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March 27, 2007

Shareowner Activism Precedes Development of SRI Slavery Screen
    by Bill Baue

Most slavery exists far up the supply chain, and auditing practices do not yet exist to monitor for slavery at second- or third-tier suppliers, so it is too early to enact an enforceable slavery screen.

SocialFunds.com -- Many people file slavery in the annals of history, abolished by Abraham Lincoln's 1863 Emancipation Proclamation. Unfortunately, there are more people enslaved in the world right now than at any time in human history--an estimated 27 million, according to Free the Slaves (FTS), a Washington, DC-based non-profit whose mission is to end slavery worldwide. The modern global slave trade is gaining increasing attention with the recent publication of books such as Disposable People by FTS President Kevin Bales and Not for Sale by University of San Francisco Ethics Professor Dave Batstone.

Socially responsible investors (SRIs) have long addressed issues that fall under the umbrella of slavery. For example, SRI human rights and labor criteria typically screen companies for policies prohibiting forced labor, bonded labor, and child labor, according to Lauren Compere, chief administrative officer at Boston Common Asset Management. SRIs are also starting to address slavery more systematically--the Spring Symposium of the Social Investment Forum (SIF) International Working Group (IWG) at the World Bank is focusing on the modern slave trade, human trafficking, and child sex tourism.

"A wave of interest has crested recently among social investors so that we can start evaluating a set of strategic initiatives to engage investors and corporate leaders," said Prof. Batstone, a keynote speaker at the symposium. "I fully expect the SRI community to take a leadership role in addressing modern slavery and use its leverage to shape company policy so that all people can be free to work."

"The SRI community is really only starting to address human trafficking and modern slavery as a screen unto itself," Prof. Batstone told SocialFunds.com. "I imagine in the initial phase, advocacy will take the form of behind-the-scenes consultation among companies willing to address the issues, and shareholder resolutions will be filed at companies unwilling to address the issues."

Few if any global corporations directly enslave workers--supply chains are the primary locus of slavery, particularly in emerging economies and developing countries in Asia, Latin America, and Africa. Slavery is pervasive in a number of different supply chains, according to Jolene Smith, executive director of Free the Slaves, who is also presenting at the IWG symposium.

"It's likely that what I'm wearing and eating today in some way contain slavery," Ms. Smith told SocialFunds.com "The amount of slavery in any given product is usually very small--we're looking at a little bit of slavery in a whole lot of products."

At the same time that slavery is practically everywhere, it is also nowhere, hiding from scrutiny far down the supply chain where raw materials originate--primarily in farm fields and mines, according to Ms. Smith.

"As SRI companies, we feel like we've had progress engaging with companies on the first tier of the supply chain--it's really getting down to the second and third tier where you find slave labor, for example in the pig iron that is being used for vehicles that Toyota is making," Ms. Compere told SocialFunds.com. "We don't have a good mechanism in place for monitoring and auditing even first or second tier suppliers, never mind reaching down to the bottom of the supply chain."

A November 2006 Bloomberg story exposed slaves in Brazil who went unpaid for months making the charcoal used to fire the pig iron that goes into cars and many other products. In December 2006, Boston Common sent Toyota a letter expressing concern over the allegations. Toyota first examined its supply chain independently, then later joined forces with the Automotive Industry Action Group (AIAG), a collaborative effort to address these issues.

Dan Viederman, executive director of Verité, which monitors and audits labor conditions in supplier factories around the world, explains how most social auditing is inadequate to the task of uncovering hidden issues in workplaces, such as trafficking, forced labor, and child labor.

"Without gathering information from workers themselves in a secure way that provides workers with protection from retaliation and comfort that their views are being solicited seriously and sensitively, it is extremely difficult for auditors to identify these serious risks," Mr. Viederman told SocialFunds.com. "Trafficked workers, slave laborers, and children--the most vulnerable and oppressed workers--are the least likely to share information in a standard audit."

"Very few companies--maybe a handful in total--are looking at suppliers below their first or second tiers, and fewer still in the raw material or primary material suppliers," he added. "There's no reason why good quality social compliance practices can't work at those levels, but they require companies to push 'responsibility' down several levels, and the farther it gets from the global brand, the harder it is to enforce or even to devote resources to it."

Ms. Smith of Free the Slaves points to existing models--not from labor monitoring but from environmental monitoring.

"Organic cotton is a model we're considering, because it requires certification throughout the chain of custody," Ms. Smith said.

Mr. Viederman also endorses collaborative efforts by industries or groups of brands--"but sectoral efforts need to ensure that they meet highest common denominator standards rather than lowest common denominators," he said.

January 2006 saw the launch of the Athens Ethical Principles, a set of seven commitments including zero tolerance for human trafficking. Signatories include Manpower (MAN), Procter & Gamble (PG), and Microsoft (MSFT) operations in the Czech Republic.

"The Athens Principles are a major step in the right direction, and I believe they will be even stronger when they change one of their requirements," said Ms. Smith of Free the Slaves. "Right now, the Athens Principles ask businesses to urge their contractors and suppliers to be free of slavery, but don't require it."

Ms. Smith agrees with Prof. Batstone that shareowner engagement must precede screening to first give companies "the benefit of the doubt" and the opportunity "to do research on their supply chain and to join with other businesses in their industry to root out slavery at its source."

"There will come a time in a few years when it will make sense to have an investment tool called a slavery screen that rewards companies that are actively fighting slavery and divests from companies that are actively encouraging slavery," Ms. Smith said. "We're not there yet."

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