Stronger requirements: the pressure is on
The Modern Slavery Act 2018 (Cth) requires Australian entities and entities carrying on business in Australia with a consolidated revenue of at least $100 million, to prepare an annual Modern Slavery Statement. The Labor Government has pledged to strengthen Australia's modern slavery regime; the Attorney-General's Department's review of the Modern Slavery Act, which commenced before last year's Federal election, was due to be completed by 31 March 2023 and is to be followed by a report to be tabled to Parliament. We expect to see the shape of reforms to the Modern Slavery Act in the coming weeks.
It is evident that there is public support for more robust requirements. According to a recent report released earlier this month by a coalition of academics and human rights organisations, business survey participants and focus groups have a strong appetite for modern slavery reforms to drive company action for the benefit of victim-survivors of modern slavery.
Separately, “Broken Promises: Two years of corporate reporting under Australia’s Modern Slavery Act”, from late 2022, assessed the reporting of the same 102 entities studied in an earlier report, concluding that most promises made by companies to address modern slavery remained unfulfilled by the next reporting period. Although the average company improved its score by 7%, a whopping 66% of companies continue to fall short of mandatory reporting requirements – but these requirements are not going anywhere. The Broken Promises Report similarly delivered recommendations for urgent reforms to improve the effectiveness of the Modern Slavery Act.
With all signs pointing to stricter requirements on the horizon, we share below some tips and traps based on our significant experience assisting companies with their modern slavery response through the last three years of reporting, to ensure organisations start their approach to any legislative change on the right foot.
Know your supply chain and its inherent risks
The Modern Slavery Act currently requires reporting entities to describe the risks of modern slavery practices in their operations and supply chains (and those of any entities they own or control). This requirement makes many organisations squirm, however perhaps counterintuitively, a failure to comply with this requirement can do more reputational damage than laying bare any such risks.
Organisations are expected to understand and report on sector-specific risks that may be inherent in their operations and supply chains, at a minimum. The "Broken Promises" report says 43% of companies whose statements were reviewed failed to identify obvious modern slavery risks. In particular, 72% of companies sourcing garments from China failed to mention the risk of Uyghur forced labour in supply chains. With reports of conditions that may contribute to modern slavery risks making headlines for various sectors in Australia and abroad, no organisation can feign ignorance of how their supply chain may be affected.
Full compliance with this requirement can also be hindered where organisations have not comprehensively mapped their supply chain. The Modern Slavery Act does not limit the examination of modern slavery risks to "tier 1" suppliers but expects organisations to examine risks that may be present deep in their supply chains, such as the production of raw minerals in computers and smart phones. Further, whilst many organisations are familiar with the direct inputs into the goods and services they offer, items purchased to support business operations are often missed, such as catering, office supplies, uniforms and facilities management. There can be difficulties in gathering the details of these purchases on short notice unless they are purposefully tracked throughout the year.
Involve all stakeholders in the process from the get-go
Preparation of a modern slavery statement requires a multi-disciplinary approach with inputs needed from across business units, including the board and executive, legal and compliance, human resources, learning and development, procurement, finance and corporate affairs. All too often, one of these stakeholders is tasked with scrambling to collate (and make sense of) large volumes of information before the reporting deadline from contributors who are caught unawares. Drafting the statement can then involve seemingly near-impossible tasks of, for example, describing modern slavery risks in a supply chain that has not been adequately mapped, or attempting to comment on training uptake that has not been tracked.
To avoid this trap, it is important to bring all relevant contributors into your organisation’s modern slavery response and ensure they conduct and record their activities throughout the financial year with the reporting criteria in mind. This can be achieved through regular meetings with working groups or committees where the upcoming modern slavery statement is a standing agenda item.
Make (but don’t break) promises to improve
The Australian Government expects modern slavery statements to demonstrate continuous improvement year on year, with guidance materials suggesting that entities explain their plan for future action in their statements. However, it would appear that plans expressed in statements do not necessarily correlate with meaningful improvements.
The Broken Promises Report found that:
- over half of the promises to carry out future actions set out in first round modern slavery statements reviewed remain unfulfilled in the second year of reporting;
- approximately a third of the commitments made in first round statements reviewed were “vague, open textured or generic in nature”, with their makers being named and shamed; and
- approximately 8% of second round statements reviewed appeared to be substantially recycled from first round statements without any qualitative improvements.
It is clear that organisations will need to strike a balance between demonstrating genuine ambitions to improve year on year without making promises to take action in future reporting periods that are empty or overly ambitious.
Be guided by the guidance materials
Reporting entities may think that the mandatory reporting criteria for modern slavery statements, as set out in broad high-level terms in the Modern Slavery Act, are self-explanatory or open to interpretation. However, the Modern Slavery Register includes a wealth of guidance material from the Australian Border Force on its expectations for compliance with the mandatory reporting criteria, ranging from broad statements of principle to precise forms of wording.
In our recent experience, the Australian Border Force does not view the content of these guidance materials as suggestions. It is increasingly treating the guidance materials as the basis for determining whether the mandatory reporting criteria have been met. This is consistent with the trend towards a stricter approach to compliance, and highlights the importance of keeping abreast of any developments in relevant regulatory literature.
Don’t delay!
Preparing a meaningful response to the modern slavery reporting criteria can be a labour-intensive and time-consuming exercise. It is important to factor in sufficient time for gathering inputs from various business units, the assessment of modern slavery risks, and board approvals. If you don't, expect difficulties in putting your organisation’s best foot forward when reporting time rolls around, or even missing the deadline for submission. It’s never too early to reach out for assistance with putting together your next modern slavery statement!