Addressing Modern Slavery in Investment Portfolios

Modern slavery is not a peripheral social-justice issue; it has the potential to pose a material investment risk that can erode value, fracture stakeholder trust and expose portfolios to mounting legal liabilities. It is deeply embedded in the global economy and, by extension, in the portfolios of institutional investors. While its presence may not be immediately visible on balance sheets or in financial statements, its human cost is profound and its long-term financial and reputational risks are increasingly undeniable.

For the investment community, modern slavery presents substantial and multifaceted risks that can significantly impact returns. Operationally, forced labour practices lead to increased costs through supply chain disruptions when facilities are shut down under investigation or subject to import bans, requiring companies to find alternative suppliers while managing remediation costs. The prevalence of modern slavery can indicate broader governance weaknesses and inadequate risk management processes across organisations, suggesting systemic deficiencies that can impact financial performance and business sustainability. Regulatory compliance risks are mounting as jurisdictions worldwide introduce mandatory reporting requirements, with Australia proposing civil penalties for non-compliance and the European Union implementing import bans on forced labour goods from 2027. Reputational damage can be severe and immediate, creating significant public criticism and brand damage.

Asset owners, particularly pension funds (representing millions of beneficiaries), are increasingly prioritising modern slavery considerations in their investment processes. Some large Australian superannuation funds now assess fund managers' modern slavery risk management capabilities as part of their selection criteria, while UK asset owners including Nest have made human rights a strategic theme, recognising modern slavery as a systemic risk requiring collective action. This evolving landscape places significant expectations on asset managers to demonstrate rigorous due diligence and proactive risk management to maintain and grow their relationships with asset owners.

Despite this growing awareness, many institutional investors struggle with implementation. The practical tools and frameworks for addressing modern slavery remain limited, fragmented, and inconsistently applied. Modern slavery risks are among the most difficult to detect in investment due diligence because, unlike environmental concerns that can be assessed through technical metrics, modern slavery often thrives in the hidden corners of supply chains where oversight is weakest, governance structures are fragmented, and accountability often dissipates across layers of subcontracting. The Australian Institute of Criminology estimates that only one in every five people experiencing modern slavery in Australia are identified, highlighting the scale of the detection challenge.*

This paper seeks to help fill that gap, drawing on IFM Investors' knowledge and experience, industry partnerships, and global best practice to offer a roadmap for identifying, assessing, and managing modern slavery risk in investment processes. The challenges vary significantly across asset classes. Poor quality disclosures appear to persist, despite increased reporting requirements. Research shows that while corporate awareness has improved, most company statements contain generic language lacking evidence of meaningful action. Additionally, the reliance on fragmented datasets and overuse of geographic risk scores can mean vulnerabilities are missed within supposedly "low-risk" countries. While there is ample research into public markets, this paper also adds a distinctive perspective on private markets that contributes new insights to the evolving discourse in modern slavery. The paper presents practical solutions including IFM's proprietary supply chain risk assessment model, which maps potential exposures across industry supply chains using publicly available data. Third party frameworks and industry collaborations provide additional pathways for improvement. Tools like KnowTheChain's sector-specific benchmarks and the World Benchmarking Alliance's Corporate Human Rights Benchmark offer valuable reference points, while emerging technology solutions including AI and blockchain applications promise greater transparency and real-time monitoring capabilities. Collaborative initiatives such as Investors Against Slavery and Trafficking Asia-Pacific demonstrate the power of collective action in driving systemic change through coordinated engagement and policy advocacy.

The regulatory environment is evolving rapidly, with over 70% of major market companies now subject to modern slavery or human rights-related regulations.** However, significant gaps remain. Many regulations lack meaningful enforcement mechanisms and focus on disclosure rather than requiring action like substantive due diligence. Scope limitations exclude smaller companies where exploitation often occurs, while fragmented requirements across jurisdictions create compliance burdens without driving the systemic change needed to effectively address modern slavery risks.

Meaningful progress requires coordinated action across the investment ecosystem involving asset owners, asset managers, companies, regulators, governments, civil society, and potentially affected workers and communities. Investors must integrate modern slavery considerations systematically throughout the investment cycle, enhance data sources beyond traditional company disclosures, and leverage governance influence through voting and stewardship activities. The fight against modern slavery is both a moral imperative and a business necessity, requiring practical, evidence-based approaches that protect vulnerable workers while safeguarding investment portfolios and maintaining stakeholder trust.

_{*Estimating the dark figure of human trafficking and slavery victimisation in Australia | Australian Institute of Criminology}

_{**MSCI ESG Research, Proprietary datasets (June 2025)}