The Modern Slavery Act 2018 – what are the requirements and how can sustainability systems be used to assist in your due diligence?

Forced child labour in Myanmar

More than 40 Million people globally are estimated to be enslaved creating products and materials for use in the western world. What may be of a surprise to you is that it is estimate that even a modern economy with strong protections such as Australia, some 15,000 people are working in conditions amounting to ‘modern slavery’.

On 29 November 2018, the Modern Slavery Bill 2018 (Cth) (Bill) was passed in the House of Representatives, heralding a new mandatory statutory modern slavery reporting requirements for larger companies operating in Australia. Large companies (revenue over $100 million) will be required to report on the obligations and take positive steps to remove the risk of modern slavery appearing in their supply chains, including for subsidiaries. The first reporting year is scheduled to be 1 July 2019 – 30 June 2020, or earlier depending on the financial year of your company.

The Australian Act follows the introduction of similar legislation in other parts of the world including the Modern Slavery Act 2015 in the UK, the 2014 EU Procurement Directives and the California Transparency in Supply Chains Act to name a few. All are seeking to place responsibility on companies to KNOW their supply chains and take positive steps to abolish practices in them that breach the core ILO conventions.

Following commencement, a public register and regulatory regime will be set up.

For large or listed entities whom report to shareholders, clients or stakeholders, this adds another layer of transparency to CSR reporting that may already be taking place. It is critical to prepare now and if possible, use existing and reliable sustainability supply chain systems to help manage the risk and gather the information you need to help with reporting. There is precedent for this in the Illegal Logging Prohibition Act where the independently audited timber frameworks FSC and PEFC can be used and contribute to timber products being deemed ‘low risk’ for the purposes of that legislation.

What is ‘modern slavery’?

The new legislation defines ‘modern slavery’ as any situation of exploitation where a person cannot refuse or leave work because of threats, violence, coercion, abuse of power or deception. The Australian regime defines modern slavery to incorporate conduct that would constitute an offence under existing human trafficking, slavery and slavery-like offence provisions set out in Divisions 270 and 271 of the Commonwealth Criminal Code.

This will mean modern slavery will encompass slavery, servitude, the worst forms of child labour, forced labour, human trafficking, debt bondage, slavery like practices, forced marriage and deceptive recruiting for labour or services.

What will need to be in the reports?

The Act requires the identification of the entity and a complete description of the structure, operations and supply chains of it and any subsidiaries. Companies will be required to describe the risks of modern slavery practices in the operations, the steps to be taken to address the risks and conduct due diligence and remediation processes.

Importantly, a company will be required to assess how effective the actions taken are, pointing to the process of continuous improvement and active management of supply chains. It is expected that as a minimum implementing a procurement system that identifies risk, manages it and then measures impact will also require training of staff.

What are the penalties for failing to comply?

At this point in time there are no legal penalties for companies who fail to comply, however the Minister must commence a review within 3 years of operation and make recommendations whether additional measures to improve compliance with the Act, or if any rules are necessary or desirable. It is foreshadowed that civil penalties for failure to comply with the requirements of the Act may be introduced.

The Opportunity to consolidate systems

There is an opportunity to standardise reporting and use already existing reliable and independent third-party accreditation schemes to help you identify your supply chain and class them as low risk, if the scheme has provisions that outlawing breaches of child labour ILO conventions in it. The national risk assessment frameworks for many countries of the world available through FSC can be used as a source of information to help inform your risk assessment.

In addition, the process and tools that you might use to determine risk in PEFC or as provided for to meet the requirements of the due diligence system in the Illegal Logging Prohibition Act can be adapted for use.

Early adopters can use the opportunity and respond to growing community pressure and concern to differentiate themselves from competitors with a complementary marketing strategy.

Which Sustainability Systems can help and how do I use them or combine efforts to ensure compliance across the board?

Many third party audited supply chain systems contain provisions in them to abolish some or all of the defined modern slavery types in the Act. For some commodities additional work will need to be conducted, but this can be done together with the steps you need to take to maintain your certification.

For example, any company certified to FSC® must sign the FSC ‘Policy for Association’ which requires a certificate holder to declare that they will not be engaged in conduct that breaches the core ILO conventions or in violation of traditional or civil rights. Some of these align but the working group currently formed to examine the means by which broader social issues can be addressed in the standards has some important work to do.

It is in this area that PEFC’s Chain of Custody Standard goes further and companies are audited as such. For PEFC Certification certificate holders are required to ensure free bargaining ability and that minors under 15 are not employed in the enterprise.

Bon Sucro requires auditors to interview minimum numbers of employees without management present and ensure that they are freely bargaining and kept safe.

The concept of the living wage needs to be established and imbedded to keep all of these sustainability certification schemes relevant, and amendments made specifically with the abolition of Modern Slavery in mind – in a similar way that timber legality legislation drove change.

But these schemes go part of the way to help – supply chains can be clearly identified and products traced – which is the foundation of all due diligence systems. Purchasers can then make informed decisions following further investigation and seek to eradicate the worst practices in their supply chains both from a social and environmental perspective.