3. Modern Slavery Risks in our Operations and Supply Chains

3. Modern Slavery Risks in our Operations
and Supply Chains

Risk is often described in terms of the potential adverse impacts upon a business or its people. In our Modern Slavery program, our focus is on the adverse human rights impacts that Northern Trust may have on people within our operations and supply chains, rather than the risks to us. This approach to assessing the risks of Modern Slavery in operations and supply chains is informed by the UNGPs, which has framed how we consider the appropriate responses and actions moving forward.

A. MODERN SLAVERY RISKS IN OUR OPERATIONS

As a global financial services firm, Northern Trust has a broad base of professional desk-based employees who work across various lines of business, regions and functions to deliver products and services to our clients, as well as employees with expertise in risk management, technology, legal, policy and regulation, finance, accounting, controls, human resources and many more areas. Given this, Northern Trust considers the risk of Modern Slavery occurring in our workforce to be low.

Northern Trust is committed to respecting the human rights of our employees through our internal employment policies and practices and by respecting local laws and regulations related to human rights. Prior to the first day of service, we complete background assessments on all new employees and new contractors. Assessments include visa checks for rights to work.

Except for a very small number of paid school interns, we do not hire individuals under the age of 18 in any offices across the globe. We consider there to be low risk of child labor stemming from any internship given the type of work and short duration of the work experience.

Fostering inclusion is a cornerstone of our corporate culture and we strive to ensure that employees are able to work in a safe, professional work environment. We continue to reinforce our culture of respect and inclusion and anti-harassment efforts across our organization through engagement activities, internal communications and training.

As a global financial institution, the Bank, on behalf of clients, invests in portfolio companies, and provides financial, advisory and investment management services in multiple asset classes including infrastructure, private equity and real estate. Though Modern Slavery may occur in any sector, we recognize the risks may be higher in asset classes such as infrastructure, manufacturing, mining and agriculture and food processing and in jurisdictions with a greater prevalence of Modern Slavery.

Northern Trust invests a portion of its balance sheet in short-term deposits with central banks and other highly rated financial institutions globally. Northern Trust also invests in fixed income securities issued by governmental and other highly rated entities (typically A, AA and AAA rated). These investments do not represent equity ownership. However, as a fixed income investor, we recognize that in certain circumstances, Northern Trust may potentially still be linked to Modern Slavery risks through these investments. The vast majority of Northern Trust investments held on its consolidated balance sheets are in sectors that are considered to have a lower risk of Modern Slavery such as large central banks, U.S. government and agency, non-U.S. sovereign and sub-sovereign, U.S. municipalities, supranational organizations, and private organizations in finance, insurance and real estate.

There is a small amount of exposure to highly rated (typically A and AA) and highly liquid ‘blue-chip’ corporate bonds that is approximately 1 percent of total notional value, and this is down from approximately 2 percent in the prior year.

As part of Northern Trust’s effort to integrate respect for human rights into the business activities of our organization, we have various policies and procedures designed to prevent our products and services from being used for improper purposes. These include policies and procedures pertaining to Anti-Bribery and Corruption, Anti-Money Laundering (AML) and Know Your Customer (KYC) due diligence. The sectors and jurisdictions which present the greatest risk mirror those described above in relation to investment risk.

In regards to the above descriptions of risks and the mitigating measures in place (described in further detail in section 4), we consider that Northern Trust has a low risk of causing or contributing to Modern Slavery through our operations. However, there may be some risk of being linked to Modern Slavery through the actions of third parties via investments and clients.

B. MODERN SLAVERY RISKS IN OUR SUPPLY CHAINS

Across our global supplier base, we consider the risk of Modern Slavery to be lower among our suppliers engaged in professional services, financial and insurance services, information, media and communications, and computer system design and related services.

The risks are inherently higher in relation to suppliers with operations in countries with an increased prevalence of Modern Slavery. This includes local suppliers in the higher risk jurisdictions in which the Bank or its owned or controlled entities operate.

There is also a higher risk of Modern Slavery where suppliers are operating in sectors, irrespective of jurisdiction, which rely on a lower-skilled workforce, and where there may be a higher proportion of migrant workers. This includes the following sectors:

In relation to services: cleaning and security vendors, couriers and transport, construction and catering and hospitality; and
In relation to products: IT, utilities, telecommunications, office equipment, branded products and merchandise, manufacturing, and consumables.

Based on an assessment of completed responses to the Modern Slavery Questionnaire issued to our suppliers, we observed that:

The risk profile of our suppliers is generally low, which reflects the high proportion of suppliers providing professional services from lower-risk jurisdictions.
Approximately 17 percent of responding suppliers are themselves required to report pursuant to Modern Slavery laws in Australia, Canada and the U.K. or other countries, which generally correlates with the proportion of suppliers that have conducted human rights risk assessments in their own operations and supply chains.
Our suppliers with a presence in more than one country, where one of those countries has an increased prevalence of Modern Slavery and/or the supplier employs workers that may be considered to be in vulnerable categories (e.g., migrant workers, disabled workers and young workers), are typically businesses providing professional or financial services which have policies and procedures, including training, in place to mitigate risks.
Of the small cohort of suppliers without adequate policies or controls in place to mitigate against Modern Slavery risk, just over a quarter operate in a higher-risk jurisdiction and those suppliers have been the subject of due diligence via the Modern Slavery Questionnaire.

The risks of Modern Slavery may exist deeper within our supply chain with respect to the products that we procure from our direct suppliers. The sourcing countries in the second tier of some of our U.S. and Australian headquartered manufacturing and wholesaling suppliers include China, India, Indonesia, Malaysia, Thailand and Vietnam, which are jurisdictions where Modern Slavery risks may be higher.
46 percent of responding suppliers had trained their workforce on human rights related topics such as anti-discrimination and anti-slavery. This compares to approximately 62 percent of responding suppliers that trained their workforce on anti-corruption or safety topics. The gap between the two figures is narrowing, year-on-year, suggesting that training on human rights related topics are increasingly featured in the training programs of our suppliers.
Northern Trust has a low risk of causing or contributing to Modern Slavery in respect of our direct suppliers. However, there may be some risk of being linked to Modern Slavery deeper within our supply chain (for example, in the supply chain of our IT hardware suppliers).

We consider the above observations to broadly reflect the risks of Modern Slavery in the supply chains across each of the Bank’s branches and owned or controlled entities, given that they operate in the same industry and comply with our group policies and procedures to mitigate risks. Where suppliers operate in jurisdictions with a higher prevalence of Modern Slavery, this will increase the inherent risk of those domiciled or operating from those jurisdictions.

On average, the responding suppliers assessed via the Modern Slavery Questionnaire in 2023 remained low, consistent with the average from 2022. Based on the results from 2023, we identified suppliers requiring further due diligence during 2024.