Modern Slavery Risks and Compliance: What Boards and Executives Need to Know
Modern Slavery is the umbrella term spanning illegal acts that remove people’s freedom
The United Nations defines modern slavery as “an umbrella term covering practices such as forced labour, debt bondage, forced marriage, and human trafficking. Essentially, it refers to situations of exploitation that a person cannot refuse or leave because of threats, violence, coercion, deception, and/or abuse of power.” Despite being illegal globally, modern slavery persists in all regions of the world, including Australia.
Globally, modern slavery is increasing not reducing
Modern slavery is a gross violation of human rights.
Global authority, Walk Free Foundation based in Australia, calculates that 50 million people worldwide are trapped in modern slavery, with an estimated 41,000 of them in Australia. This is a 10 million increase on the numbers estimated in 2016.
Forced labour is the most prevalent problem which makes it a business issue
28 million – nearly two-thirds of all cases are forced labour cases, linked to global supply chains, impacting workers across a diverse range of sectors and at every stage of production. Past reports from Walk Free revealed that a horrifying 12% of those in forced labour are children.
Walk Free Global Slavery Index 20231 identifies the top five high risk sectors are electronics, garments, palm oil, solar panels and textiles.
With such high % related to labour practices there is a significant responsibility on businesses to identify and fight it. This involves actively identifying, preventing, and mitigating slavery risks within operations and supply networks.
By thoroughly investigating and addressing issues, businesses not only protect vulnerable populations but also set a positive example for their stakeholders, contributing to wider societal efforts against modern slavery.
Modern Slavery Legislation and Reporting
The Commonwealth Modern Slavery Act 2018 came into effect on 1 January 2019. The legislation introduced an annual Modern Slavery Reporting Requirement for large businesses and entities operating in Australia that generate more than A$100 million in annual consolidated revenue.
“The dual aim of the Act is to increase business and government awareness of these modern slavery risks, and support entities to identify, report and address the risks.” 2 Attorney General’s Department
A review after three years resulted in 30 recommended improvements
Similar to the UK Modern Slavery Act process, Australia’s Modern Slavery Act 2018 was reviewed after three years in practice, to identify what works and what needs to be improved.
In 2023, Professor John McMillan, AO, led the review with support from the Attorney-General’s Department. The objective was to assess the effectiveness of the Act in its first three years of operation.IFRS S1: Sets out overall disclosure requirements for sustainability-related financial information.
Hundreds of submissions received
The Review invited submissions, receiving 136 written submissions from domestic and international stakeholders, 30 responses to the online questionnaire and 496 responses to the online survey for reporting entities. This delivered extensive feedback provided valuable insights into the Act’s strengths, weaknesses, and areas for improvement.
Review recommendations
The review made 30 recommendations to the Australian Government.
An Australian Anti-Slavery Commissioner will be appointed
The appointment of the Australian Anti-Slavery Commissioner is the first direct implementation of a key recommendation from the 2023 Modern Slavery Act review. The Government is currently in the process of selecting the inaugural Commissioner.
Responsibilities of the Commissioner a blend of compliance, education and advocacy
The Commissioner’s role will be to ensure compliance with the Act’s requirements by businesses and government agencies, raise awareness by educating the public, businesses, and government about modern slavery and its impacts, and advocacy by representing the interests of victims of modern slavery and advocating for their rights and support. The government will provide updates on its progress in implementing some of the remaining recommendations in the coming months and years. This could include legislative changes, policy updates, and additional resources allocated to combating modern slavery.
Other recommendations: Expand scope of legislation, due diligence and reporting quality
Lower the revenue threshold from $100 million to $50 million to include more organisations
The review proposed reducing the reporting threshold from $100 million to $50 million significantly expanding the number of companies required to report.
The proposed reduced reporting threshold would include specific guidance for small and medium-sized enterprises to meet their reporting requirements.
Tighten due diligence
The most substantial recommendation is to impose a mandatory due diligence obligation on reporting entities. This would require companies to assess and address modern slavery risks within their supply chains.
