Learning from the first Australian Modern Slavery Statements: what are companies doing well and how could they improve?
VANESSA ZIMMERMAN | CEO
ALICE COPE | SENIOR ADVISOR
Disclaimer: This article does not constitute legal advice and cannot be relied on as such.
Today the Australian Government announced that its new online register now includes around 100 mandatory Modern Slavery Statements, and almost 20 voluntary statements, under the Australian Modern Slavery Act 2018 (MSA). Many other Australian companies are still finalising their first statements.
We have been fortunate to have a front row seat in the drafting and review of several statements through our work in supporting Australian business, and we have also joined the peanut gallery of interested stakeholders reading the growing number of publicly available statements.
In this article, we share insights on where we see statements delivering strong disclosure as well as where we are seeing reporting gaps. Our views and any accompanying guidance are based on our understanding of the MSA, the Government’s Guidance on the MSA (Government Guidance) and external stakeholders’ expectations, including investors, civil society and customers.
Top 5 areas for improvement
Mandatory Criterion 1: Identify the reporting entity
Statements have been clear with respect to the relevant parent company publishing the document.
However, identifying all relevant reporting entities is not always as straightforward as expected and not all statements are naming all reporting entities. Some are providing long lists of related entities but are not stating which of those related entities are reporting entities. In some cases where companies are reporting under multiple modern slavery reporting regimes (i.e. in the UK, California and Australia) it is also not clear under which regime each related entity is required to report.
Early engagement with legal and company secretariat teams helps ensure the company knows which entities in its group are reporting entities under the MSA and to determine how they will be referenced. This is particularly important for more complex structures and relationships such as joint ventures and trusts.
According to the Government Guidance, the MSA also requires statements to confirm which governing body approved the Statement and the date this occurred. A number of Statements are also not providing this information.
Mandatory Criterion 2: Structure, operations and supply chains
Companies are ‘ticking the box’ in relation to their structure, operations and supply chains. In a number of cases, though, disclosures are not detailed enough to provide sufficient context for understanding their company’s modern slavery risks, particularly in relation to operations.
Starting with operations, and drawing on the Government Guidance and methodology used by the Business and Human Rights Resource Centre to benchmark FTSE 100 company statements under the UK Modern Slavery Act (which suggests what stakeholders may also expect from Australian statements), there are a number of areas where companies could look to provide additional detail. These include explaining the nature of the company’s business (i.e. what the company actually does and where it does it), the company’s workforce (including the nature of arrangements the company has with workers such as whether they are direct employees or contractors and the number of workers represented by a union), and their types of business relationships.
In relation to supply chains, information gaps we are seeing include how procurement is structured in the company (e.g. centralised or decentralised), the type of arrangements a company has with suppliers (e.g. long term or short term), and the source countries for goods and services being procured. Most companies do not currently have a lot of visibility beyond tier 1 of their supply chain, and so are limited in being able to describe their supply chain beyond their direct suppliers.
However, a number of companies are going to greater efforts to explain what tier 1 looks like and are indicating whether and how they will be able to provide further information beyond tier 1 in coming years. While not all companies are clear in their statements about the limitations of their supply chain data, some companies are being transparent on this point (e.g. explaining that their geographical data is based on tier 1 supplier locations and that they do not necessarily have visibility yet on where products are manufactured).
In relation to this criterion, a question that has been raised is whether companies need to restate in their Modern Slavery Statement information about their operations or supply chain that is already on their websites or in their Annual Reports, or whether it can be cross-referenced. This is an area where the Government could helpfully provide additional guidance.
Mandatory Criterion 3: Modern slavery risks
Describing the risks of modern slavery in a company’s operations and supply chain is proving to be one of the most challenging areas for many companies.
There is currently a greater focus on how risks were identified, rather than identifying and describing the risks. There is also a much greater focus on supply chain risks, even when there are likely risks in a company’s operations. Many companies are also focusing on risks relating to countries based on the Global Slavery Index and other tools, but are providing less detail around commodity / category / sector and activity-related risks.
The majority of companies are also not engaging with and using the concepts of ‘cause, contribute and directly linked’ in their statements, which is encouraged by the Government Guidance. These terms are drawn from the UN Guiding Principles on Business and Human Rights (UN Guiding Principles), and they describe the different ways a company could be involved in adverse human rights impacts, including modern slavery.
We have seen discomfort from legal, risk and broader business functions in acknowledging that a company could ‘cause, contribute or be directly linked’ to modern slavery, particularly taking what might be understood as the ‘plain English’ meaning of these terms. This is highlighting a need to build awareness and capacity around the concept of business involvement in human rights harm and the UN Guiding Principles within companies, which will strengthen reporting around risks in future years.
Companies using these terms in their statements are not only demonstrating good practice in terms of reporting in line with the Government Guidance, but also a greater level of maturity in understanding their modern slavery risk profiles.
Mandatory Criterion 4: Actions taken to assess and address modern slavery risks
We are seeing a much greater focus on taking action to assess and address modern slavery risks in supply chains than operations.
Companies are generally providing good detail in relation to human rights-related governance and policies. At the same time the detail provided about how these documents address modern slavery suggests that for many companies there are opportunities to strengthen these documents for better alignment with the MSA and UN Guiding Principles.
On risk assessment, we are seeing little disclosure in relation to operations. In this regard, some of the areas companies should consider include how they are assessing risks in their own recruitment, including the use of labour hire agencies, and their full range of business relationships (including joint ventures, partnerships, investments, franchises, customers, tenants and mergers and acquisitions), as well as core business activities. While it may not be necessary for a company to report in detail on how it manages all risks connected to these relationships, the Government Guidance seems to encourage some disclosure about its understanding of the over-arching risks relating to these relationships and how the company is managing them.
