Modern slavery laws: insights for directors

Last year, the Commonwealth government passed the Modern Slavery Act 2018 (the Act) to address the risk of modern slavery in Australian businesses and their supply chains.

This Act is now in force and organisations that have annual consolidated revenue of more than A$100 million and are based or operating in Australia are required to prepare an annual modern slavery statement. This statement must identify modern slavery risks within both their operations and supply chains, as well as steps taken to address these risks.

Importantly, directors are required to approve the statement, and so it is crucial that directors educate themselves about how to identify, assess, mitigate and report on modern slavery risks.

In anticipation of the AICD’s upcoming Modern Slavery event series, set out below is a summary of the key obligations under the Act and some insights from experts in the field.

What must a modern slavery statement include?

Reporting entities will need to prepare an annual modern slavery statement addressing mandatory criteria, including:

• the entity’s structure, operations and supply chains;
• the potential modern slavery risks in the entity’s operations and supply chains;
• actions the entity has taken to assess and address those risks, including due diligence and remediation processes; and
• how the entity assesses the effectiveness of those actions.

No penalties

No penalties exist in the legislation for not complying with the Act. However, to strengthen compliance rates, the Minister for Home Affairs can send organisations a “please explain” request if they fail to report. Further, if the Minister considers an entity has failed to comply with the requirements they may name the entity in Parliament. The need for penalties will be considered again as part of a three-year review of the legislation.

Insights from experts in the field

Louise Nicholls, former head of human rights, food sourcing and sustainability at Marks & Spencer (UK), which is recognised as having market-leading practice, and Richard Boele, Partner at KPMG Banarra, who has interviewed over 150 directors over the last 12 months to discuss new responsibilities under the Act, offer the following observations to directors on how to ensure compliance with the Act.

Education is crucial

Ms Nicholls encourages directors to take steps to embed the responsibility to protect human rights into the organisation’s culture and practices. Ms Nicholls encourages boards to "ensure they and key personnel have sufficient knowledge about how modern slavery might manifest in their sector and encourage staff to talk openly about human rights issues”.

Acknowledge that human rights is not a zero-sum game

Mr Boele noted that while directors are wrestling with the organisational tensions that arise as a consequence of the Act – compliance versus strategy, risk versus opportunity, profit versus trust – conversations with directors revealed that these are not ‘either or’ propositions.

He argues that profit and growth can only be secured with stakeholder and community acceptance of an organisation. This means businesses need a systematic and defensible approach to dealing with the risks of negatively impacting people.

To do this, Mr Boele encourages directors to frame questions of management with an eye to creating opportunity. He notes that some directors and organisations are taking “opportunities to create supply chain efficiencies, deeper supplier relationships and to cultivate community partnerships. Others are already creating differentiated products in the market using technology to assure quality, origin and the absence of harm to people”.

Focus on accountability for non-financial risks

Mr Boele also comments that directors need to develop their accountability for non-financial risks. Mandatory modern slavery reporting crystallises evolving expectations that directors should respond to community expectations and take responsibility to respect human rights.

Organisations must exercise due diligence to identify where people are at risk of harm, take action to prevent it, or remediate it. Directors should empower management to undertake this due diligence exercise.

Collaboration is key

As set out in the draft guidance released by the Australian Government’s Department of Home Affairs, collaboration with civil society organisations such as non-government organisations, workers and their representatives can also be an important way to strengthen an organisation’s response to modern slavery. For example, engaging with NGOs may enable an organisation to access expertise on critical issues such as child protection, country or sector-specific risks and context-specific sensitivities.

Ms Nicholls emphasises that “civil society can be a great ally in supporting victims to raise concerns and in the rehabilitation needed for survivors”.

What is happening in NSW?

The NSW Modern Slavery Act 2018 (NSW Act) is currently on hold pending a review by the NSW Legislative Council Standing Committee on Social Issues. This review was required to address the overlap between the NSW legislation and the federal Act, including whether the passage of the Act renders parts of the NSW Act unnecessary and whether the NSW scheme should apply to charities and not-for-profit organisations. The AICD is closely engaged with this review.