Australia’s Modern Slavery Act

Cracking down under modern slavery reporting obligations?

As the reporting deadline of the Australian Modern Slavery Act approaches, many Australian firms face a dilemma: wait and see what others reveal in their first modern slavery annual reporting or stick their neck up with a full (and early) disclosure of the modern slavery risks in their activities. The law carries no penalties, relying instead on naming and shaming  to ensure compliance. Regardless of a company’s motivation, genuine attention to modern slavery issues and effective reporting bear real operational and reputational benefits.  

Understanding Different Risk Factors Contributing to Modern Slavery Exposure

Modern slavery due diligence does not need to be costly, but should be based on a thorough assessment of geographic and sector risks. Such an approach enables companies to prioritise activities requiring the most attention. Many firms will find how little they know and engage with suppliers. Others will discover hidden risks in their portfolios.

Firstly, a company will have to consider their own activities as well as those of their suppliers and other business partners. Consumer goods, especially apparel, as well as agriculture and construction, carry the most obvious risks in supply chains – particularly in terms of forced and child labour. However, other large industries in Australia are equally exposed to the risk of (inadvertently) being linked to modern slavery. The mining sector has long and difficult to trace supply chains, with little transparency in or incentive to address exploitation within them. Financial and superannuation firms are also exposed to modern slavery risks, as well as the wider environmental, social and governance issues. This is both through the companies in which they choose to invest, as well as in the risk of laundering money linked to modern slavery – especially human trafficking.

Equally important is to match your global presence to a heat map rating modern slavery risks globally. About 15,000 people are currently estimated to be victims of modern slavery in Australia, while the wider Asia Pacific region has the highest number of victims across all forms of modern slavery in the world, according to the Global Slavery Index. Out of Australia’s top 15 trading partners, over half can be identified as high risk countries for modern slavery, most notably the People’s Republic of China, India, Thailand and Malaysia. Simply put, even if your own operations are limited to Australia, your supply chain and investments likely lead to a high-risk jurisdiction.

Creating a Robust Due Diligence Framework

Market leaders in Europe and the US have started to view modern slavery due diligence as complementary to their corruption and bribery concerns. Many are moving towards holistic risk frameworks that enable them to both know their counterparties, while also incorporating modern slavery concerns. Australian companies following this lead will be the most protected against reputational damage. Due diligence solely focused on modern slavery is unlikely to shield you from reports highlighting your supplier is highly politically exposed or involved in nasty me-too allegations. In addition, such patterns of illicit behaviour can further act as red flags or proxies in detecting modern slavery concerns.

Proactive reputational protection is just one advantage of comprehensive compliance programmes. It is also the most cost effective approach that can be applied in all stages of engagement. Used prior, it allows companies to apply the greatest leverage on suppliers, customers or other business partners to address both modern slavery, corruption concerns or other reputational issues in their activities. Following an initial check, periodic due diligence then turns into an effective monitoring strategy.

Gaining Competitive Advantage

A carefully executed modern slavery programme can give you a major competitive advantage. Companies acting with integrity on the Modern Slavery Act will reap tangible benefits in the marketplace. As consumers and investors care more about these issues, companies that are found to have either failed to disclose or act on modern slavery concerns are likely to face boycotts of their products and higher costs of raising capital.

The opportunity to lead in this area is enormous. Prior to the Act, Australian firms have severely lagged behind their international counterparts in modern slavery disclosures. The Covid pandemic has highlighted how central understanding supply chains is to business continuity. It has also led the government to extend the modern slavery reporting deadline by three months. Companies should wait no longer to disclose how they are working to keep their supply chains free from abuse.