There is more disclosure in relation to supply chains. Companies are generally describing their supplier screening processes well, as well as supplier codes of conduct and supplier contract clauses. There is less disclosure around how companies are monitoring suppliers once they are on-boarded, and how they are seeking to engage with workers in the supply chain including through partnerships with other industry players.
Most companies are describing cross-functional steering committees or working groups that are overseeing their human rights or specifically modern slavery approach and its integration across the business. Additional detail could be provided around the specific actions these groups are taking to drive implementation of policies and processes and their accountability and governance processes. We are also seeing generally good disclosure in relation to training being provided, although in many cases it is apparent that this is still at an early stage. There is little disclosure around whether and how companies are evaluating the effectiveness of their training.
Few companies are acknowledging their responsibility to provide for or cooperate in remediation if they identify that they have caused or contributed to adverse impacts, as set out in the UN Guiding Principles and discussed in the Government Guidance.
Building on this, a number of companies are not yet providing detail on their remediation processes beyond outlining whistleblower mechanisms. Additional detail could be provided around how companies are ensuring their entire suite of grievance mechanisms are effective to hear and resolve instances of modern slavery, and plans they have in place to address modern slavery if identified. It is also often unclear how workers in supply chains are made aware of company grievance mechanisms, and there is also not much disclosure about what companies require of their suppliers in terms of grievance mechanisms. We have also seen some confusion between response plans to incidences of modern slavery with remediation processes.
A closer look at case studies
Many statements are including case studies and breakout boxes to elaborate and provide examples of company practices.
In most cases, though, these tend to focus on positive practice rather than providing real insight into challenges or adverse impacts and how they are being addressed.
Case studies are generally most valuable where they provide meaningful insights into challenges, even if they are providing insights into processes and not incidents.
Mandatory Criteria 5: Assessing the effectiveness of actions
The Government Guidance explains the companies need to clearly set out how they assess the effectiveness of their actions to assess and address their modern slavery risks. This is not about certifying that the company is slavery-free but explaining how they will monitor their actions to know that they are genuinely managing their risks. However, many companies are still struggling to provide meaningful information on this, highlighting the need for more work in this area.
Many companies are describing the processes they have put in place to oversee, monitor and report internally on their implementation activities, such as working groups, implementation plans, reporting channels and accountabilities. There is much less disclosure of the results of these processes, including through assurance processes, and recommended next steps to strengthen effectiveness.
There is also little disclosure of modern slavery-specific key performance indicators (KPIs), suggesting most companies have not yet adopted these targets. In addition, few companies are disclosing that they have reviewed existing KPIs to determine whether they increase vulnerabilities to modern slavery.
Mandatory Criteria 6: Consultation with owned and controlled entities
In many cases, consultation with owned and controlled entities appears to have been an afterthought rather than a considered part of companies’ modern slavery programs.
Disclosures suggest that often consultation has involved a communication from the parent company to owned and controlled entities outlining relevant policies and processes, rather than deeper engagement and involvement in assessing and addressing modern slavery risks. In some cases, statements are suggesting companies have only consulted with reporting entities in their corporate group and not all owned and controlled entities.
While deeper engagement will not be necessary with every owned and controlled entity, companies may find it useful to identify those where it will be important.
Consultation is an area where there is still confusion among companies as to what is required, and so additional guidance from the Government would be helpful.
Mandatory Criteria 7: Any other information
Additional information is most often comprising external engagement as well as forward looking commitments.
We are seeing some strong disclosures in relation to collaborative initiatives, for example industry organisation and civil society, however there is still some reluctance to talk about engagement with specific stakeholders like unions. In many cases this may be because of lack of engagement in the first place, and it may be helpful for companies to be transparent as to the state of this engagement and how it may change in the future. There is an opportunity to strengthen union and civil society engagement and develop joint actions focused on addressing the underlying drivers of modern slavery.
Most statements are outlining priorities and commitments for the next financial year, and some for longer time horizons. This will be useful to report back on in companies’ next statements. Several statements include information about the reporting year as well as the current financial year – better statements clearly differentiate between the two to help stakeholders to understand what progress was made in the reporting year.
A clear structure makes statements easy to read and understand. This includes being able to easily spot compliance with the mandatory criteria. Some statements helpfully include a table which cross-references to relevant content for each mandatory criterion as well as to other reports (e.g. Sustainability Reports) that may contain further useful information.
COVID-19
The Government released guidance for reporting entities on modern slavery and COVID-19, including how the impacts of COVID-19 should be discussed in Statements. In particular, the Government is encouraging companies to clearly explain in their statements how the pandemic has impacted their modern slavery activities.
Many disclosures around COVID-19 have been high level, and do not describe in sufficient detail how the pandemic has changed the company’s modern slavery risk profile and the steps the company has taken to respond to those changes.
5 ingredients for a strong Modern Slavery Statement
- Compliance with all MSA requirements including approvals and mandatory criteria.
- Meaningful information on both operations and supply chain under each mandatory criterion.
- Plain English and a clear structure including how to find information on the mandatory criteria.
- Targeted cases studies providing genuine insights into the company’s challenges and ways forward.
- Hyperlinks so that it is easy to locate further information.
General reflections on process
There are factors that have helped ensure a smoother process for developing and approving statements, including:
A willingness to be frank about where the company is up to and acknowledging there is more to do
A cross-functional steering committee or working group
A clear verification process
Senior leadership buy-in, for example an executive committee champion and/or executive and board awareness raising
As more statements are published, we look forward to sharing further insights to drive stronger implementation and disclosure over the next year.