Modern slavery – an update on the regulatory environment and reporting trends

Governments, investors, employees, and other stakeholders are increasingly focused on corporate efforts to combat modern slavery in supply chains. The 2020 modern slavery reporting season has shown us that it is not sufficient to treat this issue as a “tick-box exercise” but rather, it requires a commitment to carry out due diligence across the supply chain, ongoing scrutiny of supplier activities and training to raise awareness across areas of a business. 

In this update we provide an overview of the current regulatory requirements and our insights into trends we have identified from modern slavery statements published to date.
  
We also include a link to our modern slavery Self-Assessment Questionnaire to help you determine if your company is required to publish a modern slavery statement and if so, when you are required to report.

The Commonwealth Modern Slavery Act

As set out in our previous update [COVID-19 Australia: The importance of addressing modern slavery in reviewing your supply chains], the Commonwealth Modern Slavery Act 2018 (Cth) (MSA)⁽¹⁾ requires Australian entities or businesses with Australian operations with a minimum annual consolidated revenue of $100 million (Revenue Threshold) to submit a modern slavery statement. 

The modern slavery statement must set out the modern slavery risks faced by the business in its operations and supply chains, and detail what steps it is taking to mitigate these risks. At first blush this may sound simple, however, most businesses that exceed the Revenue Threshold have hundreds of suppliers, and complex operations across different product lines and countries.

In light of COVID-19, the Department of Home Affairs announced an extension of the original deadlines for reporting following the 2020 end of financial year, with those companies following the Australian financial year required to submit their first statement by 31 March 2021.

Under the MSA, if an entity fails to submit a modern slavery statement within the reporting period, the Minister has the power to issue a written request to that entity. Although the failure to respond to this written request does not attract a penalty, the Minister can “name and shame” the entity and provide details of the non-compliance to the general public.

It is important to note that once a modern slavery statement is submitted to the Australian Border Force (ABF), it will become publicly available on the ABF’s online register. Entities should keep this in mind when drafting a modern slavery statement and also be aware that over consecutive reporting seasons, stakeholders will be able to assess the level of progress your organisation is making on this issue.

Do you need to submit a modern slavery statement?

If you haven’t published your modern slavery statement yet, or if you expect to exceed the Revenue Threshold in your next financial year, you can undertake our self-assessment questionnaire which will tell you whether you need to publish a statement and the date your statement is due.

 

Take our Self-Assessment Questionnaire now

 

2020 Modern Slavery Reporting Snapshot

Despite the difficulties faced by the global pandemic, entities performed quite well in meeting their reporting obligations under the MSA in FY2020. Following the first season of Modern Slavery Statements, the ABF register records that, to date:

• 4491 entities have submitted modern slavery statements;
• 2162 mandatory statements have been lodged; and
• 290 voluntary statements have been lodged.

Entities who have published a modern slavery statement to date are headquartered across 40 countries. Most statements have come from entities headquartered in Australia (2052 entities), the United States (167 entities), United Kingdom (64 entities), New Zealand (41 entities) and Japan (38 entities).⁽¹⁾ While the law is targeted at Australian business, these figures demonstrate how international corporations can be subject to a variety of different regulatory regimes around the world.

In addition to the international spread of entities, we have also identified the key industries that make up the reporting population.

Out of the statements lodged, the key industry sectors in which the reporting entities operate are:

• Financial, insurance and real estate sector
• Construction, civil engineering, building sector
• Mining, metals, chemicals and resources

It is important to recognise that high representation across particular sectors does not necessarily reflect the prevalence of modern slavery risk within a sector, but rather that a large number of companies in that sector meet the Revenue Threshold.

Whilst some other sectors make up a smaller percentage of the reporting population, some of these sectors may actually involve a higher risk of modern slavery. Operators in some of these sectors, such as food and beverages, may be smaller and therefore not captured by the Revenue Threshold. Another issue is that certain industries tend to be in the second, third or even last tier of suppliers to other sectors. Again, these sectors are therefore less likely to be required to take up reporting as part of their own supply chain obligations. 

Trends in FY 2020 Modern Slavery Statements

Companies have taken a varied approach to their statements issued for the first modern slavery reporting period. Some organisations have indicated their first step to combatting modern slavery includes performing a supply chain risk assessment, mapping their operational processes, and releasing a supplier questionnaire. Others have begun to evaluate their current practices to identify potential risks of modern slavery.

