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Australia’s Modern Slavery Act 2018 (Cth) has required a shift in how businesses understand and address modern slavery.
For many businesses the learning curve has been steep. The purpose of this article is to help your entity prepare its next Modern Slavery Statement.
FairSupply reviewed the first 1087 statements from the inaugural reporting period for Australian Modern Slavery Statements.
We asked, How are businesses responding to the Act? What have businesses done effectively and what may businesses have missed?
Of each statement, we asked 17 critical questions, providing us with over 17,000 data points. These data-driven learnings form a potent framework for conversation and action as your entity prepares for the next reporting period.
How will you demonstrate your progress in identifying, assessing and addressing modern slavery risk in your operations and supply chain?
Australia’s Modern Slavery Act 2018 (Cth) requires relevant entities to report on the risks of modern slavery in their operations and supply chains and actions to address those risks.
Entities are required to report against seven criteria, including:
- Identity of reporting entity
- Description of structure, operations and supply chains
- Description of identified modern slavery risks
- Description of actions taken to assess and address modern slavery risks
- Description of how the reporting entity has measured effectiveness of those actions
- Description of the process of consultation with owned or controlled entities
- Other relevant information
The Act is designed to provide entities with a (mandatory) framework by which modern slavery risk mitigation and remediation is operationalised – both in the internal operations of the entity and in its supply chain and investment portfolio.
“Cause, contribute, and directly linked” are key concepts in this regard as accorded by the UN Guiding Principles on Business and Human Rights. Is my company causing modern slavery by its direct operations? Is my company contributing to modern slavery – by action or omission – by ignoring or incentivising modern slavery? Is my company directly linked to modern slavery through a business relationship with another entity such as a supplier or through a joint venture?
Your first Modern Slavery Statement will have pegged out your approach and your initial actions. In your next Modern Slavery Statement it is important to demonstrate your progress.
In this past year, has addressing modern slavery become increasingly operationalised in your operations and supply chain? How is modern slavery risk mitigation and remediation, where necessary, becoming BAU?
Data-driven learnings from the “1087 cohort”
FairSupply has reviewed 1087 statements from the inaugural reporting period for Modern Slavery Statements, what we will refer to as the “1087 cohort”.
Below we list eight core data-driven learnings.
These should be considered in the preparation of your entity’s next Modern Slavery Statement. Whilst there is a high degree of flexibility under the Act’s requirements in how or to what extent you address each mandatory criteria in your statement, the Australian Border Force has signalled that it expects a continuous improvement approach.
1. Describe risks beyond tier 1 of your supply chain or investment portfolio
The Modern Slavery Act requires your organisation to describe the risks of modern slavery in your operations and supply chains.
Our analysis of the 1087 cohort indicates that efforts in this regard are still in their infancy.
Modern slavery risks often lie beyond tier one. While 56% of entities state they have investigated their supply chain to tier 1 and 37% of entities do not specify, only 6% state that they have looked beyond tier 1.
191/1087 (or 17.5%) of entities assessed did not specify any modern slavery risks within their operations or supply chain. The Act expressly requires entities to describe the risks, not merely show that there is "no" or "minimal risk".
Methodologies on undertaking supply chain risk assessments vary. It is those organisations that employ for-purpose technology to look deeper into their supply chain to assess modern slavery risks that are better able to describe such risks.
2.Train your Board and Executive
Board accountability and buy-in is a core part of modern slavery risk mitigation. Yet, we found only 9% of organisational boards had been trained in modern slavery. Only 2% indicated that they planned to undertake such training in the next reporting period.
Standout statements on the topic of Board and executive training were those that contextualised the topic of modern slavery to the organisation’s risk profile, industry, business operations and supply chains and linked this back to an organisational road map for addressing modern slavery. Statements that pointed to the board being ‘briefed’ on modern slavery without any substantive descriptions as to the nature of these briefing sessions were relatively weaker examples.
