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ESG Responsible Investing

Putting the S back into ESG

Kimberley Cole

23 Aug 2018

Putting the S back into ESG
Laila, 8, works at a brick-making factory outside Kabul, Afghanistan August 20, 2015. REUTERS/Mohammad Ismail – GF10000177509

Socially conscious investors are more concerned than ever before that their money is being put into companies that have a positive impact on the world around them.  They’re looking beyond returns as a benchmark for performance and want to see that companies are run fairly and ethically. The result is that environmental, social and governance (ESG) criteria are fast becoming a part of mainstream investing.


  1. Six out of ten report respondents said they operate formal training for bribery and corruption, money laundering, fraud, theft and cybercrime, but less than half operate this training for slave labor and human trafficking.
  2. Today, there are 40.3 million people in some form of modern slavery – sex slavery, forced or bonded labor. That’s the combined population of New York, London and Bangkok.
  3. Today we’re at something of a turning point in the fight against modern slavery.  Investors are expecting more from their portfolio companies than simply financial returns, and technology is making it easier to identify supply chain risk.

But are we focusing too much on the environmental and governance aspects of the companies we invest in to the detriment of their wider social impact? Could a renewed focus on the social responsibilities of a company bring about a step-change in their efforts to tackle financial crime and modern slavery?

In short, is it time to put the ‘S’ back into ESG?

The growth of socially responsible investing

In his latest annual letter, BlackRock CEO, Larry Fink, publicly urged companies to serve a social purpose.  He called for a new model of shareholder engagement that looks at the societal impact of a business.  And he’s not alone.  The movement towards socially responsible investing is growing, particularly amongst millennials, and as that generation advances in the workforce and comes to control more wealth, their influence will also grow.

The social aspect of ESG

While all this is positive news and should be celebrated, there’s much more we all can and should be doing.  In particular, the environmental and governance aspects of ESG are well understood and integrated into many companies’ philosophies.  Carbon emissions and boardroom diversity are frequently discussed and make regular headlines.  However, in all this activity the social aspect of ESG very often gets left behind.  And yet without sufficient attention being paid to it, we risk undermining the entire principle.

Part of the problem lies in definitions.  It’s much easier to talk about a firm’s environmental or governance standards – its track record on combating pollution or plans to close the gender pay gap, for example.  But it’s much harder to define its social impact, particularly as that may be buried far down in the supply chain.

Global financial crime

A recent report on global financial crime found that nine percent of the organisations polled had dealt with over 10,000 third party vendors, suppliers or partners in the last twelve months, and 41 percent of respondents have failed to screen any of them.  Hidden deep within this network of suppliers can lurk groups who are engaged in money laundering, drug trafficking and – perhaps most pernicious of all – modern slavery.

Six out of ten report respondents said they operate formal training for bribery and corruption, money laundering, fraud, theft and cybercrime, but less than half operate this training for slave labor and human trafficking.

A survivor of slavery who wished to remain anonymous poses for a picture in New Delhi, India March 7, 2018. Picture taken March 7, 2018. REUTERS/Cathal McNaughton – RC1E20BC3F80

Modern day slavery

It’s a serious issue.  Today, there are 40.3 million people in some form of modern slavery – sex slavery, forced or bonded labor. That’s the combined population of New York, London and Bangkok.

This number includes people working unpaid in appalling conditions in brick kilns, mills and factories.  It includes children dying in dilapidated mines before they reach adulthood.  Modern slavery is a lucrative, 150 billion dollar industry.  And it’s hidden in plain sight.

All of us in the business community share a responsibility to take a stand and tackle this issue.  Modern slavery needs to be a focus for firms, especially those with complex supply chains in high-risk industries.  Gold, bricks, cotton, sugarcane, coffee and tobacco all have a high instance of child labor associated with them.  Even the most innovative technologies are at risk.  Cobalt is a key component of modern batteries from everything from the latest smartphone to electric cars.  And yet cobalt mining is notorious for employing child labor.

It’s clear, therefore, that the environmental benefits of buying an electric car or investing in a company that manufactures them are completely undone if deep down in the firm’s supply chain modern slavery is flourishing.  Without action to identify and root this out, no firm can be said to achieve its ESG goals.  As investors get more and more sophisticated about ESG, they will shun firms that do not recognise their responsibilities.  The financial impact on firms is becoming clearer, quite apart from the moral imperative.

The good news is that the tide is beginning to turn.  Despite their opaqueness, complex networks of supply chains can be navigated.  The keys to this are data and analytics.  Better data and smarter analytics are making it easier to form a complete picture of risk across global supply chains, and machine learning and artificial intelligence tools are helping compliance teams manage the overwhelming task they’re faced with.

Perhaps more important than individual company efforts in combating modern slavery, though, is the power of collaboration.  In January this year, together with Europol and the World Economic Forum, we announced the formation of a public-private coalition to fight financial crime and modern slavery.  Since then, more organisations have joined, including Rani’s Voice, a global social enterprise focused on human trafficking prevention.

Human trafficking

Its leader, Rani Hong, was stolen at the age of seven from her family and sold into slavery. As a survivor of child slavery, Rani has dedicated her life to speaking for those without a voice, becoming one of the foremost advocates for combating the crime of human trafficking. By working together with partners like Rani’s Voice, we can raise global awareness of this issue. We can share the critical data that identify where it lies. And we can finally make steps to eradicate it from our supply chains and our society.

Today we’re at something of a turning point in the fight against modern slavery.  Investors are expecting more from their portfolio companies than simply financial returns, and technology is making it easier to identify supply chain risk.  At the same time, there is a growing willingness to work together towards a common goal.  For all these reasons and more, it’s time to put the S back into ESG.

A boy works at a brick-making factory outside Kabul July 15, 2010. Laborers, most of whom work barefoot and without gloves, earn from $3 to $8 a day depending on their working hours and the number of bricks they make. REUTERS/Ahmad Masood (AFGHANISTAN – Tags: SOCIETY BUSINESS EMPLOYMENT IMAGES OF THE DAY) – GM1E67F1J7Q01

Join our Hong Kong Stop Slavery Summit

On the 28 August, we are hosting the Stop Slavery Summit in Hong Kong. We aim to further increase business perspective and focus, partnering with corporations, governments and NGOs, sharing best practices on the role investors, business leaders and board directors play in breaking the chain of slavery operating in our supply chains or unknowingly supported and financed by activities hidden in our businesses. We will also showcase how technology, along with data solutions and enhanced risk procedures and regulation can tackle slavery.

We’ll be live tweeting from the Summit via @RiskManagement using #StopModernSlavery. Follow the conversation and share your thoughts on how we can tackle modern day slavery.

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