Introduce guidance to high risk sectors and penalties for inadequate reporting
A further recommendation is to introduce penalties for non-compliance or inaccurate reporting to strengthen enforcement. And providing tailored guidance for industries or sectors with a higher risk of modern slavery, such as agriculture and garment manufacturing, was also recommended.
What does this mean for Boards and Executives?
Recognise that good practice enhances business value
Many businesses view compliance with the Modern Slavery Act as an additional expense or a burden. However, reframing compliance with the regulations as a strategic, business practice improvement and value creating investment can deliver qualitative and quantitative benefits.
Adopt an impact, risk and opportunities mindset
Purposeful Boards and executives can approach Modern Slavery reporting obligations through the lenses of impact, risks and opportunities, in the same way that they approach environmental and other social responsibilities.
Success comes from a two-part response: Systems and Culture
Walk Free estimates that $468 billion of goods imported by G20 countries are at risk of modern slavery.
Systems
This means modern slavery can exist in any business or supply chain, regardless of industry or location. By assuming that risks exist, you can adopt a thorough and vigilant approach to combating modern slavery. This means diligently examining every aspect of your supply chain, including direct suppliers (Tier 1) and their suppliers (from Tiers 2 to Tiers 5-6 including importers, exporters and trading companies).
Culture
Integrating anti-slavery measures with your company’s core values and ESG strategies underscores the importance of the issue. This alignment ensures that the fight against modern slavery is prioritised throughout the organisation, reinforcing your company’s dedication to ethical practices.
Active oversight and leadership
Boards and executives are urged to actively manage their risks to drive change and enhance business value.
By actively working to eradicate modern slavery, your company can contribute to a fairer, more just world for all by embedding human rights principles into business strategies, governance and culture.
Map your supply chain
A thorough understanding of your supply chain involves mapping out every link in the chain, including hidden and informal parts that might not be immediately obvious. By identifying all suppliers, their locations, and the goods and services they provide, you can pinpoint areas of potential risk and focus your efforts where they are most needed.
Recognise the red flags
Signals of modern slavery include restricted movement, apparent lack-of personal identification, someone with very few personal belongings for example wearing the same clothes for work, and visible fear or reluctance to engage with others.
Administrative red flags within business operations include signs that multiple people are being paid into the same bank account.
Regularly train teams to recognise these red flags and establish clear protocols for reporting and responding to them.
Develop compliance checklists
A compliance checklist for modern slavery helps teams to conduct a thorough risk assessment and gap analysis.
Adapt existing company procedures to address the legislation:
- Enhance supplier onboarding processes
- Gather data that supports the annual modern slavery statements, and
- Create a cycle of constant improvement
Ensure easy to access systems for reporting suspicious practices
Accessible, confidential and multilingual reporting systems ensure individuals feel safe and supported when raising concerns.
Effective reporting mechanisms identify issues early and enable swift remediation with processes that include reports to the executive team and Board.
Substantive business changes may be needed to address these issues.
Finally, ongoing education and training
Education is vital to combat modern slavery.
Combating modern slavery requires a commitment of resources, including time and personnel invested in training programs, technology, and regular audits to monitor compliance and identify risks.
Case Study: Lion Co
For example, Lion, a leading beverage company, has implemented robust, human-centric frameworks and education programs for its board members, employees, and suppliers, as outlined in its Modern Slavery Statement. This proactive approach ensures that everyone is mindful and properly trained to spot red flags. Their processes sit under a wider-reaching Human Rights Policy.
Conclusion
Modern slavery is a pressing global issue that persists even within our own borders.
Businesses have the power to make a significant difference with a continuous focus on eradicating modern slavery from their operations and supply chains. It’s not about ticking boxes for compliance–it’s about meaningful, sustainable, value creating practices.
Your company can lead this change. A force for good.
Do you want to be a force for good? Contact us today. Our team of experts can help you comply with the Modern Slavery Act and stay on top of other related environmental and social legislation changes.
