This year’s top 10 stories included a peek into AustralianSuper’s international equities build out in London, AMP’s move to slash employee benefits, and plenty of hard-hitting analysis of the issues that matter in institutional investment. But the real story is how readers helped shape all of that coverage.
Orbis’ Stuart Place is riding from Melbourne to the Moon and Back to fund a treatment for the “monster of a disease” that his youngest son was born with. The investment industry is rallying behind him.
Mixed report card on modern slavery
Early reports by ASX-listed companies under the Commonwealth’s Modern Slavery Act are positive but many have not responded to requests for information and some high-profile companies are exposed to greater risks than others.
According to a new study by Martin Currie Australia (MCA), which manages almost $10 billion in Australian equities, 18 per cent of the ASX 200 companies, by market capitalisation, did not responded to a request for information from the firm, either because they were ineligible due to their size or location, for example NZ dual-listed stocks, or for unstated reasons.
Surprisingly, three of the 11 companies named by MCA as being most at risk of exposure under the Act are held in the manager’s portfolio – Spark New Zealand, Spark Infrastructure Group and Omni Bridgeway. They have been given a score of more than three out of five. Three and below is considered to be a nominal “pass” score following the manager’s analysis.
The other eight companies named with below-pass scores are: Altium, AfterPay, Chorus, Corporate Travel Management, Healius, Sims Metal Group, Washington H Soul Pattinson and Unibail-Rodamco-Westfield. With those stocks it holds, Martin Currie says it will be pushing hard on those companies for improvement.
On the other hand, MCA has listed 25 companies with the best score possible – a score of one – which includes miners, such as BHP group, Fortescue and Newcrest, and retailers Coles and Woolworths.
The report, ‘Mitigating the Risk of Modern Slavery in Australian Companies’, says: “Modern slavery remains unacceptably pervasive, including in a developed and lower-risk country like Australia.”
Written by Will Baylis, portfolio manager at MCA, and Chris Schade, research analyst, the report follows a project initiated by the firm to identify relevant risks and behaviours, rate each company in terms of the risk, create a ‘best-practice framework’ for addressing the risk and engaging with company management where their actions fall below best practice.
The issue of modern slavery is a complex one, invariably involving an analysis of long supply chains which can snake around the world, through less-developed countries where the risks of worker mistreatment, for instance, are higher.
According to Joey Alcock, Frontier senior consultant and chair of the advisory firm’s ‘Responsible Investment Group’, the questions being asked of companies, asset owners and their managers (and consultants – Frontier has been asked about its position by clients) are primarily about awareness of the issue.
Alcock is scheduled to speak at this week’s online annual AIST Superannuation Investment Conference (ASI), from August 31-September 2.
He said last week (August 24) that the awareness element was key to developing an understanding of the sort of practices which were occurring down supply chains and for the community at large to understand what was not appropriate. Naming and shaming companies for ignoring certain practices was a powerful tool to fight them.
“We’re not actually talking about investment risks with the Act. It is designed to eradicate the crime. Intuitively, there will be investment-related risks attached,” he said. “It’s difficult to define, even though it’s a criminal act. Most of the reporting is around awareness and efforts to identify problems. The next step is what they do about it.”
The Commonwealth Modern Slavery Act (2018) sets a $100 million annual turnover point for businesses at which they have to submit a statement to the Government annually, for their results starting the 12 months to June 2020. The first December deadline for reporting was delayed until March 2021.
The NSW Government also passed its own Modern Slavery Act (2018), which has a lower threshold for reporting of $50 million, and an intention to establish the office of Modern Slavery Commissioner, but this has not yet been brought into force. NSW and the Commonwealth have had ongoing discussions about marrying up some of the definitions.
In the lead up to the 2018 bills, Frontier put together a series of questions for fund managers to ascertain their awareness levels. The consultants found that UK-based managers were the most aware because of their government’s earlier passage of similar legislation, in 2015. The Financial Services Council also designed a questionnaire which has become a standard for managers to use with their investee companies.
With most countries and companies looking to transition to a low-carbon environment, at varying speeds, the risks associated with modern slavery can be expected to rise. Frontier’s Joey Alcock said that disruptions due to transitions in less-developed countries might make them more susceptible to human rights abuses.
As part of its recent project, MCA personally wrote to the management of the top 190 ASX companies, asking a set of detailed questions to augment their publicly available published ‘Modern Slavery Statements’ under the legislation.
The analysts completed company-specific assessments of all stocks that MCA holds across its portfolios, and for select stocks that responded to its letters from a broader investment universe. The information was supplemented by meetings with management, board members and various experts.
The detailed assessments account for more than 100 companies out of those contacted for reply. This covers 82 per cent of the ASX 200 index based on market cap and the majority of MCA’s holdings across all Australian equity strategies. Key results include:
- 77 per cent of companies have appropriate policies, processes and structures in pace (23 per cent did not)
- 64 per cent had clear and appropriate accountability
- 62 per cent of companies talked openly about material exposures and past incidents, and the limitations of their insights
- 88 per cent showed evidence of genuine board oversight
- 81 per cent had clear and adequate supplier due diligence processes
- 80 per cent had clear and adequate ongoing supplier risk review processes, and
- 77 per cent outlined areas for future focus and improvement.
The report points out that many of the companies which did not respond the MCA’s questions were operating in industries generally of higher risk in terms of the Act, such as energy, consumer discretionary, information technology, healthcare and metals and mining.
Kimon Kouryialas, Melbourne-based co-head of global distribution for Martin Currie, said Australian investors were well aware of the issues involved with modern slavery and the challenges faced by companies to comply with the spirit, as well as the letter, of the law.
“That’s why we think our engagement process, which we have in place for all our ESG assessments, is critical in ensuring we are able to provide guidance on best practice and push for positive change,” he said.
Note: Martin Currie is a sponsor of Investor Strategy News. The views expressed are those of the author and not necessarily those of Martin Currie.
