Blocking traffic

Sharpening the teeth of the Modern Slavery Act to enable it to be more than a compliance box-ticking exercise is on the agenda of a review that will table its findings to Parliament in March. 

In 2017, 40 million people were living in conditions of modern slavery. By 2022, the number had risen to 50 million. Walk Free, an international human rights group dedicated to eradicating modern slavery in all its forms, reported these sobering facts in the Global Estimates of Modern Slavery, produced in partnership with the International Labour Organization and the International Organization for Migration.

“Modern slavery has no place in companies’ operations or supply chains,” says Serena Grant, Walk Free’s head of business engagement. “These statistics clearly underline the need for urgent and effective action.”

Australia’s first step in this direction was the Modern Slavery Act 2018 (Cth), which came into force on 1 January 2019. This legislation requires companies with an annual consolidated revenue above $100m to publish an annual modern slavery statement outlining the steps they’re taking to assess and address modern slavery practices occurring within their operations and supply chains.

The Act is now under review. In consultation with business, civil society, government and other stakeholders, a team led by Professor John McMillan AO is considering whether the original reporting periods, deadlines, revenue threshold and mandatory reporting criteria are appropriate. There is also a possibility that civil penalties and sanctions will be introduced for those who fail to comply. Currently, the only available penalty is to be named and shamed in Parliament. The review will be completed by 31 March 2023, and this will be followed by a final report to be tabled in Parliament

“My sense is that there’s been a disproportionate focus on reporting, as opposed to assessing and acting on areas of highest risk,” says Chris Caskey, human rights manager at UN Global Compact Network Australia. “The reporting and transparency model has also outsourced the operative evaluation of the disclosure to the market, which has its pros and cons. The review is an important opportunity to amend the Act to improve outcomes for people living in conditions of modern slavery.”

Human rights landmark

The introduction of the Act marked a milestone in Australia’s human rights legislation.

“This was the first time that many businesses had grappled with the question of what it would mean for them to respect human rights throughout their operations and supply chains,” says Dr Meg Brodie, partner and human rights and social impact services lead at KPMG Banarra.

It has also taken the issue into the boardroom as the statements must be approved by the board and signed by a director. However, Walk Free would like to see changes across four key areas.

• Better enforcement of the Act using warnings, penalties and disbarment from public procurement
• An obligation to conduct due diligence rather than simply report on steps being taken to assess and address risks
• A $50m threshold for reporting rather than the current $100m
• The appointment of an independent anti-slavery commissioner to coordinate and strengthen the government’s response to modern slavery, raise awareness and promote best practice.

Prime Minister Anthony Albanese committed to appointing an independent anti-slavery commissioner in the lead-up to the election.

“A central regulatory figure who can signal to the market would enable business and human rights teams to be more effective in driving change internally, as well as with their suppliers and customers,” says Caskey.

Brodie sees an opportunity for the government to look beyond a Modern Slavery Act in order to align more closely with international developments in environmental, social and governance regulation.

“As it stands, Australian companies wanting to compete on an international stage will have to go beyond the Act to meet mandatory human rights due diligence demands coming into effect in many European countries,” she says.

Forced labour import bans are also being proposed or introduced in several countries.

“These will have major commercial and operational impacts as companies will be stopped from importing goods where they are found to have been made with forced labour,” says Grant.

When the Act was introduced, Mackay Sugar had already adopted much of the broader human rights policy established by its German parent company, Nordzucker. “The European requirements are much stricter than ours,” says Mackay Sugar company secretary and legal counsel Peter Gill. “We were able to adapt the modern slavery component to comply with the Australian Act.”

Current situation

At the last count, 4697 mandatory and 646 voluntary modern slavery statements had been submitted. However, the federal government found that 41 per cent of those published in the first reporting cycle and 28 per cent of those published in the second cycle had been assessed as non-compliant.