In November 2020, the ABF provided a Modern Slavery Reporting Update identifying the good-practice trends and areas of improvement of the statements published so far. The assessment of the statements submitted so far is that reporting entities are:

• Clearly addressing mandatory criteria (set out in the Act);
• Assessing effectiveness of their modern slavery initiatives;
• Using case studies to provide practical examples of how they are addressing modern slavery.

Areas that were identified for improvement include:

• Greater identification of the nature, context and extent of modern slavery risk;
• Increasing consultation with entities owned/controlled by the company; and
• Ensuring greater awareness throughout an organisation of modern slavery risks.⁽²⁾

Having reviewed many of the modern slavery statements that have been prepared, we have identified the following common approaches:

• Inclusion of clauses in supply agreements that require suppliers to take positive action to deal with modern slavery risk in their own organisations;
• Access to a whistleblower program or a complaint process to allow employees or other stakeholders to raise concerns about modern slavery risks;
• A commitment to undertake some level of due diligence on high-risk suppliers;
• Training that is focussed on procurement teams.

Looking Forward: FY21 reporting

The first modern slavery statements laid the foundations for organisations to set out how they would begin to combat modern slavery within their operations. However, combatting modern slavery is not about producing a well-written Modern Slavery Statement each year but identifying and addressing risks of modern slavery across an organisation and demonstrating process improvement.

Going into the next reporting season, it is essential that entities ensure their compliance with the MSA and consider taking the following steps:

• Conducting supply chain mapping and assessments to identify risks of modern slavery;
• Revising supplier contracts and trading terms to cover modern slavery obligations and risks;
• Undertaking company-wide training to raise awareness of the signs of modern slavery and ensuring there are appropriate whistleblowing and grievance procedures in place for employees to report instances of modern slavery;
• Undertaking open and transparent dialogue with suppliers to ensure that supply chains do not involve any practices that may constitute modern slavery;
• Consider engaging external experts to assist with reviewing and assessing supply chain and organisational practices;
• Ensuring all employment and wage requirements within your own company and controlled entities are meeting legislative requirements; and
• Assessing how effective all of these steps are at preventing modern slavery from occurring. This is probably the most difficult of all the reporting topics.

The reporting deadline for the 2021 Modern Slavery Statements is 6 months after the end of the reporting entity’s financial year.

The upcoming reporting due dates to be aware of are:
 

Given the amount of work involved, and that the expectation for future reporting will be to demonstrate improvements in processes, it is critical to start preparing for next reporting cycle now.

Update on the NSW Modern Slavery Act

The New South Wales Modern Slavery Act (NSW MSA) was passed by the NSW legislature in June 2018 but is yet to come into force.  The NSW MSA (unlike the Commonwealth MSA) imposes penalties for failing to submit modern slavery statements and also envisages the appointment of an anti-slavery commissioner.

Given the Commonwealth MSA was passed shortly after the NSW MSA, the question arose as to whether the NSW legislation was constitutionally valid. In 2019, the Modern Slavery Amendment Bill 2019 (Amendment Bill) was developed with a view to dealing with the relationship between the NSW MSA and the Commonwealth MSA.

In 2019, the NSW MSA and the Amendment Bill were referred to the NSW Legislative Council’s Standing Committee on Social Issues (the Committee). The Committee undertook an inquiry as to whether the NSW MSA was inconsistent with the Commonwealth MSA. On 25 March 2020, the Committee released a report, including its recommendations to the NSW Government (the Report).

The key recommendations and considerations of the Report were:

• that the NSW MSA, as proposed to be amended by the Amendment Bill, was not inconsistent with the Commonwealth MSA;
• that the NSW Government proceed with the passage of the Amendment Bill with the aim of the NSW MSA commencing on or before 1 January 2021;
• that the NSW penalties regime should be retained in the legislation;
• that the NSW Government work with the Australian Government to seek harmonisation of the reporting threshold (ideally at $50 million consolidated revenue);
• a voluntary reporting mechanism be introduced for businesses falling under the $50 million reporting threshold;
• a relevant authority be nominated to conduct prosecutions of breaches of the reporting requirement; and
• the NSW Government reassess the exemption for charities and not-for profit organisations.

On 24 September 2020, the NSW Government released its response to the Report. The NSW Government confirmed its intent to harmonise the NSW MSA with the Commonwealth MSA. In its response, the NSW Government affirmed that it will work with the Commonwealth Government to achieve a national threshold of consolidated revenue for entities required to prepare a modern slavery statement. The NSW Government also noted or accepted in-principle the other recommendations of the Committee detailed in the Report.

Despite the Government’s response, the Amendment Bill is yet to pass into legislation and the NSW Government is yet to announce when the NSW MSA will enter into force.