Modern Slavery Reporting in Australia is likely to change. In May 2023, the Australian Government published a report detailing the findings of the first review of Australia’s Modern Slavery Act 2018 (Cth). Around the world, human rights due diligence reporting requirements are strengthening. What can be expected over the next 12 months? How should organisations prepare?

Expect, a stronger, more robust Modern Slavery Act, including:

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A lower reporting threshold

More businesses may be required to take action to address modern slavery and submit compliant annual statements.

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Increased due diligence requirements

Businesses procuring goods and services from the renewable energy sector actively undertake supply chain due diligence, with a focus that goes well beyond the first tier (direct suppliers).

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Consequences for non-compliance

Companies may face increased public scrutiny and stricter government enforcement of modern slavery reporting obligations.

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Forced labour import scrutiny

The Government may act to increase scrutiny of imported goods linked with forced labour and require reporting entities to address their supply chain activity in specific high-risk regions and industries.

“The high-level takeaway from all of that is that these laws are coming, and they’re coming at a higher level and with stronger requirements than what we’ve seen here in Australia.”

Serena Grant,

WalkFree Foundation

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We outline three areas for attention:

• Substantial, data-driven, due diligence actions
• Increased supply chain transparency
• Demonstrated continuity

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Modern Slavery Act Summary

Australia’s Modern Slavery Act 2018 (the Act) entered into force on 1 January 2019, marking a new era of transparency in the goods and services we purchase every day in Australia. As of 30 June 2023, three full reporting cycles have now been completed.

Current requirements under the Modern Slavery Act 2018 (Cth)

A mandatory reporting entity has a consolidated annual revenue of at least $100m AUD for the reporting period and is either an Australian entity, or carries out business in Australia, at any time in that year.

Such entities are required to publish an annual Modern Slavery Statement. All lodged Board-approved statements are made publicly available on the government’s online register (the Register).

When is my next Modern Slavery Statement due?

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Seven mandatory reporting requirements are included under the Modern Slavery Act 2018 (Cth):

1. Identify the reporting entity;
2. Describe the structure, operations and supply chains of the reporting entity;
3. Describe the risks of modern slavery practices in the operations and supply chains of the reporting entity and any entities it owns and controls;
4. Describe the actions taken by reporting entity and any entities it owns or controls to assess and address these risks, including due diligence and remediation processes;
5. Describe how the reporting entity assesses the effectiveness of these actions;
6. Describe the process of consultation with any entities the reporting entity owns or controls;
7. Any other relevant information.
   

Modern Slavery Act Review 2023

The Australian Government has undertaken a statutory review of the Act’s operation and compliance over the three years since commencement. Following a consultative review (the Review) conducted between March 2022 and March 2023, a report (the Report) detailing thirty recommendations for government consideration was tabled in Parliament on 25 May 2023. Professor John McMillan, AO, led the Review, supported by the Attorney-General’s Department.

Issues considered

The Review invited submissions to address issues including:

- The impact of the act;
- The adequacy of reporting requirements;
- Improving compliance.

Key recommendations

Proposed legislative changes target three main weaknesses in the present Act:

- The variable standard of reporting;
- The lack of enforcement mechanisms;
- The prevalence of large and incompatible statements.

Of the list of recommendations to strengthen the reporting process compiled in the Report, the following are of particular relevance to businesses:

1. A lower reporting threshold

Extend reporting obligations to include entities with a consolidated annual revenue of $50-100 million.

2. Increased due diligence requirements

Require entities to implement a compliant due diligence system and report on activity undertaken in accordance with that system.

Expand mandatory reporting criteria to include:

- Identified modern slavery incidents or risks;
- Available grievance mechanisms;
- Internal and external consultation on modern slavery risk management.

3. Consequences for non-compliance

Introduce measures to ensure greater visibility, and therefore accountability, for reporting entities.

Provide that is is an offence for a reporting entity to:

- Fail to submit a statement
- Knowingly provide false information
- Fail to remedy non-compliance with reporting requirements
- Fail to have a compliant due diligence system in place.

4. Forced labour import scrutiny

Prevent goods tainted by modern slavery from entering the Australian market.

Require entities to address government declarations of high-risk regions, locations, industries, products, suppliers or supply chains in their reporting.

Key expected changes in the regulatory environment

1. A lower reporting threshold

Recommendation 4 of the Report proposes that the Modern Slavery Act be amended to provide that a ‘reporting entity’ is an entity that has a consolidated revenue of at least $50 million for the reporting period.

3000 entities were expected to report annually under the Act, however since its inception, statements have been submitted covering 7000 reporting entities. The proposed lowering of the reporting threshold would capture an additional 2393 businesses.

