Boundless Impact Investing today published a report on a new and growing investment strategy that assesses labor conditions of workers in global supply chains. “Labor Lens Investing: The Business Case for Fair Labor Practices” is an analysis of investment models that address forced labor and labor exploitation in supply chains. These models uniquely apply a human rights framework to social impact investments across private and public equities, debt, fixed income and philanthropy. The report highlights best practices that have been creatively engineered by a combination of business and human rights, social finance, and data experts.
Consumer goods are most often produced far from where they are purchased, successively changing hands along complex and sometimes opaque supply chains. Over the years, cases of labor exploitation have been well documented in almost every industry—from agriculture to construction, and apparel to electronics. The International Labour Organization estimates that forced labor generates US$51 billion in illegal profits annually.
As a result of heightened negative attention to exploitative labor practices, there is growing interest among mainstream asset managers, private equity funds, venture capital firms, and investment banks to address risks posed by forced labor. According to a recent report by McKinsey & Co., “more than a quarter of the US$88 trillion assets under management globally are now invested according to environmental, social and governance principles known as ESG.” ESG refers to Environmental Social and Governance principles, but the “S” remains vastly undeveloped and difficult to measure. This report provides investors with actionable recommendations to improve their ability to assess and act on the social factors that can affect investment outcomes.
The report also demonstrates a nascent but important effort to bring to light the economic factors within supply chains that run counter to fair labor practices. As companies are pressured to remain profitable, but also reduce costs and production time, costs are passed to suppliers who too often underinvest in worker safety, recruitment, and compensation. “Just like the organic food industry is booming in response to growing awareness of what goes onto our plates, social investment strategies are growing as investment risks from harmful labor practices become clear,” says Boundless Impact CEO, Michele Demers.
The report was produced by Boundless Impact Investing– a market intelligence firm that provides independent industry research for impact investors. It was commissioned by The Freedom Fund, an anti-slavery organization that identifies and invests in the most effective frontline efforts to eradicate modern slavery and Humanity United, a foundation created by eBay founder, Pierre Omidyar and his wife Pam Omidyar. Humanity United’s Working Capital early stage investment fund is highlighted in the report, which invests in innovations to drive greater supply chain accountability and transparency. “We commissioned this report with the Freedom Fund because we believe the investment field can play a powerful role in addressing forced labor in supply chains. To continue to leverage this opportunity, a better understanding of the current landscape was needed,” said Ed Marcum, Managing Director, Humanity United. “While this report demonstrates Labor Lens Investing is a nascent idea, we are encouraged to see a number of efforts to align capital with the treatment of workers.”
The importance of this new investment category, the report concludes, lies in its potential to scale financially as a lever for social, economic, and political good, benefitting workers otherwise exposed to labor conditions that are unhealthy, unfair, and unsustainable. In a global economic climate rife with mounting exploitation and vulnerability, consumers and investors are being called towards awareness and engagement with the labor conditions behind the products they use. Labor Lens Investing provides the framework for this engagement.
Source: Boundless Impact Investing