruit picking.
There are seasonal worker programs where there will be people brought in from, say, Fiji to work in Australia for short periods of time, to do things like fruit picking, and then they go back to their home country. And that is a perfectly legal thing to do and it can be done in a responsible way. That being said, there are lots of instances and examples where it hasn't been done responsibly and you have labour hire companies advertising in some Southeast Asian countries saying, "If you pay us $3,000, then we will get you all of this amazing work and you'll get paid this." Then they come over to Australia and they take their passports away from them, they need to repay back the $3,000 or whatever that they paid initially to get the work. So that's an example of debt bondage, where you have to pay back your, sort of, the right to work. And because their passports have been taken away from them, they're, stuck potentially in a remote area. So that is a form of modern slavery.
Lyndon: Completely disempowered.
Sybil: Completely disempowered.
Tania: It's not just like being underpaid or...
Tania: You can walk away from an underpaid job, but yeah, these, they're holding some kind of...
Lou: And there's workplace laws that protect against that, so you don't need modern slavery legislation to address that.
Lyndon: So I guess as consumers, individually, we can play our part by ensuring that the companies that we buy things from—whether they are groceries or tech products—are reputable and have good supply chains and so on. What can members of super funds do to ensure that their super is, kind of, doing the same thing?
Lyndon: I think the first thing to do is probably just be as informed as you can be and act as a responsible consumer. We try to do the right thing, but at the same time—you know, this is a really big problem and it's not as easy as saying don't buy from Chinese factories or don't buy from Bangladeshi factories. That's not the right answer because these can be really valuable jobs in these communities. And just because it comes from there doesn't mean modern slavery's been involved. They could be employed in a fairly well respectable way. That's why it's really important to look at where you're buying from and understand what processes and practices they have in place. Most of them have reasonable reporting on their website where you can compare summary of how these different companies work and manage these risks.
Lou: And of course, the other thing worth highlighting, Lyndon, is when you're looking at your super fund, you've got to make a judgment on how good they are with their E, S and G integration. Here at UniSuper, we're quite proud of our approach and the fact that it's all integrated into our entire investment process. And while there’s me and Sybil talking about ESG, the reality is that all of portfolio managers and analysts look at these issues of E, S and G to ensure that the companies we invest in are acting responsibly and the real focus on quality underpins everything that we do.
Tania: Thanks, guys, for coming in to Super Informed Radio today and having a chat about modern slavery and how that impacts us as consumers and investors. It's been really interesting to hear some real-life examples. For anybody wanting more information about what we've talked about, we'll put a lot of those links in our show notes. Thanks for joining us.
Lou: Thanks, Tania.
Sybil: Thanks, Tania. Thanks, Lyndon.
Tania: That was Sybil Dixon and Lou Capparelli from our investments team talking to us today about our whole-of-fund approach to environmental, social, and governance issues here at UniSuper.
Lyndon: That's right, Tania. And if you'd like more information on responsible investing at UniSuper, you can head to unisuper.com.au/responsible and check out all the information there.
Tania: And that brings us to the end of another episode of Super Informed Radio. For more information on anything we've talked about, check out our show notes. And to listen to previous podcasts, head to unisuper.com.au/podcasts or subscribe through any good podcast app. We'll see you next time.
Lyndon: Bye for now.