“You can be non-compliant in different ways and at this relatively early stage it can be genuinely unintentional,” says Brodie. “For example, my conversations with the Australian Border Force Business Engagement Unit, which has responsibility for managing this particular legislation, indicate some of the companies that lodged statements failed to provide all the information required to cover the seven mandatory criteria, such as how they were consulting with other entities. This suggests technical rather than deliberate non-compliance.”

She is concerned that focusing too closely on compliance can distract from what lies at the heart of the legislation — a fundamental corporate responsibility to respect human rights. “It’s not about whether companies have dotted their Is and crossed their Ts in their statement, it’s whether they’re taking meaningful action to understand the risk of modern slavery in their operations and supply chains, and then measuring the impact of the response they’re taking,” says Brodie. “Ultimately, entities should be uncovering, responding to and remedying modern slavery. If we’re to achieve that, the Act has to be more than a reporting mechanism.”

Addressing the challenges

While the bulk of Mackay Sugar’s operations are based in regional Queensland, it does source some of its goods and services offshore.

“One of our biggest challenges was gathering information when our suppliers have their own sub-contract arrangements,” says Gill. “Recently, we have been dealing with these issues as part of our tender process, but many of our supply contracts have been in place for a number of years and it took a little more work to trace back through those. We have a subsidiary company, so we had to work through their suppliers. We also have a minority joint-venture interest in an entity, which submits its own modern slavery statement, so we needed to cross-check with that for accuracy and consistency. And we also ship a lot of sugar. As vessels are often flagged in countries that may carry a high level of risk, we need to continue to work to ensure our contractors are complying with the appropriate maritime human rights requirements.”

Paul Holland, director of commercial services at the University of Melbourne, believes that many organisations need to get three, four or even five levels down into their supply chains before they can start to make meaningful change.

“For that, you need programs that are mature, detailed and thorough,” he says. “Institutions like ours have more or less the same supply base so, rather than developing those tools and systems individually and wasting time and resources on duplication, we’ve formed a cohort and are working at the sector level. Collaboration is also helping us to create more robust and effective processes.”

The goals of procurement are changing rapidly, and Brodie remembers some of her favourite conversations as those with procurement professionals who are recasting their role. “They can see an opportunity to have a significant social impact,” she says. “In some cases, they’re including subject matter experts such as human rights and social impact practitioners in their teams.”

Procurement is also a matter for the board. “The only way we’re going to get traction is with strategic deep dives rather than taking a scattergun approach,” says Holland. “Procurement professionals can help boards to identify how to get the biggest bang for their buck.”

Caskey believes that if they look hard enough, most Australian businesses, particularly those that import goods, will uncover high-risk due diligence indicators within their value chain. Those who do, may feel a natural inclination to terminate their relationship with the supplier immediately, but that could result in more harm to the victims. It will also do nothing to motivate the supplier to change unacceptable practices. “As a general rule, these risks should be assessed by placing any potential victim at the centre and carrying out a process designed around their remediation and rehabilitation,” he says. “Many of our participants have a modern slavery or human rights response plan in place that outlines what information to collect, whether or how to engage with the supplier, and the appropriate agency to involve. The UN Global Compact Network Australia helps participants establish response plans as part of our modern slavery impact initiative, and we’ve engaged with federal authorities to ensure the process connects properly with the right agency. For indicators within Australia, the Australian Federal Police human trafficking branch has team members based throughout the country who are trained in investigating potential cases of modern slavery and can be contacted through their website.”

Risks for directors

Beyond potential penalties for non-compliance, directors who fail to take serious action to eliminate modern slavery from their operations face legal, reputational and economic risks. “We can look to examples such as the fast fashion company Boohoo in the UK, or Ansell in Australia, to see that modern slavery issues can result in significant impacts on share price — as well as legal actions and potential liability,” says Grant.

