In our fourth and final part of our Modern Slavery Reporting Series, we provide our practical recommendations for moving into the third reporting season to ensure your organization has a compliant and robust modern slavery Statement and reporting framework.
Organizations should now have established frameworks for how they aim to combat modern slavery within their organization. It is important to remember that your modern slavery obligations extend beyond preparing a well-written statement each year and ticking the box. Entities should ensure that they regularly identify the risks of modern slavery within their operations, assess the steps taken to combat these risks, and periodically review the effectiveness of these steps.
From our review of the first two tranches of modern slavery Statements that have been submitted, we have collated the following recommendations to help your organization develop an effective response to modern slavery:
- Create entrenched organizational change and training: Companies cannot rely solely on certain teams, such as procurement and legal, to address the risks of modern slavery. Everyone within the organization needs to be abreast of their modern slavery responsibilities and how to identify and address risks.
- Mitigation and leading from the top: Your organization should ensure modern slavery is being considered and implemented via various mechanisms, including at board meetings, committees, working groups and management plans. Entities should ensure they are embedding risk management and integrating respect for human rights across the organization, starting at the top.
- Collaboration and engagement: A complete modern slavery response goes beyond the actions of the parent company. A wide range of stakeholders should be engaged, and their feedback should form an organization’s response to modern slavery risk mitigation. Organizations should communicate and engage with a range of stakeholders on these risks and mitigation strategies, including employees, unions and key suppliers.
- Establish a risk identification and response mechanism: Ensure you have the proposer procedures and reporting processes in place to maintain the capability to identify risks and respond to these quickly. Accountability should be assigned to individuals within your organization to ensure ongoing due diligence and risk management. Employees and stakeholders should feel comfortable identifying and reporting risks.
- Actively monitor, review and adjust your supplier relations accordingly: Organizations should continuously monitor high-risk suppliers and countries and meaningfully review their supply chains and operations. Practically speaking, organizations should ensure that all supplier agreements have a code of conduct or compliance terms.
- Assessing and demonstrating effectiveness: During the first and second reporting seasons, many organizations focused solely on the actions they are implementing to combat modern slavery. However, organizations should set up long-term processes, including measurable KPIs, to assess the effectiveness of these actions.
Getting it wrong
While there are no penalties for non-compliance under the Act (yet), the consequences of inaccurate or misleading disclosure extend beyond the Act and may include:
(a) Regulatory action:
(i) Regulatory action may be taken in respect of breach of directors’ duties (for example, a failure to exercise skill, care and diligence by appropriately managing and disclosing modern slavery risks).
(b) Consumer action:
(i) Consumer claims and consumer class actions are a potential risk (for example, ACCC complaints about misleading Statements about ethical sourcing).
(c) Shareholder action:
(i) Requisitioned resolutions (for example, solutions requisitioned seeking a review of the company’s supply chain practices) and shareholder class actions are also potential risks of which entities should be aware.
Next steps and how we can help
A comprehensive and compliant modern slavery program extends beyond a yearly Statement.
Now is the time for organizations to comprehensively review their approach to combat modern slavery. To avoid the ‘race to the middle’, organizations need to ensure modern slavery risk management processes are embedded into their end-to-end supply chain process and across their organization.
Given the absence of financial penalties for non-compliance with the Act, society groups and non-governmental organizations are stepping into the role of ‘naming and shaming’ non-compliant organizations. Modern slavery is becoming an increasingly important ESG metric for consumers, investors, employees, governments and activists in pressuring businesses to ensure the ethical security of their supply chains and operations. As a result, these stakeholders will critique the comparative quality of modern slavery Statements and rely on these Statements as a benchmark to measure an organization’s year-on-year performance and improvement.
Contact our team if you would like to discuss how your business can improve its modern slavery risk management and reporting.