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
Mandatory Climate Reporting is Looming: Are You Ready?
In the rapidly evolving landscape of corporate responsibility and environmental stewardship, one certainty is changing boardrooms and C-Suites forever: Mandatory Climate Reporting. In a keynote speech to Deakin University earlier this year, ASIC Chair Joe Longo spoke about how important it is, “the growing interest in environmental, social, and governance (ESG) issues is driving the biggest changes to financial reporting and disclosure standards in a generation. This is a transformational issue for global markets, and we need to be ready to meet that change at every step of its development.” Governments and regulatory bodies worldwide are stepping up their efforts to ensure businesses are transparent about their environmental impact, particularly their greenhouse gas (GHG) emissions. This transparency aims to provide stakeholders—investors, customers, regulators, and the community—with a clear picture of a company’s contributions to climate change and the measures taken to mitigate these effects. These regulations are not just a trend; they are becoming a fundamental aspect of doing business. Countries like New Zealand and members of the European Union have already implemented stringent climate reporting standards. Japan, Singapore, and the United States are also moving in this direction, with some countries adopting stricter measures than others. With the clock ticking towards the regulations’ implementation in our backyard, every Australian business leader should ask, “Are we ready?” Understanding the ISSB’s role Multiple stakeholders, including accounting boards, investors, multinationals, and regulators, have expressed frustration over the need for interoperability between various sustainability standards. Their two primary concerns are: Lack of Consistency: Different countries and organisations use various sustainability reporting frameworks, leading to a lack of comparability and transparency, especially for investors. Limited Focus on Materiality: Sustainability reports do not always emphasise the most financially material climate-related risks and opportunities for companies. A harmonised global approach offers significant benefits: Streamlined Reporting for Companies: Simplifies the reporting process. Consistent and Improved Data for Investors: Enables more informed investment decisions across multiple jurisdictions. The International Sustainability Standards Board (ISSB) develops and approves sustainability reporting standards for financial markets. It led to the development of the new International Finance Reporting Standards (IFRS), designed to create a common language for financial reporting. The first two standards issued, IFRS S1 and S2, outline the general and climate-related disclosure requirements for companies: IFRS S1: Sets out overall disclosure requirements for sustainability-related financial information. Companies must disclose sustainability risks and opportunities over short, medium, and long-term periods. These disclosures should provide insights into aspects such as cash flows, access to finance, and cost of capital. A key feature of IFRS S1 is its integration with general-purpose financial reports, ensuring that sustainability information is part of overall financial statements. IFRS S2: Complements S1 by detailing specific requirements for Climate-related disclosures. Companies must disclose climate-related risks and opportunities that could influence their prospects, including industry-specific metrics derived from the Sustainability Accounting Standards Board (SASB) standards. Both standards build on and go further than the four pillars (governance, strategy, risk management, and metrics and targets) and 11 recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The risks to be disclosed include: Transition Risks from shifting to a lower-carbon economy include policy/legal changes, technological advancements, market dynamics, and reputational issues. Physical Risks include acute risks like extreme weather events and chronic risks like rising sea levels. Companies should also highlight opportunities such as resource efficiency, alternative energy sources, innovative products and services, market expansion, and resilience. Aligning Australian standards with ISSB standards Following the ISSB’s announcement in June 2023, the Australian government initiated a consultation on implementing ISSB-aligned requirements in Australia. A proposed roadmap and timeline were released. They initially targeted the largest companies from 1 July 2024 and planned to expand to smaller companies over the next three years. This timeline has been adjusted, and Group 1 reporting is expected to commence on 1 January 2025. On 27 March 2024, Treasury incorporated the recommendations into an Omnibus Bill to adopt Australia’s version of ISSB S1 and S2. This Bill, named the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024, integrates the reporting changes into the Corporations Act (2001) under the financial reporting obligations section (Chapter 2M). The Bill proposes that reporting begins on 1 January 2025 for the first tranche of organisations subject to the new obligations. 2025: Group 1 – Large Entities Entities meeting 2 of the following criteria: $500m+ consolidated revenue $1b+ consolidated gross assets 500+ employees 2026: Group 2 – Medium Entities Entities meeting 2 of the following criteria: $200m+ consolidated revenue $500m+ consolidated gross assets 250+ employees 2027: Group 3 – Small Entities Entities meeting 2 of the following criteria: $50m+ consolidated revenue $25m+ consolidated gross assets 100+ employees The Bill passed the Lower House on 6 June and now sits with the Senate. Then Parliament has until 2 December 2024 to enact these changes into law. If the Bill passes after this date, the start will be deferred to 1 July 2025. It is also important to note that the Bill does not specify the precise reporting requirements. Instead, it outlines the key components required of organisations. The Australian Accounting Standards Board (AASB) defines the specific obligations and are currently in draft form. Organisations that must comply with regulations in other countries must rely on something other than Australian reporting standards to meet their international compliance. They will need to adhere to the regulations in each jurisdiction. While some countries follow the ISSB model, others do not. Currently, over 20 global jurisdictions have committed to adopting the standards, reflecting significant progress. As a rule of thumb, US regulation is lighter, and EU regulation is more stringent. NZ already follows its own climate change reporting and may not opt into ISSB. Taking advantage of the 1 January 2025 extension Although 1 January 2025 has yet to be confirmed as the official start date, the extension offers businesses a valuable opportunity. Many businesses still need to start, and for those that have, the additional six months provide valuable time to
