7 December 2022
Kanon Tsuda, Consultant, Longevity Partners
Though ESG (Environment, Social, and Governance) is becoming an ever-prominent topic across industries and geographies, the disparate attention given to the E, relative to the S and G, is an evident point of vulnerability. As a result of the comparatively sparse focus and exploration of the S and G, their implementation mechanisms and the knowledge of their best practices are still at their adolescent, if not, infancy stages. Whilst the environmental emergency begs imminent attention, this cannot cloud the importance of its intrinsic relation with, and impact on, the wider community, as well as crucial links between all the three elements of ESG.
Conversations geared closer to the S and G have increased substantially in recent weeks, as the 2022 Qatar FIFA World Cup proceeds with controversies. As Louise Ellison, Longevity Partners CCO writes, ‘a country that had limited infrastructure capable of supporting an international sporting event and a poor record on human rights led inevitably to worker exploitation and massive environmental impacts’. Migrant workers were at the heart of the construction effort and therefore, also victims of ‘wage theft, injuries, and thousands of unexplained deaths’ to develop new stadiums, training grounds, hotels, and other infrastructure used for a mere 29 days. Yet, this is not an isolated incident; human rights violations occur consistently across the global real estate supply chain.
Real estate supply chains involve extensive human rights concerns. A 2020 report by KPMG and the Australian Human Rights Commission states that the outsourcing-heavy business model ‘decreases the visibility of labour risks and impacts…[and] hundreds of work streams [can] be associated with one construction project’. A meticulous analysis of the entire supply chain, though critical to fully safeguard against instances of violation, may be impossible given this cross-sectoral and geographical breadth. However, the aim of ESG is not a perfectly harmonious world, but rather a continuous effort towards the better version.
Who is in the driver’s seat?
Our starting point is the United Nations’ 1948 Universal Declaration of Human Rights, alongside the 1966 International Covenant on Economic, Social, and Cultural Rights and the International Covenant on Civil and Political Rights. Together, these make up the International Bill of Human Rights, legally defining human rights and proposing a global framework for the equal treatment of individuals. However, these rights inevitably have little authority, in and of themselves, as State Parties are ultimately required as enforcers. In other words, the so-called “universal human rights” are still principally understood within borders, and not beyond.
This sets one baseline clear: we cannot solely rely on the public sector to uphold the right of the human. The development of ESG-related policies and processes by private sectors must work in parallel with, rather than be led by these governing institutions. Barbados PM Mia Mottley’s recent speech at the COP27 Summit echoes the same point, stating that we cannot just ask States to “do the right thing”. Mottley urges that non-States, including oil and gas companies and those that facilitate them, must work together, calling for the ‘people of the world…to hold [governments] accountable’. This message was centred within the context of establishing a loss and damage fund –but the necessity for a more horizontal dispersion of duties to address socio-environmental issues still stands.
Modern slavery in the construction industry
Of the multitude of dimensions surrounding the topic at hand, we focus on modern slavery in construction and raw material extraction processes. The UK Metropolitan Police website defines this as ‘the illegal exploitation of people for personal or commercial gain…including sexual exploitation, domestic servitude, forced labour, criminal exploitation and organ harvesting’.
To understand how it plays out in the labour market, we outline several key statistical figures from 2020 are:
- Of the global workforce, 7% are employed by the property and construction industries
- Of known modern slavery victims, 18% are found in the construction industry
- Of known forced labour victims, 22% are found in the manufacture and production of raw materials
With legislative developments, such as the UK Modern Slavery Act in 2015, and its Australian equivalent in 2018, some mainstream spotlight has recently been shone on this issue.
A case study: Manufacturing of Polyvinyl Chloride
A salient example, outside of the case of Qatar, is of the Xinjiang Uyghur Autonomous Region (XUAR) in the People’s Republic of China (PRC), which has had a growing number of industries, including apparel, electronics, and green energy solutions. One of the mass-produced products in the XUAR, contributing to 10% of global consumption, is Polyvinyl Chloride (PVC)–a highly insulating and fire-resistant thermoplastic that can be easily remodelled when heated without causing chemical change. It is used in products from credit cards to IV bags, and in the construction landscape for roofing membranes, window frames, drainage pipes, vinyl flooring, and more. The PRC is the world’s largest producer but also consumer of PVC.
A 2022 report by Human Trafficking Search finds that the two largest PVC manufacturers in the PRC are both state-owned companies based in the XUAR. It has been increasingly exposed and condemned internationally that Uyghurs and other minority populations are assigned to work in state-owned companies. The definition of modern slavery is befitting as ‘refusal to participate…can be considered a sign of religious extremism and punishable with internment or prison’.
PVC manufacturing also causes health hazards with their coal and mercury-dependent method, unlike the common practice using ethylene that requires larger capital investment. The same report writes that the material’s production in the XUAR ‘currently consumes an estimated 358 tons of mercury per year, of which 9.9 tons are released into the air’. Research into one of the plants evidenced that each ton of PVC production also results in 12 tons of CO2e emissions, and estimates that the country’s seven plants running at full capacity would produce approximately 49.4 million tCO2e.
This asymmetrically focuses on one region, but human rights violations undoubtedly bear international culpability, whether within or outside of the real estate and construction sectors. In Europe, as of 2018, ‘construction ranks second only to the sex industry as the sector most prone to exploitation’, with connections to further issues, such as money laundering and human trafficking. And whilst easier to turn a blind eye and blame local legislations and firms, it remains ‘ethically and morally the responsibility of the people at the top’.
The light at the end of the tunnel
Having discussed some of the key issues resulting from the real estate sector’s supply chains, we must also acknowledge the progress being made. In addition to the modern slavery acts, we find positive policies such as the 2010 California Transparency in Supply Chain Act, 2018 European Non-Financial Reporting Directive, and France’s 2017 Duty of Vigilance Law.
Another promising material currently in development is the United Nations Office of the High Commissioner for Human Rights’ (OHCHR) is the Legally Binding Instrument to Regulate, in International Human Rights Law, the Activities of Transnational Corporations and Other Business Enterprises, of which its fourth iteration was drafted as of October 2021. This seeks to solidify a foundation for monitoring human rights across ‘all business activities, including business activities of a transnational character’ as clarified in Article 3.1. Its most commendable inclusion, if successfully implemented, is its effort to make corporate human rights due diligence mandatory (Articles 6 and 8). Unlike other UN conventions, which have largely acted as a form of “strong encouragement”, at best, this instrument may be pivotal in ensuring that human rights are truly inalienable across borders.
In addition to the moral dilemma directly involving individual consciousness and company values, inaction towards human rights violations bears regulatory and reputational risks. Despite difficulties within the diverse real estate industry, bottom-up initiatives could reduce risks: mapping out operations to gain a holistic view in the first instance, proactive and transparent disclosures, partnerships across the supply chain, implementing robust policies, and so on. As the Royal Institute of Charters Surveyors’ 2019 report on the challenges of responsible businesses in real estate writes, ‘a combination of the right culture, people and technology are critical factors for creating a responsible business strategy in a rapidly changing world’.
At Longevity Partners, we seek to continue leveraging our global platform to increase awareness and accountability on human rights within the real estate sector. If you are interested in expanding your social footprint, our experts from our Strategy and Social Value service lines are here to help. Whether it be a smaller scale project to measure social impact, or an organisation-wide restructuring of your strategy to futureproof ESG risks, our team can help you achieve your goals.
For a further read on supply chain management, please refer to one of our previous articles on managing the way we supply our resources: a sustainable and increasingly regulated issue.