The Asia-Pacific business environment is rife with social risk, manifested as human trafficking, forced labour, modern day slavery, child labour, safety and work environment issues, and other labour rights violations. In the modern business environment, a company’s failure to manage social risks can result in serious legal, financial, and reputational consequences.
For investors seeking access to the Hong Kong financial markets, the situation is no different. Investors, as well as the key gatekeepers to the financial markets, namely regulators, banks, shareholders, professional investors, and professional services providers (lawyers, accountants, etc.) have an increasing number of incentives to combat forced labour and other related social issues which often arise in the Asia-Pacific region. While social risk has historically tended to be grouped as part of the broader suite of Environment, Social and Governance (ESG) issues, it is important to consider social risk also as a standalone issue and appreciate how damaging social risks can be for companies that do not adequately address or protect against social risks. Particularly in the Asia-Pacific region, social risk takes on increased importance in the business environment due to the high levels of forced labour and human rights issues in the region (some examples of which are discussed further in Part II of this paper).
This paper will examine some of the reasons behind the increased profile of social risk issues in the business world, including:
- The increased investor demand for socially responsible companies
- A continued crack down on forced labour by legal and regulatory enforcement regimes
- Lobbying by global frameworks, NGOs, and non-profits for social risk reform