Some of these newly included entities may already report voluntarily under the Act or be part of the supply chain of a current reporting entity. 13% of 2021 statements were submitted on a voluntary basis, demonstrating that an appetite already exists for a wider range of businesses to substantively engage with the issue of modern slavery.

A lower reporting threshold would:

• Align with the United Nations Guiding Principles on Business and Human Rights, which provides that ‘the responsibility of business enterprises to respect human rights applies to all enterprises regardless of their size, sector, operational context, ownership and structure’ and convey a clearer message that modern slavery is unacceptable at any level of business or society.
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• Build awareness of modern slavery challenges, strengthen supply chain transparency and drive meaningful change in modern business practice in the domestic and global economy.
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• Represent a new phase of implementation for the Act and bring Australia into line with reporting laws in other countries, ensuring that Australia remains at the forefront in this field.
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• Include small and medium enterprises that constitute a significant part of the Australian economy and are important investment targets.
  Cover additional high-risk industries, such as farm work and internet services.
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• Make it harder for larger entities to circumvent or disregard the Act by organising their operations into separate entities with annual revenues that fall beneath the current mandatory reporting threshold.

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Comparative reporting thresholds for other countries and territories that have already implemented, or are in the process of implementing, due diligence obligations regarding human rights, including modern slavery.

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Smaller businesses would not be subject to penalties or due diligence requirements until their third reporting cycle, to allow reasonable time for such entities to build their capacity towards full compliance. Nevertheless, it would be prudent for companies likely to become subject to an amended Act to proactively commence work on establishing and implementing a framework to identify and address risks of modern slavery in their supply chains. Companies preparing to report for the first time can benefit from insights and best practice published in previous statements and subsequent reviews.

2. Increased due diligence

The Report recommends that entities be required to ‘implement a compliant due diligence system and report on activity undertaken in accordance with that system.’

The report identifies this as the ‘most significant’ recommendation as it would require entities to identify and assess risks and track their performance in addressing them.

Reporting is shifting from focusing on due diligence disclosure obligations which are largely descriptive, to actually taking effective action to implement and utilise them. The UN Guiding Principles on Business and Human Rights have set out very clearly what human rights due diligence involves and provides an excellent framework to understand what a concerted response looks like.

The shift to mandatory human rights due diligence will demand:

-Substantial, data-driven, due diligence actions, with timing horizons that extend well beyond individual reporting periods.
- Deeper supply chain interrogation.
- Clear identification of and engagement with high-risk suppliers and where necessary remediation activity.

A stronger due diligence response not only mitigates risk to business, but ensures that real people are helped.

“It is important when you choose who to partner with to address modern slavery, that the products and services that you are operationalising throughout the business are actually addressing a real risk to people, because the intention of the MSA is to address modern slavery which affects 50 million people… In circumstances where your response is only addressing the risk to business, it’s not achieving the desired effect of the MSA.”

Kimberly Randle,

Fair Supply

3. Additional mandatory reporting criteria

Expanded mandatory reporting criteria addressing transparency, grievance mechanisms and consultation are also recommended.

‍Transparency

Entities may be required to report on specific modern slavery incidents or risks identified during the reporting year.

Greater transparency which identifies modern slavery risk deep into the supply chain will be essential. For companies operating in Australia, risk predominantly lies beyond our borders deep into tiers three and four of the supply chain. For this reason, modern slavery remains hidden.

To find and address modern slavery demands deep interrogation of the supply chain. Supply chain screening technology is vital given the complexity of this challenge. High-risk suppliers can then be identified and engaged. Best practice says, “Bring your suppliers along in your journey. This is the most rewarding part of this process.”

Grievance mechanisms

Entities may be required to report on grievance and complaint mechanisms made available to staff members and other people.

To be effective, such mechanisms should be explicitly linked to modern slavery and made practically accessible, promoted to staff and external stakeholders, clearly define whistleblower protections, and outline investigation and remediation procedures.

Consultation

Entities may be required to report on internal and external consultation undertaken during the reporting year on modern slavery risk management with staff, and with external bodies such as industry and civil society bodies, unions and representatives of vulnerable communities.

Industries typically share similar supply chains and hence suppliers. Leveraging these interrelations can provide an excellent opportunity to effect change amongst those suppliers. The Private Health Association (PHA) Community of Interest (CoI) is an example of a consistent approach to addressing modern slavery across the Australian health insurance industry.

