ESG Weekly Update – May 5, 2022

5 May 2022

UK: FRC Report Finds That Many UK Companies Have “Poor” Modern Slavery Reporting Practices

A report by the Financial Reporting Council (FRC), the Independent Anti-Slavery Commissioner’s Office and Lancaster University found that 10% of companies do not comply with reporting obligations under the Modern Slavery Act 2015 (MSA).

Section 54 of the MSA requires companies with a turnover of £36 million or more to write an annual statement setting out the steps they take to address the risk of slavery in their operations and supply chains. Statutory guidance also recommends that organizations cover six reporting categories: policies, structures, due diligence, risk assessment, training and effectiveness. The report also investigates the extent to which companies are reporting on modern slavery in their annual reports as part of a separate requirement to describe how opportunities and risks to the success of the business have been considered and addressed.

The report surveyed annual reports based on a sample of 100 companies listed on the London Stock Exchange’s Main Market. It found that one in 10 companies do not provide a modern slavery statement at all and are therefore failing to comply with their duties under section 54 of the MSA. The majority of modern slavery reports that were published were fragmented and lacked a clear focus and narrative or were overly complicated. The report found the disclosures were also lacking in details; less than half of companies provided a clear and comprehensive discussion of modern slavery concerns in the context of their organizational structure, operations and supply chains.

The report also found inconsistent modern slavery reporting in the surveyed companies’ annual reports. Only 14% of annual reports provided a direct link to the company’s modern slavery statement, and only 13% of annual reports set out the company’s internal controls linked to the oversight of human rights and modern slavery risks. Only 7% of companies provided any information about when and how frequently their modern slavery policies and governance arrangements are subject to review.

Aside from reputational risks, there are also legal risks for companies in scope of the MSA who fail to adequately report on modern slavery; the section 54 obligation is enforceable through civil proceedings in the High Court for an injunction. Furthermore, a bill aimed at strengthening enforcement of section 54 obligations is currently before the House of Lords.


Global: TCFD Implementation Varies Across the Globe

As national disclosure requirements for companies begin to take effect, regulators around the world have been making varying decisions regarding the implementation of the disclosure framework developed by the Task Force on Climate-Related Financial Disclosures (TCFD). According to a recent report by MSCI, at least 10 major economies will begin introducing TCFD-aligned disclosure rules over the next 12 months; MSCI’s analysis of how national regulators are developing TCFD-aligned disclosure rules indicates a varied approach in implementation, resulting in likely divergence between jurisdictions in their national disclosure rules.

TCFD’s guidance sets out cross-industry core metrics and a forward-looking assessment framework to facilitate the attainment of net-zero-aligned capital allocation. MSCI’s report highlights the differing approaches between the adoption of TCFD guidance by national regulators of large G-20 economies, specifically differing in their approaches to forward-looking metrics, transition plans and scenario analysis. As an example of differences in implementing forward-looking metrics, national regulators in France and New Zealand set a higher standard than Canada and India; the latter two don’t include scenario analysis in their climate disclosure proposals, unlike their counterparts. The MSCI report also highlights divergence in the types of firms subject to the disclosure requirements with, for example, the United Kingdom requiring disclosure from all listed firms, financial institutions and large private companies, while Brazil and Hong Kong will only impose such requirements on financial firms. Another point of divergence is the national regulator’s approach to materiality. The European Union and China are adopting a double-materiality standard, which encompasses both financial and broader impact considerations, whereas the United States is focused exclusively on financial materiality.

MSCI Report

U.S.: General Motors Asks Suppliers to Commit to ESG Goals

Last week, General Motors released its Environmental, Social and Governance Partnership Pledge, by which GM suppliers make commitments related to carbon neutrality, social responsibility programming and the implementation of sustainable procurement practices throughout their supply chains.

Specifically, the pledge asks that suppliers commit to: (i) achieving carbon neutrality for Scope 1 and Scope 2 emissions, with target dates ranging from 2025 to 2038 based on respective industries; (ii) by 2025, developing a sustainability administration system to achieve various labor, human rights, ethics and sustainable procurement targets; and (iii) also by 2025, gaining an understanding of the social and environmental practices of companies throughout their supply chains and committing to leverage their purchasing influence to promote sustainable practices. These will be measured against a minimum score of 50 in the EcoVadis Labor & Human Rights and Ethics Pillars and Sustainable Procurement Pillars.

Of GM’s $76 billion direct material annual purchase value in 2021, suppliers representing more than 53% have signed the pledge.

Environmental Leader
EcoVadis Supply Chain Sustainability Assessment