Modern slavery is also becoming a priority for investors, who want to see evidence that the board is actively engaged. “We work closely with Investors Against Slavery and Trafficking, a group of 37 investors with $7.8 trillion in assets under management from Australia and across the Asia Pacific region,” says Grant. “They are asking companies in their portfolio how they are finding, fixing and preventing modern slavery risks — and pushing them to improve practices.”

Grant encourages every board to have a standing agenda item on modern slavery risk management and to establish KPIs for management to report on. “These might include the number of instances of exploitation identified or reported, remedies provided to workers or other corrective action taken, and reporting on results of due diligence conducted on high-risk suppliers or partners,” she says. “Ultimately, the company’s modern slavery statement will require board approval and directors could be found to be in breach of their duties if the statement is inaccurate or misleading.”

For Gill, the bottom line is humanity and common sense. “No-one sitting around the board table would tolerate these conditions for their children or in their own workforce, so why would we be happy to deal with people who are inflicting them overseas?” he says. “We believe it’s basic governance not to put your business future in the hands of suppliers who aren’t conscious of the need to ensure people are being treated fairly.

Woolworths — an example of discovery and remediation

In its 2021 Modern Slavery Statement, Woolworths reported finding that 226 foreign migrant workers from countries including Bangladesh, Myanmar and Nepal had paid recruitment fees in their home countries before being employed by a Malaysian supplier. The workers were also required to pay a deposit to their employer before being allowed to travel outside Malaysia.

Woolworths Group responded by launching a full, independent investigation at the site, which found that factory management was generally cooperative and there was no indication of falsification of records or coaching of workers. Fees paid to the employer were estimated at $3300 per worker.

Woolworths’ team and the supplier are currently finalising a fees reimbursement plan and have agreed further corrective actions to address the root cause of the payment of recruitment fees, including governance of labour agents and a requirement for pre- departure briefing for migrant workers before they leave their home country.

The big fail

Many Australian companies are not complying with current modern slavery legislation, new research has found.

A new report from the Human Rights Law Centre (HRLC) found that three years into the operation of the Modern Slavery Act 2018 (Cth), companies are still failing to identify obvious modern slavery risks in their supply chains or take action to address them.

The report, Broken Promises: Two years of corporate reporting under Australia’s Modern Slavery Act, examines the second year of corporate statements submitted to the government’s Modern Slavery Register by 92 companies sourcing from four sectors with known risks of modern slavery — garments from China, rubber gloves from Malaysia, seafood from Thailand and fresh produce from Australia.

The report found that: 66% of companies reviewed are still failing to comply with the basic reporting requirements mandated by the legislation, with some companies not submitting reports at all.

56% of the commitments made by companies in the first year of reporting to improve their modern slavery response remained unfulfilled based on their second-year statements.

43% of companies reviewed are still failing to identify obvious modern slavery risks in their supply chains.

There is just a 6% increase in the number of companies taking some form of effective action to address modern slavery risks, with two in three companies still failing to act.

In the wake of the HRLC report, a coalition of human rights organisations and academics is now calling on the federal government to overhaul Australia’s modern slavery laws. It wants the government to act urgently to strengthen the legislation by:

• Requiring companies to undertake due diligence to prevent and address modern slavery in their operations and supply chains.
• Introducing penalties for companies that fail to comply with the Act.
• Ensuring appropriate oversight and enforcement of the Act by appointing an independent anti-slavery commissioner.

Director perspective

Directors at the helm of some of corporate Australia’s most complex global supply chains, and at the forefront of human rights peak bodies, share their insights for governance structures to mitigate modern slavery risks and implement improvement strategies.

Considering risk

Within the director community there remains a lack of understanding of the pervasive nature of modern slavery within corporate supply chains, according to Dr David Cooke GAICD, chair of the UNSW Australian Human Rights Institute advisory committee and adjunct professor at UTS Business School. He emphasises that any director who fails to undertake adequate due diligence in identifying risks and implementing remedial action when required, would be deemed to be in breach of their duties as a company director under the Corporations Act 2001 (Cth).