4. Consequences for non-compliance /Compelling compliance

Modern Slavery Statements are currently required to cover seven mandatory reporting criteria, including identifying and addressing risks of modern slavery in the entity’s operations and supply chains and assessing the effectiveness of actions taken. When the Modern Slavery Act commenced, it imposed a new and challenging reporting obligation on Australian entities, many of which initially lacked the skills, experience and resources for adequate supply chain mapping and auditing. The Report describes a subsequent ‘evolution of a business compliance culture’, including cultivating in-house competencies, enlisting outside expertise, creating collaborative networks and developing industry guides and codes.

Current reporting standards

While the overall quality of modern slavery statements is gradually improving, too many still fall short of requirements. The Review considered how to improve compliance, and recommendations made in the Report address the variable standard of reporting, the lack of enforcement mechanisms and the prevalence of large and incompatible statements.

The 2022 report, Broken Promises, prepared by a coalition of academics and civil society organisations, assessed statements submitted in the second reporting period by companies operating in sectors with known risks of modern slavery. It found that:

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Another study conducted by Monash University assessed FY2021 reporting by ASX100 companies, and gave 1 in 12 a fail grade.

The Modern Slavery Act Annual Report 2021 noted that 20% of statements submitted between July-December 2021 were not correctly signed off or approved, and 35% of statements did not address one or more of the mandatory criteria and were therefore deemed non-compliant.

Continuous improvement

A principle of ‘continuous improvement’ underpins the Act, which requires that ‘statements should improve in quality and demonstrate progress over time as the business community increases its understanding of modern slavery’. Reporting entities are already required to assess the effectiveness of their approach to addressing modern slavery. Such evaluation is intended to lead to improvements.

To date, many published statements have sustained a narrative of aspiration, but have not done sufficient work to demonstrate what had been achieved during the reporting period, or presented an ongoing strategy with measurable goals, a robust timeline and assigned responsibilities. In this evolving environment of deeper compliance, it will be vital that companies demonstrate continuous improvement.

Current provisions

Under the current Act, entities may be required to explain non-compliance and perform remedial actions, and the identities of unresponsive entities may be published. To date, however, there has been no regulatory action as a result of non-compliances. The focus for the first three years of the Act was on working with reporting entities to ensure they understood their reporting obligations and to support them to rectify non-compliance. However, the Act clearly made provision for consideration of ‘whether additional measures to improve compliance…are necessary or desirable, such as civil penalties’.

In its submission to the Review, Human Rights organisation Walk Free asserted that ‘there is no longer any excuse for a large business in Australia to fall foul of reporting requirements.’

Reputational risk/Public scrutiny

When the Act was being discussed, it was suggested that ‘businesses that fail to take action will be penalised by the market and consumers and severely tarnish their reputation’. The publication of statements on the Register was intended to ‘stimulate consumer and investor scrutiny of statements,’ and affect business reputation and competitiveness. Recommendations 22-24 of the Report suggest the introduction of measures to ensure greater visibility, and therefore accountability, for reporting entities.
This could include the publication of three lists - entities that submitted a statement, were required to submit a statement, and submitted a non-compliant statement - and the establishment of a public complaint mechanism.

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Enforcement/Penalties

The Report also addresses the possibility of strengthened enforcement powers to address deficiencies in reporting.

Since the Act’s inception, critics have described the legislation as “toothless” given the absence of penalties. The inclusion of penalty provisions became a critical sticking point that significantly delayed the commencement of the NSW Modern Slavery Act. The Report deems it ‘incongruous’ that a fundamentally important human rights reporting duty lacks a robust procedure to ensure that duty is performed and that to date, ‘good faith and the fear of adverse publicity’ have been insufficient to compel all reporting entities to even submit statements. A study examining whether the Act is fit for purpose calls on the Government to introduce penalties for non-compliance, having found that over half of businesses surveyed would likely improve modern slavery responses if financial penalties were introduced.

Recommendation 20 suggests that Act provide that is is an offence for a reporting entity to:

- Fail to submit a statement;
- Knowingly provide false information;
- Fail to remedy non-compliance with reporting requirements;
- Fail to have a compliant due diligence system in place.

UK and EU due diligence laws include provision for non-compliance penalties, and it is already customary in Australian legislation that reporting duties are accompanied by offence provisions for failing to report or submitting false information. Including such provisions under the Act would align with regulatory best practice and send a clearer message to entities that compliance is important and that non-compliance could be dealt with effectively, sternly and publicly.’

Government procurement

During FY2022-23, the Australian Government spent almost $75B on procuring goods and services.

