The S in ESG may be the Most Impactful

Kaplow

The “Social” components of ESG are among least measured factors in corporate sustainability despite being among the most impactful.

Social starts with a company’s value system and a principled approach to doing business.

Often cited as a checklist for Social factors are the first six of ten principles of the UN Global Compact with human rights and labour rights being key. For example, among the Compact principles is “the elimination of all forms of forced and compulsory labour.”

This sounds simple enough, but a January 18, 2021 report by the UK Independent Anti Slavery Commissioner describes,

quote-left

.. there are more than 40 million people in modern slavery worldwide. Modern slavery exists in every industry, in every country in the world. Yet in the Western world there is a low level of awareness of the prevalence of modern slavery.”

And business merely saying through a statement on its website that it is concerned about human rights or slavery may sound nice, but in 2021 when so many are talking about ESG, that averment will not resonate and quite frankly falls short of what a private enterprise should be doing to prevent these crimes.

Claims about human rights including that no slaves or indentured servants are involved in a business or its supply chain are not new, and have been prevalent, for example, since the 1660s with the Quakers in England who included those representations in promoting their businesses.

The British government reports there are more enslaved people today than there have been at any time in history!

And that report expressly excludes, deferring for a later day, one of the issues in this space that we are most often asked about:  As companies look to their supply chains for violations of human rights and slavery, we are asked how to address solar panels. China manufactures nearly 80% of global production of solar panels relying on a technology using silicon that is mined and processed in China’s Xinjiang region where the government’s repression of the Uyghur minority is such that it amounts to genocide according to the U.S. government and Group of Seven. Use of Chinese solar panels is today a key S factor in ESG disclosures!

There are few laws in the ESG space, but we have worked with businesses in their disclosures required by the California Transparency in Supply Chains Act of 2010 describing their “efforts to eradicate slavery and human trafficking from [their] direct supply chain for tangible goods offered for sale.” And we have advised companies seeking to produce their annual statements required by the UK Modern Slavery Act 2015. To assist in understanding what is meant by modern slavery, Article 1 of defines it as:

“A person commits an offence if: a) the person holds another person in slavery or servitude and the circumstances are such that the person knows or ought to know that the other person is held in slavery or servitude, or b) the person requires another person to perform forced or compulsory labour and the circumstances are such that the person knows or ought to know that the other person is being required to perform forced or compulsory labour.”

The British and the EU lead the world in these concerns and the EU Parliament voted on March 10, 2021 to adopt mandatory legislation requiring  human rights due diligence including for many U.S. companies selling in the EU. They are also far ahead of the U.S. in matters of ESG disclosures and while there is no single or widely accepted definition of “Environmental, Social Governance” in the U.S., it does not appear to be too big a leap that matters of slavery should be disclosed. Human rights and ethical labor are becoming widely considered and articulated in ESG disclosures in 2021 by clients of this firm.

But today’s ESG statements are only a very small step. The ideal of social equity can be traced back to the works of Aristotle and while definitions vary and have evolved over thousands of years, most would agree humanity has not done enough, including purporting to address Social as one of the three component parts of ESG.

Incident to our sustainability law work we have for more than a decade provided a framework enabling a company to examine and assess its own business practices and then if they desire to demonstrate to customers and other stakeholders the business’ commitment to eliminating modern slavery or human trafficking. As an option, we can further assist them with an independent third party certification to mitigate any risk in showcasing their ethical sourcing credentials.

Slavery has existed since ancient times and despite having been outlawed in every country in the world, contemporary slavery exists. At a time when ESG has become synonymous with sustainability and companies are coming to recognize that investors and stakeholders want to buy into businesses that protect the environment, those companies must aggressively consider not only the legal risk, reputational risk, but also the financial risk that people also want to buy into companies that protect people. Additionally, it is suggested in the U.S. it is better to do the right thing, now, rather than be forced to do so by new laws.

There is no morally defensible reason for not doing everything in our power to end modern slavery and human trafficking. All businesses, whether related to the S in an ESG effort or not, must examine and assess their business practices now.

About the Author

Nancy Hudes and Stuart Kaplow, two Maryland attorneys who are among the principals at ESG Legal Solutions have combined forces, joining together to publish this blog leveraging their focused experience and legal knowledge for business interests in the ESG space.

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