The Modern Slavery Act 2018 (Cth) (Act) requires entities based or operating in Australia, which have an annual consolidated revenue of more than $100 million, to make a statement annually on the risks of modern slavery in their operations and supply chains, and the actions taken to address those risks.
An entity’s statement (Modern Slavery Statement) must be submitted to the Home Affairs Minister no later than six months after the end of each financial year after the Act came into force on 1 January 2019. The submission is made via the Australian Border Force web-portal.
What is Modern Slavery?
Modern slavery is defined by advocacy organisations like Walk Free as ‘exploitative practices including human trafficking, slavery, forced labour, child labour, removal of organs and slavery-like practices.
The Act defines modern slavery as:
- An offense against the criminal code sections that prohibit slavery or similar legislation in the States and Territories.
- Human trafficking.
- The worst forms of child labour.
Modern slavery is not just the payment of substandard wages or the application of unreasonable employment conditions on their own. While non-compliance with the Fair Work Act is a problem it is not modern slavery.
Certain circumstances might indicate slave like conditions within or around an entity, including:
- A person’s key identity documents like passports being retained by the entity.
- A person’s movement being restricted or controlled.
- Bonds, debts or unreasonable deductions from the wages paid to a person.
- Work hours or requirements being excessive.
- Recruitment fees being paid by the future employee.
Some countries and industries are also more high risk than others. Mining operations in Africa and Asia for cobalt and other rare earth elements have had a long history of suspect practices. But it is not just a third world problem, in July Reuters broke a story about a US subsidiary of Hyundai Motor Co allegedly using child labour at a plant that supplies parts for the Korean car manufacturer.
What should be in a Modern Slavery Statement?
A Modern Slavery Statement should cover the following matters:
- Details of the reporting entity.
- An outline of the reporting entity’s structure, operations and supply chains.
- The risk of modern slavery practices in the reporting entity’s operations and supply chains.
- The actions taken by the reporting entity to assess and address any identified risks.
- A description of how the reporting entity assesses the effectiveness of its risk mitigation actions.
- Details of the process of consultation by the reporting entity with other entities within its group.
- Any other information that the reporting entity considers relevant.
Best practice requires that a reporting entity’s Modern Slavery Statement is approved by, and signed on behalf of, its board of directors.
Tips for completing a Modern Slavery Statement
Conducting a modern slavery risk assessment is a key feature of the legislative scheme.
- The risk assessment methodology to be adopted by your entity – for example, will the risk assessment review the entire entity’s supply chain or just a portion.
- Whether your entity is a component supplier or a consumer facing business – and the different approach to be adopted by these different organisations.
- Which countries are your entity’s supplies coming from – sometimes this may mean getting beyond your first-tier suppliers.
- Where is your entity’s real risk exposure? – it is not always the case that the highest risk is at the largest supplier. It may be that the risk is at your entity’s smaller suppliers.
It is important that a group’s reporting entity consult within the group in preparing its Modern Slavery Statement. Many Modern Slavery Statements made in the last 2 years have not properly addressed how the reporting entity consulted with other entities within their group. It may feel like form over substance but even if consultation is not necessary it is best to include a clear statement to that effect. Describing the consultation undertaken within an entity’s group is a mandatory feature of the reporting requirements.
It is not a requirement of the Act that organisations have a modern slavery policy, but the reality is that from a corporate governance perspective having a modern slavery policy is very desirable. Recommendation 7.4 of the ASX’s Corporate Governance Principles and Recommendations requires that “a listed entity should disclose whether it has any material exposure to environmental or social risks and, if it does, how it manages or intends to manage those risks.” Modern slavery is included within the social risks a company should have regard to.
A modern slavery policy should address key issues like:
- Who is responsible for managing modern slavery risks within the organisation.
- How does the organisation go about identifying and managing modern slavery risks.
- How the organisation proposes to respond to a specific instance of modern slavery.
- What reporting is to be expected from suppliers.
- How suppliers are expected to address modern slavery risks.
Another mandatory feature of a Modern Slavery Statement is a description of how the reporting entity assesses the effectiveness of its action to address modern slavery practices within its supply chain. This is a challenging component of the statement process because in these still early days of action, hard performance metrics are uncommon.
Many Modern Slavery Statements prepared to date have not addressed this question well or at all. A reporting entity should at least include in its statement a narrative about how it is progressing and/or a case study of its engagement with a risky supplier. While these options might be less rigorous than hard data driven measures, effective action on the risks of modern slavery is often best achieved through ongoing dialogue.
If you need assistance with preparing your Modern Slavery Statement or your risk management program, contact Michiel Brodie, Consultant.