Modern slavery reporting series: Part 3 – what can Australian businesses learn?
In Part 2 of our series, we set out our insights on what differentiates the few organisations who are noticeably leading the pack in their disclosure obligations under the Modern Slavery Act 2018 (Cth) (Act) – how they are going above and beyond the minimum requirements of the Act to understand their supply chains and the modern slavery risks within and taking measured steps to identify and mitigate these risks.
Key stakeholders such as investors, employees, customers and suppliers increasingly demand corporate efforts to address their modern slavery risks and broader human rights and environmental, social and governance risks. As such, modern slavery Statements are proving useful tools to monitor corporate compliance and improve this space.
In Part 3 of our series, we highlight our observations of some gaps in reporting by businesses who are taking a ‘race to the middle’ approach and only meeting the bare minimum of the Act’s requirements. This is designed to assist our clients in improving their reporting for the upcoming third reporting season if they want to join the organisation who are leading the way.
Areas for Improvement
From our review of the first two tranches of modern slavery Statements submitted to date, we have identified below the key issues and gaps:
(a) Limited operational and supply chain awareness
One of the predominant reporting gaps was mapping and addressing potential risks in the reporting entities’ operations and supply chains. The “laggers” only provided a very brief description of their supply chain, demonstrating a superficial understanding of the source of exposure to modern slavery risks.
Our review revealed that many companies had only a basic understanding of their supply chain at the contractual level but not of the risks beyond this. Most companies could not identify or assess the risks beyond their tier 1 suppliers and lacked visibility of their supply chain as a whole. Additionally, many organisations failed to evaluate and address risks within their operations (such as through recruitment, procurement, investments, customers etc).
Statements should adequately disclose, at the minimum, which the entities’ suppliers are and the risks of modern slavery present along the entire supply chain and within their operations.
(b) Inadequately identifying and assessing risks
This criterion appears to be the most difficult for organisations to grapple with. Whilst organisations are not required to report specific individual risks or actual cases of modern slavery (although they can voluntarily include case studies or examples), they are – at least – required to identify how risks of modern slavery practices may be present in the organisation and their supply chain. The Government Guidance provides that:
‘risks of modern slavery practices‘ means the potential for your entity to cause, contribute to or be directly linked to modern slavery through its operations and supply chains.’
The concept of risk in this context means risk to people rather than risk to the entity. However, these risks may often intersect. The terms ’cause, contribute to or be directly linked’ stem from the UN Guiding Principles on Business and Human Rights, with which all reporting entities should ensure they familiarise themselves.
Most Statements merely described how risks of modern slavery are being identified, rather than properly identifying and describing the present risks.
While in some instances, non-disclosure of actual incidents may be for a legitimate reason (such as to avoid compromising ongoing investigation), reporting entities should aim to provide as much practicable information on the present risks to promote transparency and disclosure in accordance with the UN Guiding Principles.
(c) Inadequate disclosure of actions taken to assess and address modern slavery risks
The UN Guiding Principles make it clear that entities must provide for, or cooperate in, remediation if they identify they have caused or contributed to adverse impacts. Whilst some organisations detailed their whistle-blower procedures, additional information could be provided on how organisations monitor their grievance processes and ensure they effectively receive and resolve incidents of modern slavery. Most entities failed to disclose information about the use of their grievance mechanisms and the extent to which they are responding to modern slavery risks identified through these mechanisms.
Some specific actions for entities to consider implementing and disclosing in their subsequent Statements include: disclosing responsible procurement practices, enforcing a commitment to ensuring workers in their operations and supply chains are paid a living wage, taking responsibility for and remediating the harms occurring in supply chains and implementing proper grievance mechanisms (such as a hotline, online complaints system or a disclosure app).
(d) Failure to assess the effectiveness of actions and reporting results
In both tranches of Statements, we saw an incomplete picture of how entities assess their actions’ effectiveness in addressing the risks of modern slavery.
Many organisations provided a summary of the processes they have implemented to oversee, monitor and report on their actions to address modern slavery risks (such as internal reporting channels, accountabilities and working groups). Still, they failed to disclose or assess the results of these processes.
Entities should ensure they are disclosing the steps they are taking to assess the effectiveness of their actions in addressing modern slavery risks. Reporting entities should enhance their tracking of the effectiveness of their responses and communicate how impacts are addressed. This can include disclosing the specific key performance indicators or other metrics used to measure their efforts.
Conclusion
Our review of the Statements submitted by the entities sitting in the middle of the pack, or lagging, reflects that there is a significant improvement to be made in disclosure moving into the third reporting season. Entities wishing to improve should aim to provide a deeper assessment of the risks of modern slavery in both the operations and supply chain and draw on specific examples and case studies. Additionally, transparency needs to improve in assessing the effectiveness of the steps taken to address these risks. As part of this process, entities should consider consulting with a broader range of stakeholders, including working groups in all owned and controlled entities, unions and suppliers.
In our next and final part of this series, we will explore practical recommendations moving into the third reporting season to ensure a compliant and robust modern slavery Statement and reporting framework.