Modern slavery statements: Best practice, risk assessment and your questions answered
With over 40 million people in positions of modern slavery worldwide, many countries are enhancing their legislative requirements in an attempt to eliminate these practices from organisational supply chains.
Businesses in Australia are not immune from modern slavery, which has affected sectors from retail to construction, and led to the introduction of a regime to criminalise debt bondage, the worst forms of child labour and other practices. The Australian Government's contribution to this cause is the Modern Slavery Act 2018 (Cth) (Modern Slavery Act). This requires certain entities to publish annual statements on a public online register, setting out the risks of modern slavery they have identified in their supply chain and operations.
400 statements published: what we know so far
Almost 400 statements have been published on the register already, with more to come as the conclusion of the first annual reporting period for many entities approaches.
The statements available on the register show varying levels of reporting and fall into three broad categories.
- Statements that do not comply with the Modern Slavery Act because they do not address some or all of the mandatory criteria.
- Statements that meet the statutory minimum standard by clearly addressing each of the mandatory criteria.
- Statements that exceed compliance obligations. Examples include statements on business ethics, case studies, comprehensive descriptions of supply chains and future plans for improvement or remediation.
Best practice and trends
Now that the first round of statements has been published online, the Australian Border Force (which currently administers the online register) has published guidance notes about good practice trends and areas for improvement.
Good practice trends
- Clearly address each of the mandatory criteria, through headings or a table of contents.
- Directly address the impact of the COVID-19 pandemic on operations and supply chains, including increased risks and any response taken.
- Address the effectiveness of actions taken and provide plans to track ongoing performance.
- Include information about collaboration with other entities, such as government, business peers, workers and civil society.
- Commit to continuous improvement and include plans to refine or improve risk assessment and response processes.
- Include case studies to provide practical examples, including through supplier engagement or collaboration.
Areas for improvement
- Ensure that the statutory requirements for approval and signature are met.
- Ensure that the statement meets the mandatory criteria under the Modern Slavery Act rather than an international equivalent, and identifies the Australian reporting entities.
- Describe how the reporting entity consulted with other entities it controls to prepare the statement.
- Describe the nature, context and extent of modern slavery risk areas.
The biggest challenge for reporting entities: Assessing risk in a supply chain
The biggest challenge for reporting entities has been reporting on the risks of modern slavery practices in supply chains. This is evident in published statements and the Australian Border Force's findings that it is an area needing improvement.
It is crucial to get this right. As well as being one of the mandatory reporting requirements, it is the starting point of Australian, and global, efforts to abolish modern slavery. Further, if the reporting entity has not identified risk in its supply chain, it cannot comply with its obligations to report on actions taken to address and assess those risks.
For these reasons, reporting entities must ensure that they can describe the risk of modern slavery in supply chains. While this is an involved process, it is necessary to ensure compliance with the Modern Slavery Act.
How to assess risk in supply chains
Step 1: Identify all suppliers in your supply chain
Suppliers can include everything from primary producers to cleaners to accountants and lawyers! It is prudent, though not strictly required, to go further down the chain and identify these entities' suppliers.
Step 2: Identify relevant risk factors
There are four key factors identified by the Australian Border Force as indicating modern slavery risks.
- The country or region where the supplier operates. Higher risks are associated with factors such as poor governance, weak rule of law and low socioeconomic status.
- The industry or sector in which the supplier operates. Higher risks are associated with low-skilled labour and a reliance on outsourcing.
- The product or service that the supplier provides. Higher risks are associated with certain products, such as rubber and construction materials.
- The supplier itself. Some suppliers may have a record of poor practices or human rights violations.
Step 3: Attribute risk factors to each supplier
You must consider the risk factors that are relevant to each supplier. This may involve reviewing contracts and correspondence, broader policy research and reaching out to the supplier for any missing information. Having precise, relevant information will make it easier to identify and manage the risks.
Step 4: Allocate a risk rating to each supplier
You are now ready for the final step: attributing risk to your suppliers, so that you know the overall risk of your supply chain. At this point, you will be in a position to complete a modern slavery statement.
Lander & Rogers' risk assessment tool
Recognising the complexity of manually completing a risk assessment, our team collaborated with our internal innovation consultants, iHub, to develop a risk assessment tool that makes this process more efficient and manageable for our clients.
We can apply our risk modelling framework to attribute an overall risk rating to each of your relevant suppliers based on basic information that you provide, such as corporate information and an approximate percentage of your annual supplier spend.
For any suppliers that are identified as higher risk, we can issue a questionnaire covering further information and undertake a secondary assessment and attribute a more precise risk rating.
If you are interested in simplifying your modern slavery reporting process, please contact us for a discussion about accessing this tool and the estimated costs for your organisation.
Your questions answered
For a more comprehensive overview of modern slavery statements and further information on best practice and risk factors, watch our recent webinar.
During the webinar, we received a number of questions which we were not able to answer on the day. Our responses to these are summarised below.
Q: Do you know how much time is spent doing this exercise?
A: It will depend entirely on the size of your supply chain, the extent to which you want to assess risk, and the detail you want to include in your modern slavery statement. Some entities may take a few hours; some spend months or years developing comprehensive ethical sourcing efforts that will contribute to this.
Q: The Commonwealth has a reporting threshold of $100M, but the NSW Government will have a lower threshold of $50M. So you might need to report to the NSW Government, but not the Commonwealth?
A: That is correct, however the NSW legislation has not been finalised or enacted at this stage.
Q: In the risk assessment example given in the webinar, "ABC Company" provides services to the reporting entity, and "DEF Company" supplies products to the reporting entity. If ABC Company is separately required to prepare its own modern slavery statement, does it need to assess DEF Company too, although it does not itself purchase from DEF Company?
A: No, ABC Company would not need to assess DEF Company because DEF Company is not a supplier to ABC Company.
Q: What is the statutory definition of "supplier"?
A: There is no statutory definition of "supplier" or "supply chain" in the Modern Slavery Act.
Q: How will it apply to large super funds with services provided by investment managers and custodians?
A: In the same way as to other reporting entities. If it is of interest, you can access modern slavery statements of superannuation funds that have already been published on the online register.
Q: The Lander & Rogers model appears to depend on suppliers all answering the survey questionnaire. In the absence of the supplier answering the questionnaire (a problem that I imagine would occur particularly in smaller suppliers), how else does Lander & Rogers gather this information to complete the risk assessment? Or are those suppliers just left out of the assessment and assessed separately by the entity?
A: The model does not rely entirely on supplier responses. We also work with reporting entities to assist them to identify factors relevant to the risk assessment.
Q: Do entities need an internal modern slavery policy in addition to submitting the modern slavery statement?
A: The Modern Slavery Act does not mandate an internal modern slavery policy. However, it is a common (and usually recommended) measure to combat risks of modern slavery in a reporting entity's operations and supply chain.
Our team has been monitoring the changes to modern slavery requirements and published several articles on particular topics that may be of interest to you:
All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.