The Report alludes to the potential of using government procurement processes as a modern slavery compliance and enforcement tool. This echoes calls made in the 2021 Parliamentary Inquiry into proposed changes to the Customs Bill (2020) for amendments to the Commonwealth Procurement Rules such that the prohibition on entities benefitting from unethical supplier practices explicitly requires forced labour due diligence. State, territory and local governments were encouraged to do likewise. NSW Procurement Policy includes a variety of supplier obligations to ensure that goods and services are not the product of modern slavery.


The Review also found that other entities frequently access the Register during procurement processes to examine the statements lodged by tenderers, and their supplier contracts may include a clause requiring continuing adherence to modern slavery principles and reporting processes.

As the standard of engagement with modern slavery continues to improve, it is likely that winning work from government and other industry tenders will require deeper compliance as priority and preference may be given to entities that meet a high standard of reporting.

‍Forced labour import scrutiny

Whilst regulating imports falls outside the immediate scope of the Review, one in six submissions suggested taking action to prevent goods tainted by modern slavery from entering the Australian market, a measure that could encourage businesses to take further action to address risks in their overseas supply chains.

The Review warns that ‘there is a strong commercial incentive for businesses to search worldwide for low-price products, components and labour services. Underpaid and exploited labour in one country can yield lower-priced goods and services in another country.’ Import bans invoke higher levels of organisational risk regarding social license and commercial operations. A spokesperson for The Freedom Fund (a non-profit which works to end slavery) stated that such bans ‘are emerging as a strategic tool by which governments can ensure companies step up and take actions.’

Import Bans

Increasingly, driven by emerging consensus on best practice, expectations of stakeholders and civil society, countries such as the USA, Mexico, Canada, the European Union and the UK are taking action to restrict imports of goods made with forced labour.

Particular focus is on goods originating from the Xinjiang Uyghur Autonomous Region (XUAR) of China where government-sanctioned forced labour of Uyghurs has been widely reported. 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.

In the USA, the Uyghur Forced Labor Prevention Act came into effect in June 2022. The legislation assumes that items manufactured in the XUAR are the product of forced labour unless entities can provide comprehensive and convincing evidence that proves otherwise. In November 2022, the U.S. Customs and Border Protection disclosed it had seized 1,053 shipments of solar energy equipment between 21 June and 25 October in response to a Reuters public records request. At the time of that disclosure, none of the shipments had been released.

Australian response

The Australian Government has not committed to enacting specific forced labour import bans. A report published following the Parliamentary Inquiry into the Customs Amendment (banning goods produced by Uyghur forced labour) Bill 2020 (the Bill), recommended that the import of any goods made wholly or in part with forced labour, regardless of geographic origin, be prohibited. Additional recommendations included introducing guidelines to assist Australian businesses to avoid sourcing products from forced labour.

The previous Australian Government placed the onus on businesses to perform enhanced due diligence on international supply chains, as a preferable initial mechanism to government-enforced prohibitions. Voluntary, rigorous due diligence policies and mechanisms to mitigate the potential of contracting with international firms responsible for, or involved in, forced labour were recommended.

On 4 September, Senator Jordon Steele-John, Australian Greens, supported by a wide range of community organisations, re-tabled a previously proposed Amendment to the Bill which would prohibit the importation into Australia of goods produced through the use of forced labour. In his speech, he urged the Labour government to support the Amendment, as they had when in opposition, arguing that ‘Australia has been far too slow to act’ and has therefore fallen behind other Governments, putting the country at risk of ‘becoming a dumping ground for products tainted by slavery.’

In 2022, when asked about the Government’s intended response to UN reports of human rights abuses against Uyghurs, Minister for Foreign Affairs, Senator Penny Wong, suggested that the government was focused on improving the Modern Slavery Act: ‘A framework which more strongly enforces a ban on products made from forced labour…is one of the ways we can use supply chains to ensure we don’t promote, we don’t condone and we don’t financially support forced labour.’ Sen. Steele-John described Sen. Wong’s position as ‘a weak excuse’ given that the terms of reference of the Modern Slavery Review specifically exclude the Customs Act.

The Report does recommend that entities be required to address Government declarations of high-risk regions, locations, industries, products, suppliers or supply chains in their reporting.
As due diligence requirements become more stringent, entities with operations and immediate procurement confined to Australia (or other lower-risk geographies) will no longer be able to assume that their supply chains are automatically low-risk for modern slavery and that they need to proactively and comprehensively identify and mitigate risk beyond Tier 1.

Conclusion

Modern Slavery Reporting in Australia is likely to change. Implementation of recommendations from the review of Australia’s MSA will likely herald an era of higher regulation and stronger compliance requirements. In this more demanding context, it will be critical that entities demonstrate a substantive approach to addressing modern slavery marked by data-driven due diligence actions, supply chain transparency and demonstrated continuous improvement.

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