Implications for Australian Businesses Following Release of Landmark Modern Slavery and Supply Chains Report
The Parliamentary Committee inquiring into whether a Modern Slavery Act should be introduced in Australia has now released its final report.
The Committee heard that Australian business supply chains are closely linked with countries and businesses in the Asia-Pacific region, and many products sourced from that region are at high risk of being produced by modern slavery (that is, serious exploitation such as slavery, forced labour and human trafficking), particularly at lower tiers of supply chains.
The Committee recommends a mandatory global supply chain reporting requirement for certain businesses operating in Australia.
The Australian Government will now consider the Committee’s recommendations. Draft legislation is expected in the first half of 2018.
In February, the Committee commenced its inquiry into establishing a Modern Slavery Act in Australia. This included consideration of whether a modern slavery supply chain reporting requirement for business should be adopted in Australia. This would require businesses to disclose publicly their actions to address modern slavery in their supply chains.
In its interim report in August, the Committee expressed its strong support for the introduction of a mandatory reporting requirement for entities operating in Australia. Following the Committee's interim report, the Australian Government announced its support for a reporting requirement and released a proposed model.
The Committee, in its final report, has responded to the Australian Government's proposed model.
This alert will explain the Committee's recommendations and actions businesses need to take.
The Australian Government proposed that the reporting requirement apply to bodies corporate, unincorporated associations, superannuation funds and approved deposit funds.
The Committee recommends a broader range of business entities be covered by the new laws, including, sole traders, trusts, religious bodies, public bodies, Commonwealth Government agencies and the Australian Government itself.
Entities required to report
The Australian Government proposed that all entities headquartered in Australia, or entities that have any part of their operations in Australia, and which meet an annual revenue threshold, be required to report on the steps they have taken to eliminate modern slavery in both their operations and supply chains.
The Committee supports entities operating in Australia, regardless of where they are headquartered, being required to report. The Committee also agrees that reports should discuss modern slavery in both the operations and supply chains of entities.
The Australian Government proposed that the revenue threshold be at least $100 million global revenue and allow for entities below this threshold to opt in to the reporting requirement.
The Committee considers a threshold of $50 million global annual revenue would be most appropriate and provide for international consistency. The Committee also supports an opt in mechanism.
The Australian Government proposed that entities report on:
- their structure, operations and supply chains;
- the modern slavery risks present in their operations and supply chains;
- policies and processes to address modern slavery and their effectiveness; and
- due diligence processes relating to modern slavery.
The Committee suggests including an additional reporting area - further action taken to eradicate modern slavery.
Further, the Committee recommends enabling smaller entities to provide modern slavery statements to other entities as evidence of them having found no modern slavery in their own supply chains.
The Australian Government indicated that the definition of supply chain should extend beyond tier 1 suppliers.
The Committee considers the definition of supply chain should be consistent with international standards. International standards may be found in numerous instruments, for example, the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights. Both instruments provide for a broader definition of supply chain that includes lower tier entities.
The Australian Government proposed that entities report on due diligence processes and their effectiveness.
The Committee considers a requirement for entities to report on their due diligence is an appropriate first step. The Committee recommends that any further measures, such as mandatory due diligence implementation, should be considered as part of a review after three years.
The Australian Government proposed that modern slavery statements be approved at the equivalent of board level.
The Committee supports this proposal.
Time frame for reporting
The Australian Government proposed the time frame for reporting to be within five months after the end of the Australian financial year.
The Committee agrees with this time frame. However, the Committee is also of the view that entities should have the option of making a supplementary modern slavery statement at any stage to address any changes in circumstances.
The Australian Government did not propose to include punitive penalties for non-compliance.
The Committee recommends the introduction of penalties for entities that fail to report, applying to the second year of reporting onwards. The Committee called upon the Australian Government to consider the appropriate level of penalties and how penalties should be administered, including a possible role for the Australian Securities and Investments Commission.
Monitoring and evaluation
The Australian Government proposed that entities be required to publish modern slavery statements on their websites and that the Australian Government provide a publicly accessible and searchable central repository of such statements.
The Committee supports this approach. In the event that an entity does not have a website, the Committee recommends that the statement be available in its annual report or other public document. The Committee further recommends that the central repository contain a list of entities required to report, entities that have reported, and entities below the threshold who have reported voluntarily.
The Australian Government also proposed mechanisms for independent oversight of the reporting requirement.
The Committee supports the establishment of an Independent Anti-Slavery Commissioner to provide oversight of the reporting requirement.
The Australian Government proposed a phased introduction of the reporting requirement to ensure the business community had sufficient preparation time.
The Committee supports the phased introduction of penalties, not the requirement to report.
The Committee recommended that the Australian Government publish and regularly update a list of at-risk products, industries and population groups both within Australia and internationally, and consider legislated import restrictions on goods produced using modern slavery, similar to the approach taken in the United States.
Actions businesses need to take
The proposed modern slavery supply chain reporting requirement means businesses will need to gain visibility into their global supply chains and take action to manage identified risks. This will involve a range of operational measures and updating of supplier contracts.
Operational measures include:
- establishing a policy for responsible supply chains that articulates a commitment to responsible business conduct in its own operations and sets out expectations of suppliers;
- undertaking due diligence, such as pre-screening of suppliers and supplier audits;
- designing and implementing a strategy to respond to identified risks, which may involve a range of responses such as corrective action plans, training and assistance to suppliers;
- verifying that the actions taken have been effective, which involves the development of performance indicators and data monitoring;
- training key personnel in the entity's own business as well as suppliers on how to identify and mitigate modern slavery
- establishing a clear chain of responsibility and assigning senior level approval for policy oversight and in relation to the modern slavery statement; and
- developing a web page dedicated to the publication of the modern slavery statement.
Supplier contracts should be updated to include:
- audit rights, including the right to undertake announced and unannounced audits, audits by third parties, and the requirement for full cooperation;
- immediate notification of actual or potential non-conformance with policy;
- commitment to follow corrective action plans in instances of non-compliance with policy;
- right to suspend or terminate the contract for failure to meet policy standards, failure to cooperate with an audit process or follow a corrective action plan; and
- right to inform relevant authorities.