Modern Slavery: The Hidden Risk in Finance - and How to Tackle It

Estimated Reading Time: 4 minutes

50 million people. Trapped. Exploited. Hidden in plain sight.

That’s the staggering reality of modern slavery today, according to the International Labour Organization (ILO)[1]. Despite advancements in corporate governance, ethical investing, and financial regulation, forced labor, human trafficking, and debt bondage persist—woven into global supply chains, financial systems, and even industries tasked with managing risk.

While ESG (Environmental, Social, and Governance) efforts have largely focused on climate and sustainability, the "S"—social responsibility, including human rights - often takes a back seat. Yet for professionals in finance, actuarial science, and insurance, modern slavery isn’t just a moral issue. It’s a financial risk, a regulatory minefield, and a reputational disaster waiting to happen.

The Scope of Modern Slavery

Modern slavery isn’t just an issue in distant factories or remote farms. It’s everywhere—embedded in industries from agriculture and construction to manufacturing and domestic labor. Women and children bear the brunt, but no sector is immune.

The financial world plays a silent role in this crisis. Banks, insurers, and investors may unknowingly fund or enable exploitative businesses. Without rigorous due diligence, financial flows can prop up companies engaging in forced labor.

And then there’s climate change - the silent accelerant of modern slavery. Research shows a direct link: environmental degradation and extreme weather push vulnerable communities into desperate working conditions. A study in Myanmar found deforestation-driven farming led to child labor exploitation[2]. The pattern repeats globally.

It’s a vicious cycle - corporate practices harm the planet, disasters displace people, and traffickers seize the opportunity.

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How Finance and Insurance Can Break the Cycle

The financial sector has immense power to disrupt modern slavery - it chooses to act[3][4][5].

1. Ethical Investment and ESG Compliance

Investors and asset managers are beginning to integrate human rights into ESG frameworks. They’re demanding transparency, conducting audits, and applying pressure on corporations. But surface-level compliance won’t cut it. Financial institutions need to push for deeper accountability—moving beyond check-the-box audits to real, enforceable change.

2. Insurance as a Force for Change

Insurers sit at a unique crossroads. By embedding human rights considerations into underwriting, they can force companies to clean up supply chains or risk losing coverage. Imagine a world where businesses must prove ethical labor practices before securing insurance. That’s the kind of leverage the industry holds.

3. Climate Policy as a Slavery Solution

The link between modern slavery and climate change provides a blueprint for action. Just as regulators enforce corporate climate responsibility, they must integrate labor rights into sustainability policies. If companies face penalties for environmental harm, why not for human exploitation?

The Actuarial Role: Risk, Data, and Prediction

Actuaries—masters of risk assessment—have a critical role in quantifying and mitigating modern slavery risks.

1. Factoring Modern Slavery into Risk Models

Companies with exposure to forced labor should face higher financial risks. Actuaries can build models that price these risks accordingly, penalizing bad actors while rewarding ethical firms. This aligns with the shift toward ESG-driven financial decision-making.

2. Data-Driven Insights for Detection

Patterns don’t lie. By analyzing financial transactions, labor conditions, and employment trends, actuaries can spot red flags. Their insights can help financial institutions identify and cut ties with exploitative businesses before scandals erupt.

3. Stress Testing for Long-Term Impact

What happens if modern slavery regulations tighten? What if investors abandon non-compliant firms? Actuaries can simulate these scenarios, helping financial institutions prepare for inevitable shifts. Those who act now will be ahead of the curve.

The Path Forward

Change won’t happen overnight. But concrete steps can make a difference:

1. Stronger Regulation – Governments must move from voluntary compliance to mandatory enforcement. Slavery-linked businesses should face financial penalties and legal repercussions.

2. Industry Collaboration – Insurers, banks, and regulators must work together, sharing data and best practices to combat forced labor.

3. Embedding Social Risks into Finance – Actuarial models and investment strategies should account for modern slavery risks—not as a footnote, but as a fundamental factor.

4. Consumer and Investor Pressure – Public scrutiny is a powerful weapon. Companies will act when they realize inaction costs more than compliance.

Some efforts are already showing results. In one ILO-led initiative, a microfinance bank in Nigeria introduced school loans, reducing child labor. A health insurance expansion in Pakistan cut forced child labor by 7% over two years. These are small but significant steps in proving that financial tools can be used to fight, not fuel, modern slavery.

Conclusion

Modern slavery isn’t a distant problem—it’s a crisis embedded in global finance. But the same institutions that inadvertently sustain exploitation can also dismantle it.

Actuaries, insurers, and financial professionals hold the levers of change. By integrating modern slavery into risk assessments, underwriting policies, and investment decisions, they can drive systemic reform.

The choice is clear: continue business as usual and risk compounding the problem—or lead the charge toward a fairer, more just economy.

The financial world has disrupted industries before. It’s time to do it again.

[1] https://www.ilo.org/resource/news/50-million-people-worldwide-modern-slavery-0

[2] https://www.theactuary.com/2024/11/08/plain-sight-scourge-modern-slavery

[3] https://www.theactuary.com/2024/11/08/money-matters-how-financial-services-can-tackle-modern-slavery

[4] https://www.theactuary.com/2024/11/08/modern-slavery-know-regulations

[5] https://www.theactuary.com/2024/11/08/plain-sight-scourge-modern-slavery