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6 critical trends among the first 446 published Modern Slavery Statements.
This document provides a high level analysis of the first 446 Modern Slavery Statements (Tranches 1-4) published under the Modern Slavery Act 2018 (Cth). It discusses major challenges and best practice in key areas, with particular focus on assessing supply chains beyond tier 1, and the role of Company Directors in overseeing modern slavery compliance and risk mitigation.
Mandatory Reporting Criteria
6 critical trends among the first 446 published Modern Slavery Statements
This paper documents six important trends among the first four tranches (446) of published statements. For the first four we simply note the trend and cite examples of best practice where appropriate.
The last two trends we see as carrying particular continued relevance to businesses as they seek to meaningfully address modern slavery, deliver on reporting obligations and mitigate reputational risk:
- Lack of supply chain risk assessment beyond Tier 1.
- Deficiency in Board training regarding the issue of modern slavery.
1. Clauses in supplier contracts that address modern slavery are the primary way reporting entities have described addressing modern slavery.
(Over 50% of entities).
2. 75% have a reporting system in place for grievances.
Only 3% report that this grievance mechanism was used.
3. 70% of entities conducted due diligence on high-risk suppliers.
4. 27% of entities engaged in remediation strategies.
5. Only 6% of entities assessed the risk of modern slavery beyond Tier 1 of their supply chain.
Addressing modern slavery risks beyond Tier 1
Modern slavery is often hidden deep within supply chains. Tier 1 visibility, only, is deeply deficient and does not stand up to increasing scrutiny.
Significant data and reporting have exposed elevated modern slavery risks in particular countries or regions and in the production of certain materials and goods. Entities with operations and immediate procurement confined to Australia (or other lower-risk geographies) are in danger of erroneously assuming that their supply chains are automatically low-risk for modern slavery and that they do not need to proactively and comprehensively identify and mitigate risk beyond Tier 1. Best practice involves a data-led process of supply chain mapping, identification and assessment of modern slavery risk.
Xinjiang Forced Labour
Of particular note are concerns about government-sanctioned forced labour of Uyghurs, particularly in the Xinjiang Uyghur Autonomous Region (XUAR) of China. Inputs and goods produced in China, and the XUAR in particular, feature heavily in the supply chains of many prominent industries and goods. China is, by far, the world’s largest exporter, with exports valued at $3.6 trillion USD in 2022. In the same year, the XUAR exported $31.3 billion USD of goods. It is estimated that one-fifth of the world’s cotton and one-third of the world’s polysilicon - a key raw material for solar panel manufacturing - are produced in this region. A report prepared by the Australian Strategic Policy Institute found factories with conditions that strongly suggest forced labour, in the supply chains of at least 82 well-known global brands in the technology, clothing and automotive sectors. In total, more than17 industries globally are implicated in forced Uyghur labour.
Import Restrictions
The Australian Parliamentary Inquiry into the Customs Amendment (banning goods produced by Uyghur forced labour) Bill 2020 is indicative of the broad recognition of the need for companies to ensure modern slavery is not present in their supply chain. Globally, increasing numbers of countries are taking action to restrict imports of goods made with forced labour. In the USA, the Uyghur Forced Labor Prevention Act came into effect in June, 2022. The legislation assumes that items produced in the XUAR are the product of forced labour unless entities can provide convincing evidence that proves otherwise.
Raw Materials and Responsible Minerals
It is also important that companies acknowledge the significant risks of forced labour involved in the harvest, or extraction and refinement of raw materials. These are often procured from high risk locations, and hidden deep in supply chains.
The Responsible Minerals Initiative seeks to mitigate social and environmental impacts of mining and processing minerals. It supports the private sector to drive responsible behaviour throughout their supply chains and meet market, legal and regulatory expectations through instruments such as an assessment program to certify refiners, smelters and processors.
Companies will increasingly be held accountable for the responsible procurement of minerals mined in conflict regions. In politically unstable areas, armed groups often use forced labour to mine tin, tantalum, tungsten and gold, key inputs in manufacturing supply chains for electronics, software, defence, aerospace and automotive industries.
6. Only 10% of Boards have been trained in modern slavery compliance issues.
Board responsibilities
Britain's anti-slavery commissioner explained that the supply chain reporting process is deliberately aimed at boards, CEOs and investors because ultimately, it is these forces, rather than consumers, who can do the most to eliminate importing goods made by slavery into Australia.
In addition to the capacity to effect meaningful change to address a serious global human rights issue, Boards are also ultimately responsible for governance and risk management strategies relating to modern slavery.
The Modern Slavery Act requires that a reporting entity's Modern Slavery Statement be approved by the principle governing body of the entity. Even where there is no penalty under the Act for non-compliance, in circumstances where Board approval is required, Directors should be aware of the risks associated with approval.
Risk management
The NSW Anti-Slavery Commissioner recently gave a speech about modern slavery as a governance risk in which he warned that ‘Boards that do not give modern slavery risks sufficient priority face a foreseeable risk of harm to the company, and risk being exposed to action for failure to act with reasonable care and diligence.’ In line with duties set out in the Corporations Act, Directors should ensure that they are adequately informed about the risks of modern slavery identified in their supply chain and that due care and diligence have been taken in addressing those risks. The Trade Practices Act 1974 (Cth), sets out that: A corporation shall not engage in conduct that is misleading or deceptive. Directors should ensure that modern slavery statements do not represent or warrant that there is no slavery in their operations and supply chains, as this would leave the reporting entity at risk of misleading and deceptive conduct claims especially in circumstances where supply chains have not been assessed beyond tier one. Rather, they should demonstrate that meaningful action has been taken by the entity to minimise the risk of modern slavery.
Board Training
Best practice involves engaging the Board early in the process of developing the entity’s Modern Slavery Statement, including educating them about the issue and associated risks so that they can responsibly and effectively oversee the entity’s response. Executive level training is cited in the Modern Slavery Act Review as one of a number of changes and innovations that indicate that a business is taking the Act and the reporting requirement seriously.
A review of Modern Slavery Statements submitted by the ASX200 for the third reporting cycle found that only 15% (p.25) of entities had provided training to the board or senior leadership, and only 3% (p. 7) clearly disclosed and explained more complex or advanced actions taken to build the internal capacity of boards and senior leadership.
Shareholder Actions
Modern slavery statements should be treated by Boards like any other public disclosure statement to ensure that the risk of shareholder actions are mitigated. Due diligence processes should be implemented in a manner analogous to financial disclosures especially as ESG claims by companies increase.
Class actions by workers and consumer groups
Litigation risk in relation to modern slavery compliance is growing. Recent high profile class actions by workers consumer groups are indicative of this trend.
“Fair Supply’s Research Team analysed each of the first 446 modern slavery statements published under the Modern Slavery Act 2018 (Cth). We used 22 different criteria to evaluate each statement.”
Kimberly Randle,
CEO and Co-Founder of Fair Supply