- The first reporting deadline for the Modern Slavery Act is fast approaching
- It’s not too late for organisations to get their house in order
- Beyond compliance, this is an opportunity to show leadership on human rights issues
In just over three months, larger companies doing business in Australia will have to start reporting on modern slavery risks in their operations and supply chain and how they’re addressing them, in accordance with the Modern Slavery Act 2018.
The first wave of reports, or modern slavery statements, have already been lodged and will be available to view shortly on the Australian Border Force’s portal.
But if your organisation has yet to file its statement, we outline the key areas to focus on now, not only to meet your reporting requirements, but also to embed human rights best practice into your business.
Modern Slavery Act at a glance
Passed by the Australian Parliament in November 2018, the Commonwealth Modern Slavery Act (MSA) came into effect on 1st January 2019. It applies to commercial and not-for-profit entities with annual consolidated revenue of at least AU$100 million, including both Australian entities and foreign entities carrying on business in Australia. Modern slavery reporting already occurs in a number of other jurisdictions, such as the UK and California and the EU has published a draft resolution that includes requiring human rights due diligence. This kind of reporting is here to stay.
While known cases of modern slavery in Australia are relatively low, the government recognizes that Australian businesses are exposed to modern slavery through their work in high risk sectors such as mining, construction, agriculture and financial services and routinely engage suppliers from extremely high-risk sectors and jurisdictions. It intends to send “a clear message that modern slavery will not be tolerated in our community or in the supply chains of our goods and services.”
The MSA requires reporting entities to submit an annual modern slavery statement, based on mandatory criteria within 6 months of the end of their financial year, albeit an extension was granted to businesses with a financial year end before 1 July, in light of COVID-19. Submitted reports are then published in an online register, the first of its kind in the world.
Currently, there are no penalties for non-compliance, unless statements contravene the Australian Consumer Law, for example, if they are misleading. However, you do run the risk of being included in a public non-compliance register and suffering the reputational impacts that come with that.
Many companies have started preparing their statements, and some, like Aldi, have submitted their statements. If you’re seeking further guidance or reassurance that you’re on the right track, tips for developing an effective modern slavery risk management program, and a compliant modern slavery statement, follow.
Reporting entities are required to describe their business structure, operations and supply chains and those of their owned and controlled entities. You may know everything there is to know about your larger, first tier suppliers, but what about your smaller suppliers? How about their suppliers? They often carry the greatest modern slavery risk for reasons such as a lack of transparency and the nature of the work they do such as providing raw materials and manufacturing components. If you haven’t already done so, map out who your suppliers are, what they supply you with and where they supply your goods and services from (the modern slavery risk of a company headquartered in New Zealand, but manufacturing in China, is that of China) – and do the same for your organizational structure and operations. This will give you the information you need to get started.
And it’s not just your own business you need to think about. You also need to consider any entities your business owns or controls and is issuing a joint modern slavery statement with, and be able to describe how you consulted with them.
Assess the risk
To identify potential modern slavery risks across all of your operations and supply chains and have a reasonable basis for any opinion expressed in your statement, you’ll need to carry out a robust risk assessment, using a transparent methodology. Few businesses will have the resources to assess each individual supplier, so focus on identifying those that pose the greatest risk, based on industry sector, product type and geographical location.
Technology can help accelerate and take the guesswork and inconsistency out of such risk assessments. The ethiXbase modern slavery supply chain risk assessment tool, for example, developed in collaboration with top ten legal firm Norton Rose Fulbright*, provides an indicative risk rating of your suppliers based on questionnaire data.
Few businesses will have escaped the ravages of COVID-19 and The Australian Border Force (ABF) has encouraged reporters to outline how the pandemic has impacted their program and increased the vulnerability of workers in their global operations and supply chains (and that you’re taking the necessary steps to address the risks). Equally, the ABF appreciates that, due to COVID-19 challenges, some entities may be unable to provide detailed responses to some criteria in their statements. In this case, be prepared to clearly explain in your statement how the pandemic has affected your ability to assess and address modern slavery risks during your reporting period.
Mitigate and remediate
Now that you’ve identified the potential risks, how are you going to tackle them? You need to describe “actions taken by the reporting entity to assess and address these risks, including due diligence and remediation processes.”
You’ll need to collaborate with relevant parties within your business, such as procurement and supply chain management, to devise effective controls and strategies for communicating internally and with your suppliers.
Controls might include:
- A human rights policy
- A whistleblower policy
- HR processes to ensure staff aren’t subjected to exploitative practices
- Supplier selection processes and onsite visits (where that’s possible)
- Supplier codes of conduct and contractual clauses
- Human rights training for procurement teams and/ or suppliers
- Ongoing vetting of third parties
- Specific programs responsive to the risks identified (eg labour hire arrangements)
Plan your response
When assessing potential risks in your business and supply chain, you may identify actual instances of modern slavery. How will you respond? Consider adopting a high-level policy to cover this – from who needs to be informed to how internal and external communications will be managed. People need to know what the policy is and the steps that will be taken if modern slavery is discovered – bearing in mind that the safety of the victims should always be paramount.
In July, fast fashion retailers, including Boohoo and Quiz, dropped suppliers following the discovery of labour abuses in their factories in the UK. In our experience, best practice says that in most situations you should try to work with suppliers to drive change, rather than terminate the relationship. Your policy should outline how you will develop these programs– and how you will measure progress.
Monitor and review
It’s not enough to talk about implementing strategies to address modern slavery risks. You’ll also need to be able to describe how you’ll assess their effectiveness. This might include setting KPIs, such as training completion rates or number of supplier visits undertaken, and establishing a process to regularly review the impact of actions taken. If you adopt an online assessment tool, you can compare results year-on-year.
You might not have many results to share just yet, but in subsequent reporting years you should be looking to demonstrate where you’ve been able to make a difference and any improvements you’re making or new strategies you’re introducing and why.
The ultimate aim is to show that your modern slavery risk remediation program is a living, breathing program that is evolving – and working.
When you finally come to prepare your statement, it must be approved by the Board and signed by a director before it is formally lodged with the ABF for inclusion in the public register. It’s a good idea to identify who is going to sign your statement at the outset and update them on progress on a regular basis so that they have visibility of the process and are confident in the accuracy of what they’re approving.
A wider view
Understandably, your reporting requirements may seem overwhelming right now. However, this is just Year One and there will be opportunities to take a deeper look at your supply chain and your approach to modern slavery in future years – and to keep improving.
The process and actions we have outlined here are about so much more than complying with Australia’s Modern Slavery Act, as important as it is. This is about taking a vital opportunity to look critically at your operations and supply chains and make changes to protect those that are most vulnerable. At the same time, you will enhance your reputation, customer loyalty, staff retention and improved investor confidence.
*2020 Acritas Global Elite Law Firm Brand Index