InsightsThe financial sector must do more to combat modern slavery

The financial sector must do more to combat modern slavery

Today marks International Human Rights Day and last week...

Bernhard Obenhuber
Dec 10, 2020

Source: Pexels

Today marks International Human Rights Day and last week, on December 2nd, we recognised the International Day for the Abolition of Slavery. Although Mauritania became the last country in the world to abolish slavery in 1981, the International Labour Organization estimates that over 40 million people are today living in some form of modern slavery.

While often unacknowledged, modern slavery is widespread and pervasive across the globe. Men, women and children are bought and sold in public markets, forced into labour through the threat of violence, promised a salary that is often withheld in clandestine factories, or forced to marry against their will and provide labour under the guise of marriage.

The Global Slavery Index presents national-level estimates for 167 countries based on the proportion of the population that is estimated to be in some form of modern slavery. Unsurprisingly, there is a correlation between low GDP and the prevalence of slavery. The 10 worst countries for modern slavery are either African or Asian, and North Korea ranks worst with 100 people per 1,000 living in modern slavery.

That is not to say there are not outliers. Figure 1 shows that there are some developed nations with a higher proportion of their population living in modern slavery than would be expected. Greece and Brunei are in the UN Human Development Index’s highest classification of “very high” and both nations rank in the top 45 in nominal GDP per capita, but both also rank relatively high in modern slavery relative to their economic ranking.

Source: World Bank, Global Slavery Index,

Child labour is, without question, one of the worst forms of modern slavery. Encouragingly, there has been significant progress over the past few decades. Nearly 30% of primary school-aged children were out of school in the 1970’s, but the number has declined to less than 10% today (see Figure 2).

Source: World Bank,

However, gender equality remains an issue, with a greater number of girls out of school than boys (see Figure 3).

Source: World Bank,

Incorporating modern slavery into sovereign risk analysis

The COVID-19 pandemic has brought to light the growing importance of ‘S’ factors in ESG metrics. Social issues such as workers’ rights, education, health, and safety have all moved to the forefront as investors assess risk factors on material social issues for both companies and sovereigns.

For sovereigns, analysts and investors are placing greater importance on the consideration of social factors in government bond analysis. Just as ESG investors screen out and exclude sin stocks such as tobacco, weapons, and gambling companies, sovereign risk analysts are increasingly excluding government bonds from nations with human rights violations.

As investors seek to manage reputation and financial risks within their sovereign bond portfolio, countries that are subject to UN sanctions or are yet to be signatories to international conventions run the risk of having their bonds excluded. However, as country risk analysts increasingly look through an ESG lens, at this point in time, there is still no direct link to financial materiality. That is to say, that countries with higher persistence of modern slavery are not necessarily more likely to have a higher default risk after controlling for standard macroeconomic factors.

Slavery as a source of dirty money

Going beyond ESG analysis in the context of sovereign credit risk, AML analysts must also closely monitor modern slavery in countries. Modern slavery and the organisations behind it are a source of dirty money that needs to be laundered. According to the ILO, the profits generated from modern slavery are estimated to exceed $150 billion annually. That means that this illicit industry generates more than $285,000 every minute, making it the third most profitable multinational criminal activity after drug trafficking and counterfeiting of goods. Given the enormous profits that are being generated by modern slavery, more people will fall victim if action is not taken. The financial sector must do its part in tackling this global scourge by stepping up its tracking and protocols against modern slavery.

Please reach out to us at [email protected] to learn more about integrating social factors into your ESG country and sovereign risk assessments and AML compliance due diligence.

Written by:
Bernhard Obenhuber