Modern slavery as tail risk: an extreme value theory analysis of ESG, agrifood, and financial sectors

Modern slavery remains deeply embedded in global value chains, yet conventional ESG frameworks often fail to capture the risks due to disclosure gaps and ESG washing. This study conceptualizes modern slavery as a latent tail risk, a low-frequency but high-impact vulnerability that may become financially material under extreme market conditions. Using an Extreme Value Theory (EVT) framework applied to agrifood, ESG, and financial exchange-traded funds (ETFs), we examine how hidden labor-related vulnerabilities may be indirectly reflected in financial tail, systemic, and spillover risk dynamics. The study contributes by advancing a risk-based perspective on modern slavery, providing a comparative sector-level characterization of extreme downside risk, and extending EVT to social sustainability research through conditioning extreme-risk measures on ETFs associated with severe labor controversies. The findings highlight the fact that modern slavery is not only an ethical and regulatory concern but may also represent a latent source of extreme financial risk.