On 1 January 2019, the Modern Slavery Act 2018 (Cth) (MSA 2018) came into force in Australia. The MSA 2018 requires entities based or operating in Australia with an annual consolidated revenue of more than 100 million AUS dollars to report annually on the risks of modern slavery in their operations and supply chains, and the actions taken to address those risks. The requirements of the MSA 2018 reflect increasing and strengthening modern slavery obligations around the world (see, for example, our previous Blog Post and earlier Legal Update).
The Australian Council of Superannuation Investors (ACSI) has published a report (the Report) evaluating the quality and compliance of reporting by companies listed on the Australian Securities Exchange (ASX200) during the first reporting cycle under the MSA 2018. The report sets out a number of recommendations, including how companies can improve their disclosures and how investors can exert their influence to encourage best practice in modern slavery reporting. Although the recommendations are focused on the ASX200 and the MSA 2018, the Report’s findings are of broader relevance to best practice reporting beyond Australia – and will be of interest to all stakeholders concerned with modern slavery reporting and emerging mandatory human rights and environmental due diligence legislation.
What must modern slavery statements contain under the MSA 2018?
Modern slavery statements under the MSA 2018 must address the following seven key areas, namely:
- Identifying reporting entities
- Describing structure, operations and supply chains
- Describing modern slavery risks in the operations and supply chains of the reporting entity, and any entities that the reporting entity owns/controls
- Describing actions to assess and address modern slavery risks
- Describing how the reporting entity assesses the effectiveness of such actions
- Describing the process of consultation with any entities that the reporting entity owns/controls
- Including any other information that the reporting entity considers relevant
The Report – Key Findings
Among other things, the Report found:
- 33% of companies’ statements appeared to fail to comply with the formal requirements of the MSA 2018. Two common deficiencies related to the identification of reporting entities and the consultation with both reporting entities and other owned or controlled entities.
- Only 5% of companies were able to clearly articulate how they may be involved in modern slavery risks using the ‘cause’, ‘contribute’, ‘directly linked’ continuum set out in the UN Guiding Principles on Business and Human Rights (UNGPs) or similar language. Most statements also focused on supply chain risks rather than modern slavery risks within the companies’ operations.
- In many cases, companies failed to provide sufficient detail on the implementation of key actions, such as policies, risk assessments or training. For example, less than half of statements identified how key policies are communicated or enforced and only a third of the companies explained the methodology used for supply chain risk assessments.
- Many companies appear poorly prepared to respond to modern slavery incidents, often lacking trusted and accessible grievance mechanisms for vulnerable workers. Only 17% of statements identified actions taken by companies to ensure grievance mechanisms or other processes are trusted and accessible to stakeholders.
- Efforts to assess the effectiveness of a company’s actions to assess and address modern slavery risks are limited and often focus on measuring quantitative outputs (such as number of workers trained) rather than practical outcomes (such as measurable increases in workers’ awareness of modern slavery after training).
- Few companies are engaging with stakeholders to help inform their modern slavery risk management approach, such as civil society or vulnerable workers. For example, only 21% of statements referred to using feedback from external sources to assist with assessing effectiveness.
Recommendations for improved modern slavery statements
The Report sets out a number of recommendations for companies to improve and strengthen their modern slavery statements going forwards. In addition to ensuring that statements clearly address each of the prescribed requirements set out in MSA 2018the Report recommends that companies:
- Ensure that statements provide substantive content such as descriptions of actions to assess and address risks.
- Strengthen disclosures on potential modern slavery risk areas by identifying how modern slavery risk areas may be present in companies’ operations and supply chains, including by explaining how companies may potentially be involved in modern slavery using the ‘cause’, ‘contribute’, ‘directly linked’ continuum for involvement in line with the UNGPs.
- Focus on how key actions such as policies or training are implemented or undertaken in practice and how they are specifically relevant to addressing modern slavery risks, for example, by explaining how relevant policies are communicated to employees and providing information on how many employees have received related training.
- Improve reporting on assessing effectiveness by considering outcomes (e.g. increases in modern slavery incidents identified and remedied) and not just quantitative outputs (e.g. number of supplier questionnaires distributed).
- Ensure statements provide meaningful information about consultation with owned or controlled entities and other reporting entities (where relevant).
The Report also calls on investors to play their part in reinforcing companies’ modern slavery obligations, including by providing concrete examples in their own modern slavery statements of how they have engaged with companies to help improve their investees’ modern slavery risk management approaches and by collaboratively engaging with investee companies on modern slavery on an ongoing basis.
The MSA 2018 is seen as one the most advanced examples of modern slavery legislation. It foreshadows the EU-wide mandatory human rights and environmental due diligence regime announced by the European Commission in March 2021 and likely reforms to modern slavery legislation outside Australia, such as the UK’s Modern Slavery Act (see our previous Blog Post and earlier Legal Update). There have been calls for the MSA 2018 to be strengthened and for its scope to be broadened. Possible changes that have been mooted include widening the scope of reporting entities, imposing penalties for non-compliance and establishing an independent body to oversee and enforce implementation.
In response to strengthening modern slavery legislation, companies should:
- Take account of emerging expectations as reflected in the Report, which will likely in time be reflected in legislative initiatives; and
- Consider what steps they can take to strengthen their existing modern slavery statements and develop their broader human rights disclosure in light of the Report’s findings.
 See, for example, the Foreign Affairs, Defence and Trade Legislation Committee report dated June 2021, available at: https://parlinfo.aph.gov.au/parlInfo/download/committees/reportsen/024618/toc_pdf/CustomsAmendment(BanningGoodsProducedByUyghurForcedLabour)Bill2020.pdf;fileType=application%2Fpdf