His urgency is echoed by Santos director Guy Cowan MAICD and Wesfarmers director Michael Chaney AO FAICD. Chaney links supporting the elimination of modern slavery in the operations and supply chains of businesses to his board’s approach to stakeholder management.

“Providing satisfactory returns to shareholders is linked closely to the interests of our key stakeholders — including our team members and suppliers,” he says.

“Apart from the moral imperative, working towards the elimination of modern slavery is core to building and sustaining a positive reputation. If we don’t invest in and prioritise the management of modern slavery risks, this has the potential to impact our businesses. We may see customers choosing to buy their products elsewhere. We may find it more difficult to recruit and retain people. And other businesses may not want to be associated with our brands in joint ventures and partnerships.”

Cowan says all his boards take the matter of modern slavery seriously given the potential reputational harm.

Investors are increasing engagement on these issues, as well, where prior to the Modern Slavery Act 2018 (Cth) it may rarely have been discussed. “Now the potential for shareholder resolutions and even class actions where reputational damage leads to negative financial impact, and a decline in share prices and returns to investors, is very real,” says Cooke.

“We see increased interest and understanding of many diverse ESG issues including modern slavery,” says Chaney. “Investors... are seeking more detailed disclosures and they tell us these issues are important as they make their investment decisions.”

Building in oversight

“Our supply chains are large, complex and dynamic, particularly our apparel supply chains,” says Chaney. “We expect our suppliers to understand and respect workers’ human rights. The majority of our tier one or direct suppliers are manufacturers. We work closely with these suppliers on ethical sourcing issues because we know that modern slavery risk is more prevalent further up the supply chain, among their suppliers and producers of raw material.”

Wesfarmers’ activities include: due diligence investigations of prospective new suppliers, ongoing monitoring of suppliers (such as through independent audits), team/supplier training, implementing policies such as its ethical sourcing and modern slavery policy (the group audit and risk committee supports the board to oversee ethical sourcing programs), oversight of the implementation of ethical sourcing programs by business managing directors and information sharing through the executive leadership team, and a cross- divisional human rights forum.

For directors trying to gain visibility of their suppliers, Cooke notes that while this area falls into the domain of the executive and specialist teams, the board still plays a vital role in resourcing the work and “asking the hard questions’’ of the executive to ensure comprehensive assessment and ongoing progress. “This work is complex and requires a long- term commitment,” he says. “Slavery may not be occurring in your direct operation, but several tiers deep, amongst component manufacturers whose output ultimately finds its way into your finished product.”

Cowan says one of his boards has a special committee in place to review progress and notes suppliers generally cooperate with questionnaires and allow access where required.He points to the Port of Brisbane modern slavery statement as among best practice in the sector.

Taking action

Once an incident is identified, Cooke recommends bringing all parties to the table to discuss the findings as a good first step, followed by developing and regularly reviewing a roadmap to ensure meaningful improvements on an ongoing basis. “Remember, if you are the director of a corporation operating solely within Australia and in what might be considered a low-risk environment — for example, financial services — it does not mean that modern slavery does not exist in your supply chain,” he says. “You still procure manufactured goods, such as technology... and closer to home, utilise services such as office cleaning, where issues can occur.”

Chaney favours remediation as core to the process. “Where breaches of our ethical sourcing policy and standards are identified, our divisions work with our suppliers to remediate,” he says. “Each response depends on the nature of the breach, including the severity or potential severity of harm to workers. At its core, our ethical sourcing framework is focused on ensuring human rights are understood and respected. While reporting is important, we have real impact and make a difference, when we work to remediate breaches of our policies and to implement strategies which reduce modern slavery risks — whether within our operations or suppliers. If we only reported breaches, this wouldn’t drive change and it wouldn’t help the victims of modern slavery.”

Chaney says while it’s always Wesfarmers’ preference to work with suppliers to remediate breaches rather than exit suppliers, if the supplier is unwilling or unable to address a modern slavery breach, “our divisions will exit that supplier”.