The significant and in many cases enduring impacts of the current global pandemic are not lost on anyone. Pay cuts, reduced hours, staff being stood down – or worse – retrenched are daily realities faced by Australian workers and business owners, but the global situation is more dire than many appreciate. In a recent report issued by the International Labour Organization concerning the economic impacts of COVID-19, it was estimated that an additional 63.9 million workers in the world will work in poverty as a result of COVID-19. These economic impacts have exacerbated the risks of modern slavery practices, with many global suppliers facing unprecedented financial pressures from the erosion of global consumer confidence, and unprecedented surges in production demands for speciality goods, including medical equipment and supplies.
Given this, the Australian Border Force has published a Guidance Note for large Australian entities on the preparation of their modern slavery statement under the Commonwealth Modern Slavery Act. The ABF Guidance Note also provides an example of a modern slavery statement which addresses, amongst other things, how the impacts of COVID-19 have shaped a business' response to identifying and addressing modern slavery risks in its supply chains.
In this article we'll set out the key takeaways from the ABF Guidance Note, and our own insights into managing the impacts of COVID-19 on modern slavery risks in supply chains across all industries. Reporting entities should also note the newly revised reporting dates set out below, which have been made to accommodate disruption caused by COVID-19.
How has COVID-19 impacted modern slavery?
With falling global consumer demand and confidence, COVID-19 has placed significant cashflow pressures on suppliers around the world, with many implementing extensive cost-cutting measures. These in turn are likely to result in hidden modern slavery practices. Conversely, some suppliers are facing unprecedented production demand caused by supply chain shortages for certain goods, including medical equipment and supplies.
All these factors, says the ABF Guidance Note, have increased worker vulnerabilities to exploitative labour practices, especially in the manufacturing industry. Delta 8.7 (the UN's Centre for Policy Research) recently found that:
"In Bangladesh, over 100 factories have lost business as retailers close stores and reduce orders. The apparel industry employs 4 million people in Bangladesh who are now either at risk of losing their jobs or in a situation of vulnerability due to loss of their steady income.
In Thailand, there are reports of a surge in demand from manufacturers in medical supply chains for cheap labour, targeting vulnerable migrant workers."
Changed dates for Modern Slavery statements
Another effect of the COVID-19 pandemic is the Australian Government's decision to extend some reporting dates by three months. The new dates are:
Entity's annual financial reporting period: 1 July to 30 June
First reporting period under the Cth Act: 1 July 2019 to 30 June 2020
Due date for statement: 31 March 2021
Entity's annual financial reporting period: 1 January to 31 December
First reporting period under the Cth Act: 1 January 2020 to 31 December 2020
Due date for statement: 30 June 2021
Entity's annual financial reporting period: 1 April 2019 to 31 March 2020
First reporting period under the Cth Act: 1 April 2019 to 31 March 2020
Due date for statement: 30 December 2020
How Australian businesses can respond to the heightened threat of modern slavery
While the ABF Guidance Note recognises that some businesses may not in fact be able to provide detailed responses in their first modern slavery statement, it stated that it is critical for businesses to clearly explain how COVID-19 has impacted its capacity to assess and address modern slavery risks in its modern slavery statement. It also makes it abundantly clear that business must continue to "take steps to assess and address modern slavery risks during the COVID-19 pandemic and that they report on these actions". Academic commentators have also explained that businesses have an important role in mitigating the risks of modern slavery within their global supply chains, as they often have the ability to alleviate some of the financial and operational pressures faced by suppliers.
The ABF Guidance Note encourages businesses to "take steps to protect vulnerable workers in their global operations and supply chains from the impacts of COVID-19" and to "integrate consideration of modern slavery risks into their broader response to the pandemic", including:
- providing information about modern slavery risks to the board or executives as part of COVID-19 updates and using internal sustainability, human rights or modern slavery working groups to identify opportunities for action;
- avoiding varying contracts unreasonably or seeking discounts from suppliers;
- asking suppliers for information on steps they have taken to protect their workers from COVID-19, such as providing workers with protective equipment, providing sick leave or carers leave, and increasing cleaning in factories and buildings to minimise risk of infection;
- identifying the risks arising from COVID-19, including those which have resulted from evolving supply chains and changing workforce structures;
- ensuring supply chain workers are properly protected, including with access to support hotlines, appropriate protective equipment, leave and pay arrangements during periods of self-isolation, safe locations to self-isolate; and
- facilitating worker education about modern slavery risks linked to the impacts of COVID-19.
To these, we would add:
- consulting and working with their suppliers to understand any cost or production pressures they may be facing, including whether new or changed orders will require additional workers or additional overtime from current workers. Where a supplier is facing significant cost pressures, the business may consider innovative arrangements such as temporarily redirecting purchase orders to those particular suppliers, or where a supplier is facing surges in production demand, providing the supplier with an extension on delivery time frames;
- continuing existing supplier due diligence and remediation processes such as issuing modern slavery questionnaires to suppliers and conducting any necessary supplier audits in the event modern slavery practices are identified. With any identified modern slavery incidents, businesses should work with those suppliers to address those incidents, rather than seeking to automatically terminate any supply contracts; and
- collating information received from suppliers and undertaking a modern slavery risk assessment. As an example, if a supplier is in an industry with supply chain shortages such as in medical goods and equipment, this data may be used in any risk modelling undertaken by the business.
Overall, Australian businesses should take a collaborative approach in working with the suppliers to first understand and then address any incidence of modern slavery resulting from the economic impacts of COVID-19. As apparent from the ABF Guidance Note, collaboration with key stakeholders including suppliers, workers, business peers, investors, community, and peak industry bodies is key to addressing modern slavery and demonstrating that the business is serious about its obligations under the Commonwealth Modern Slavery Act.