To establish an effective top-down approach to modern slavery risk mitigation, ensure your board and executives are well-aware of how modern slavery may impact your operations and supply chains.
3. Establish a Modern Slavery Working Group
A modern slavery working group is a cross-functional group that comprises of representatives within your organisation. 31% of the 1087 cohort have established a working group. 3% indicated that they would do so in the next reporting period.
Stronger statements identified the key representatives from across the organisation that were active in engaging with issues of modern slavery risk in the entity’s operations and the supply chain. These representatives often included legal, risk, compliance, procurement and/or sustainability or corporate affairs teams within the organisation.
4. Update and enforce your supplier contracts
Contract clauses are an effective way to mitigate modern slavery risks. Over 40% of entities that FairSupply assessed included clauses in supplier contracts addressing modern slavery. Yet only 4% of the 1087 cohort, enforced modern slavery contract clauses against non-compliant suppliers.
Enforcement ranged from requirements for the supplier to participate in a remediation program right through to termination of the business relationship if necessary. It is a recognised principle of contract law that parties to an agreement cannot bind any other third party. Under the Act, your supply chain includes entities you do not have a direct contractual relationship with.
What will be critical over this reporting period is seeing how these contract clauses are enforced and monitored within your direct and indirect supply chain.
5. Your grievance mechanism needs to work
70% of entities had a reporting system in place for modern slavery grievances, but only 1% reported the use of these grievance mechanisms.
Stand out entities were those that did more than simply describe a pre-existing whistle-blower policy.
Strong statements by entities show examples of how grievance mechanisms addressing modern slavery were used, or expected to be used, where allegations of modern slavery are made.
6. Develop a clear due diligence effort focused on modern slavery
Describing due diligence undertaken is one of the mandatory reporting requirements under the Act. 70% of entities report undertaking due diligence on high-risk suppliers. These ranged from describing pre-existing supplier due diligence processes to entirely new mechanisms implemented to specifically assess high-risk suppliers for modern slavery risks.
It is recommended that your organisation specify those due diligence efforts that are pre-existing and due diligence processes that have been updated pursuant to your organisation’s modern slavery efforts.
7. Plan your remediation strategy
Once modern slavery is identified, it is important to have a plan for how to address it. Less than 30% of entities engaged in a remediation strategy and only 5% spoke to developing a remediation strategy in the future.
Merely stating that your entity has a remediation strategy in place does little to inform the regulator and the public of how your entity is addressing or would address, instances of modern slavery.
Examples of the remediation strategy used (or what your organisation would do) where allegations of modern slavery are made within your organisation and supply chains is critical.
It is recommended that your organisation demonstrate progress in developing a remediation strategy and describe the nature of this remediation strategy.
8. Measure your effectiveness
Many entities had not developed clear indicators of effectiveness measures to track their progress in addressing modern slavery.
Additional data on measuring effectiveness will become more important as part of the continuous improvement approach which the Australian Border Force requires.
9. Develop a 3 year plan
Many of the 1087 cohort’s Modern Slavery Statements indicate reactive compliance rather than proactive planning, as our data related to future steps indicates. The better statements name concrete future steps to be taken and the metrics against which the efficacy of these steps are measured. Core to normalising modern slavery risk mitigation into BAU will be developing a plan. It is recommended this includes a 3-year road map to address modern slavery, including the development of a measuring effectiveness framework and operational strategy.
Conclusion
In summary, to develop your organisation’s continuous improvement approach into your next reporting period, ask:
How will your organisation look deeper into its supply chain?
How will you follow up on contract compliance for suppliers?
What methods will you use to ensure effective grievance mechanisms?
What will your organisation do when allegations of modern slavery arise?
What additional specific due diligence measures does your organisation need to include to address modern slavery risks?
How will your organisation lead from the top and ensure senior leaders are across modern slavery risks?
What key performance indicators are you measuring and tracking over this next reporting period?
What’s your organisation’s multi-year plan to normalise addressing modern slavery risk in your operations and supply chain?