All portfolios include child labor: no detection and no evidence of remediation are red flags. In the third and final article in this series, we share additional diligence questions and resources for asset owners to use when there is greater risk of child and forced labor.
This is the third and final article in a series on child and forced labor due diligence and monitoring. The research for this series began when New York Times reporters found child labor violations in all 50 states and in the supply chains of companies ranging from General Mills to General Motors and from Amazon to Berkshire Hathaway in 2023. This series aims to share practical and intuitive tools for detecting and addressing child and forced labor with all investors.
The series draws from guides for asset owners and asset managers that Kathy Hahn and Juho Rana Kim of Casey Family Programs, Jerome McCluskey of Latham & Watkins, and I co-authored after syndicating feedback from over 100 experts, ranging from Blackstone to The Center for Children’s Rights and Business and from the NYC Comptroller to Interfaith Center on Corporate Responsibility (ICCR).
This article presents a four-page additional diligence question bank on child and forced labor due diligence questionnaire for asset owners to use with higher risk asset managers and portfolio companies. If answers to any of the questions in the Heightened Risk Scenario (in the first article in this series) are unclear or suggests a higher level of risk, investors may wish to use parts or all of the Additional Diligence Question Bank.
“The graduated series of thoughtful questions that Bhakti and her co-authors have developed for investors seeking to address and mitigate the risks of child and forced labor in due diligence and monitoring are exceedingly helpful for our office. The New York City pension funds that we advise take these risks seriously, and want their asset managers to do the same as part of their fiduciary duties to the funds,” explains John Adler, Chief ESG Officer of the NYC Office of the Comptroller.
As Human Rights Watch Senior Researcher Jim Wormington notes, optimal use of the Additional Diligence Question Bank would require in-house sector expertise, external partners, or both, and asset owners should consider resource requirements. To this end, with the help of Interfaith Center on Corporate Responsibility (ICCR) Director of Equitable Global Supply Chains, human rights expert Declan Croucher, Allocator Collective, and others, we have compiled an open-source list of resources on addressing unlawful child and forced labor. We hope they are helpful, and we welcome your suggestions for additional resources to add to this database or modifications to the information that we have.
Asset owners would naturally vary the number of additional diligence questions that they ask based on position size, whether the position is a controlling interest, potential risks involved, and what change they are trying to drive in their portfolio and/or across the industry.
Additional Diligence Question Bank About Child and Forced Labor for Asset Owners
Risk Evaluation
Industry Risk: What proportion of the Firm’s portfolio companies operate in food/meat processing, apparel and other manufacturing, and other industries prone to child and forced labor practices?
Labor Risk: What proportion of the Firm’s portfolio companies utilize a high degree of temporary work force, either obtained directly or through staffing agencies?
Documentation risks: What proportion of the Firm’s portfolio companies utilize e-Verify as part of their background screening of staff (full time, temporary and sourced from staffing agencies)? What other processes and/or systems are in place for background screening?
Pre-Acquisition Diligence: GP-Level
Pre-Acquisition: What is the Firm’s screening, due diligence, and risk management processes prior to making an investment, to protect against child labor & forced labor violations?
Post-Acquisition Monitoring: GP-Level
Post-Acquisition: Describe the Firm’s processes, if any, to monitor and verify the portfolio companies and supply chains, post-acquisition. If applicable, are portfolio companies typically members of organizations such as the Fair Labor Association?
Compliance: How are portfolio companies’ policies (e.g., Compliance Manual or Code of Conduct/Code of Ethics) supervised, monitored and enforced? What is the process for periodic reviews and updates?
Whistleblowers: Describe the Firm’s policies and protections for whistleblowers.
External Vendors: Does the Firm work with any external vendors to monitor and manage child labor & forced labor violation risk? Do the services of these external vendors apply to suppliers?
Audits: What role do audits play in verification of suppliers and sub-suppliers sourcing and labor practices? What steps does that company take to address the limitations of auditing in identifying child and forced labor?
Post-Acquisition Monitoring: Portfolio Company-Level
Tracking: What existing systems do portfolio companies rely on to track their efforts to prevent and address child labor & forced labor impacts? Is tracking based on appropriate qualitative and quantitative indicators (e.g., indicators derived from ILO child labor conventions, developed by the company, an industry association, an MSCI) or in a reporting framework?
Risk Assessment: Do portfolio companies have a process in place to identify and assess risks and impacts related to the minimum age policy & forced labor policy within the company’s operations and value chain?
Age Monitoring: Do portfolio companies have a process in place for monitoring, reporting and managing cases where children below the minimum age are discovered? And where cases of forced labor are discovered?
Employees
Employee Training: Do portfolio companies have any policies or hold any employee training related to child labor & forced labor to increase awareness? (i.e. detection, reporting, whistle blowing, etc.)? Identify how the policies are communicated to employees and any training employees receive related to the policies.
Violations
Reporting: Provide context into how violations of the Firm’s policies are reported and managed. How does the Firm communicate with LPAC and Limited Partners about any compliance or other issues that regulatory bodies (such as the SEC) identify during an examination?
Compliance: Has the Firm had any compliance issues related to labor practices? If so, please describe whether they have resolved been remediated and whether the Firm is currently in compliance.
Violations: Have any of the portfolio companies or properties (where the Firm had a significant or controlling interest) within the Fund family ever been under investigation for violation of child/forced labor laws? Describe any situation in which a portfolio company or property (where the Firm had a significant or controlling interest) within the Fund family has been under investigation for violation of child/forced labor laws.
Severity: If child labor or forced labor is discovered in your portfolio or supply chain, gauge its severity, including scale, scope, and remediability. Scale: how grave is the impact (e.g., is it a worst form of child labor)? Scope: what is the number of children/workers affected? Remediability: can the affected children/workers be restored to a situation they were in before they were harmed?
Support
Responsible Investing Reporting: Does the Firm have child labor or other labor-related SDG targets as part of the Firm or Fund’s Responsible Investing reporting? Describe how the Firm incorporates children-related considerations into Responsible Investing and impact assessments, as well as any other organizational risk assessments, as applicable. Describe how the Firm incorporates forced labor-related considerations into Responsible Investing and impact assessments, as well as any other organizational risk assessments, as applicable.
Stakeholder Communication: In what ways does the Firm communicate with stakeholders, including potentially affected stakeholders and their representatives, about its efforts regarding child labor & forced labor?
Broader Support: Do portfolio companies within the Fund family take specific actions to support the broader community, industry, and national and international efforts to eliminate child labor & forced labor?
Treat Them Well and Let Them Lead the Way
Our hope is that investors will use these and other tools to root out unlawful child and forced labor from their portfolios, take the time to share feedback with us, and experiment with other approaches that enhance the wellbeing of and fairness to children in their investment portfolios. The late pop icon Whitney Houston was right: “the children are our future.” Let’s work together as an investment community to “treat them well and let them lead the way.”
Note: Special thanks to the organizations with team members who generously took the time to contribute to this work, listed here. The views of this series of articles should not be construed as reflecting the views of these organizations.