Supply chains and modern slavery: reporting on the rise

In brief

The release of the Attorney-General's consultation paper on modern slavery in supply chains and the recent interim inquiry report on establishing an Australian Modern Slavery Act reflect how international standards around corporate respect for human rights are becoming enshrined in law. Australian companies, and companies operating in Australia, are likely to see increased supply chain reporting requirements in relation to modern slavery as early as next year. Partners Rachel Nicolson and Peter Haig, Associate Freya Dinshaw and Lawyer Shamistha Selvaratnam report.

Background

As we reported in a previous Focus, earlier this year, the Attorney-General referred a broad inquiry into establishing a Modern Slavery Act to the Foreign Affairs and Aid Sub-Committee of the Parliament's Joint Standing Committee on Foreign Affairs, Defence and Trade (the Committee). Since then, the Committee has received 201 submissions and held public hearings with a range of stakeholders.

On 16 August 2017, the Federal Government published a consultation paper and regulation impact statement outlining its proposed model for a Modern Slavery in Supply Chains Reporting Requirement. The proposed model will require large entities operating in Australia to report annually on their efforts to address modern slavery in their operations and supply chains. On 17 August 2017, the Committee released an interim report recommending that the Federal Government support the development of a Modern Slavery Act. It recommended that the Act impose supply chain reporting requirements on Australian companies, businesses, organisations and governments and establish an Independent Anti-Slavery Commissioner.

Proposed reporting requirement in Australia

The reporting requirement proposed by the Minister of Justice will require entities (including bodies corporate, unincorporated associations, superannuation funds and approved deposit funds) operating in Australia with annual revenues of at least $100 million, to report annually through publishing a 'Modern Slavery Statement' on their webpage. The Modern Slavery Statement would be required to address:

• the entity's structure, operations and supply chains;
• the modern slavery risks present in the entity's operations and supply chains;
• the entity's policies and processes to address modern slavery in its operations and supply chains, and their effectiveness; and
• the entity's due diligence processes relating to modern slavery in its operations and supply chains, and their effectiveness.

The Modern Slavery Act 2015 (UK) came into force in 2015 and has been highly influential in the consideration of a Modern Slavery Act in Australia. The proposed reporting requirement bears many similarities to s54 of the UK Modern Slavery Act, including the requirement that the Modern Slavery Statement must be approved at the equivalent of board level and signed by a director of the entity.

However, there are some differences between the proposed Australian reporting requirement and s54 of the UK Modern Slavery Act. The key differences are as follows:

• The threshold for the proposed reporting requirement will be set at no lower than A$100 million total annual revenue, whereas the UK Modern Slavery Act threshold is a total annual turnover exceeding £36 million (approximately A$59 million). As a result, it is likely that entities that are required to report under the UK Modern Slavery Act may not be required to report under an Australian Modern Slavery Act.
• The UK Modern Slavery Act provides flexibility as to the content of Modern Slavery Statements and sets out six optional criteria about which entities may include information. As set out above, the proposed Australian reporting requirement will require entities to report on four criteria. Reporting on the criteria will be mandatory to ensure that the content of statements is consistent and comparable, and to provide certainty to entities about what to include in their statements.
• In the UK, if an entity fails to publish a Modern Slavery Statement, the Secretary of State may bring civil proceedings in the High Court for an injunction (or, in Scotland, for specific performance of a statutory duty under s45 of the Court of Session Act 1988 (UK)) requiring the organisation to comply.¹ If the organisation fails to comply with the injunction, they will be in contempt of a court order, which is punishable by an unlimited fine. In contrast, the proposed Australian reporting requirement will not impose a penalty on entities for non-compliance – however, entities that fail to comply may be subject to public criticism. This will be further enhanced by a government-based central repository containing the statements of all entities that are required to report under the legislation.

Transition between international standards and domestic law

The Australian Government's proposal reflects its engagement with established international standards and guidance designed to prevent and address breaches of international human rights in corporate supply chains and operations. Key among these standards are the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises (OECD Guidelines), which place standards on business conduct, including in relation to:

• implementing human rights policies;
• engaging in non-financial due diligence;
• reporting and communicating on human rights impacts;
• monitoring and tracking human rights performance; and
• providing access to remedy where violations have occurred.

Businesses that already seek to align their activities with the UNGPs, in particular, and other established international standards (such as the Voluntary Principles on Security and Human Rights) are well-placed to manage new legislative requirements in relation to supply chain reporting.

For companies that are beginning to grapple with the significance of the proposed supply chain reporting requirements on their business, there is a wealth of practical guidance available that will assist in preparing for an Australian Modern Slavery Act. Human rights ranking initiatives, such as the Corporate Human Rights Benchmark, also provide a strong indication of what best practice looks like across different sectors.

The release of the consultation paper and interim report are the next steps on the path towards increasing the reporting requirements imposed on Australian companies in line with international law standards and the laws of comparable countries, such as the United Kingdom, the United States, France and the Netherlands. Companies that align their conduct with international best practice will be well positioned to meet new standards in respect of human rights and related focus areas, including the fight against modern slavery and human trafficking. In the meantime, all businesses should consider enhancements to their strategy and systems to prevent and address human rights impacts throughout their supply chains prior to the enactment of reporting requirements, or other legislative reform in this space.