Modern slavery laws: how boards must comply

Australia has passed the Modern Slavery Act 2018 (Cth), and boards need to start work now to comply with mandatory reporting by 2020. The good news is that business can gain reputational benefits – and also look to leaders such as Fortescue Metals Group, Wesfarmers and South32.

When the Australian Parliament passed its Modern Slavery Act in late November, business leader Andrew Forrest, founder of the anti-slavery group Walk Free Foundation, declared: “It is our responsibility to end this criminal abuse of human rights, and this world-class legislation will help us do that.” In 2012, Forrest’s Fortescue Metals Group investigated slavery in its supply chain and took action against a supplier.

Under the new law, more than 3,000 large businesses and other entities in Australia need to submit annual modern slavery statements from 2020. Companies such as Wesfarmers, miner South32 and Qantas have already produced modern slavery statements as they report under similar legislation in the UK.

The International Labour Organisation (ILO) estimates around 40.3 million people in the world live in modern slavery. Around 10 million are children. Even in Australia, it’s estimated around 15,000 people may live in conditions of slavery.

Boards are accountable

Boards are now held directly accountable for modern slavery risks in Australia and overseas, under both the federal legislation and the Modern Slavery Act 2018 (NSW) passed this year. The federal law applies to organisations with turnover of more than $100 million per year and the NSW law to those of more than $50 million. NSW commercial organisations need to start reporting next year.

The new laws aim to combat modern slavery — including human trafficking, forced labour, sexual slavery, child labour and orphanage trafficking. Federally, businesses need to report yearly to Home Affairs Minister (currently Peter Dutton) on action they take to stamp out slavery in supply chains. All reports will be published online on a central register which can be freely accessed by the public.

“Directors should consider if the new modern slavery reporting obligations will apply and ensure that their entity is prepared, for example, with more due diligence or audits of supply chains, updating internal policies and reviewing contracts, as well as visibility of the full supply chain for reporting,” says Louise Petschler MAICD, AICD General Manager Advocacy. (The AICD produced a submission to the Senate Legal and Constitutional Affairs Committee on the Modern Slavery Bill 2018).

Accountability for the accuracy of modern slavery statements rests with boards, says KPMG Partner Richael Boele, Global Lead for Human Rights & Social Impact Services.

Mandatory statements in Australia require board approval and a director signature. “Boards need to educate themselves about modern slavery so they can ask good questions of management,” he told Boardroom Report. “They need to take responsibility for the whole supply chain and identify where the highest possible risks are, then control those risks.” There is a real risk of reputational damage if organisations are found to be enabling modern slavery, he adds.

Conversely, taking action can reap benefits and overseas, airlines and hotels are now training staff in how to identify customers who may be victims of human trafficking, which is a pathway to slavery, says Boele.

“There has been a significant increase in interest in modern slavery from the Australian governance community in the past couple of months, because the federal legislation requires director sign-off,” he adds. Boards need firstly to formulate a governance approach with policies on risks and ethical sourcing of products and labour supply, then develop a management approach which involves staff training and action points. As a third step, auditors may be called in later to help produce statements.

How to prepare for reporting

A new KPMG report: ‘Modern Slavery: Is Your Business Ready to Respond’, identifies seven steps Australian businesses must take to lodge annual statements. These include actions to address modern slavery risks, such as due diligence and consulting entities and suppliers.

Businesses face risks in non-compliance with regulatory reporting requirements , reputational damage and eroded public trust when human rights incidents are uncovered, plus investor scrutiny of social impact, the report says.

“There are reputational incentives to be a leader in this area for top companies and others who voluntarily comply,” says Australian National University expert Dr Roger Burritt, Honorary Professor at the Fenner School of Environment and Society, College of Science.

“The minister will keep a Modern Slavery Statements Register and submit an annual report to Parliament about the number of companies complying and best practice in modern slavery statements. Companies listed in the report to Parliament can gain some reputational publicity for good practice, but can also be called out by the minister for non-compliance, potentially damaging their reputation.” According to Dr Burritt, led by their boards, businesses will need to do some or all of the following:

1. Produce the first yearly federal modern slavery statement from 2020 (or 2019 for NSW commercial organisations)
2. Review existing company policies on modern slavery in operations and supply chains
3. Appoint a senior internal person to take ownership and responsibility for compliance
4. Train staff in modern slavery requirements
5. Conduct an audit or due diligence on local and global supply chains
6. Take steps to address any risks or potential modern slavery risks identified
7. Set up a process to measure effectiveness through performance monitoring

Costs may be incurred to comply with the legislation in terms of formulating policies, consulting suppliers, training staff and hiring auditors, adds Burritt. However, costs may reduce with possible assistance from a new federal government Modern Slavery Business Engagement Unit.

No financial penalties apply under the federal law for non-compliance, which has led to criticisms. But in NSW, companies can be fined up to $1.1 million for non-compliance.

Case study: South32

Miner South32 has submitted two modern slavery statements in the UK which can be viewed here. The miner, which has 11 operations in five countries, employs over 14,000 staff and sources suppliers in Africa and Colombia, has adopted an approach to identify supply chain risks by partnering with suppliers.

Sian Edwards, Sustainability Strategy Manager South32 says board members take an active role. “Whenever our board meets, they conduct a site visit to operations. We have a sustainability committee of the board that governs sustainability issues and receives updates on our modern slavery reporting and actions taken to date.” The company has developed a code of business conduct, sustainability policy and a whistleblower policy.

Due diligence has been conducted with supplier partners in clothing and electronics and no instances of modern slavery have been found, says Edwards. South32 is working to set up a modern slavery audit database to be shared between miners.

UK leads the way

Australia’s legislation is based on the United Kingdom’s Modern Slavery Act 2015 . Britain's anti-slavery commissioner Kevin Hyland, quoted in the Sydney Morning Herald, urges CEOs and board members to get hands-on and visit overseas factories and sites where possible.

He says the supply chain reporting process is aimed at boards, CEOs and investors, because they can do most to eliminate importing goods made by slavery into Australia.

Australia is one of 193 countries in the world to sign up to eliminate modern slavery by 2030 under the UN Sustainable Development Goals. In the UK, , about 18,000 firms qualify for modern slavery reporting, but only half that number do so, according to Burritt . “Of those that do report, many just adopt a tick-the-box approach.” Australia will not appoint an independent anti-slavery commissioner, because amendments to the legislation failed in Parliament. Burritt says this leaves the modern slavery agenda in the hands of politicians, rather than an independent overseer. “We may find under the proposed processes that we are unlikely to reach the 2030 target if we see a minister who does not want to get involved or is not interested in the area.”