Preparing a robust modern slavery statement with an eye to the future

So you have to prepare your first modern slavery statement under the Australian Modern Slavery Act 2018...

Here are some thoughts and tips on preparing a robust first statement that aligns with the true intent of the legislation - to identify and address modern slavery.

Many organisations have either recently completed their inaugural modern slavery statement under the Australian Modern Slavery Act 2018, or are busily preparing to do so. Some organisations have published their statements including Woolworths, Fortescue Metals Group and Wesfarmers. We are already into the second reporting period for many businesses.

Now is a great time to consider the purpose and value of modern slavery reporting. It is just one part of efforts that organisations need to undertake to combat modern slavery in operations and supply chains. For those groups that are yet to finalise their first statements, ensuring you meet the mandatory reporting criteria and set the scene for meaningful, long term action is critical (see tips below!). For companies who have recently published or submitted their statements, embedding meaningful action is the next step.

At best, a balanced, accurate and transparent modern slavery statement can meet the legal requirements as well as providing an insight into an organisation’s approach to and management of modern slavery risks. At worst, the preparation of a statement is treated as a compliance exercise and misses the opportunity to bring further value to a business.

Modern slavery statements are one of many non-financial disclosures, both voluntary and legally mandated, which Australian companies undertake on an annual basis. Sustainability reporting has evolved considerably over the past decades. It is fair to say that sometimes the reporting tail has wagged the dog – without the disclosure requirements, action on sustainability may never have happened, or may have taken much longer. This shows the value of disclosure (voluntary and regulated) to progress important sustainability agendas.

Over the last few years I have worked with numerous organisations to develop and implement robust due diligence systems to tackle Environmental Social and Governance (ESG) risks, including modern slavery. Many organisations have considered their human rights and modern slavery risks and impacts as a direct result of the Modern Slavery Act 2018. I've been struck (and heartened) by the rapid and considered response to the call to action. We must be careful and strive to avoid two things:

1. Treating the preparation and publication of a modern slavery statement as the outcome; and
2. Having the time and expertise of sustainability professionals focused on the preparation of these statements, at the cost of efforts to identify and address modern slavery.

Don't get me wrong. I love to read a carefully crafted, well designed statement as much as the next sustainability reporting nerd. However, I'd rather the resources and effort be focused on the complex, time-consuming and challenging work of due diligence across global supply chains and organisations.

Let’s work to solve the actual problem, not just report on it.

The real measure of success here is not preparing a nice-looking modern slavery statement, it's identifying and addressing exploitation with steadfast dedication and laser focus. 

The broader challenge of making modern slavery reporting something more than just a compliance exercise is an issue I have been thinking deeply about for some time. My colleagues and I are working on a broader and in-depth research piece relating to this – watch this space.

For now, I know that most companies are focused on preparing their first statement. To that end, here are some tips on how to make the most of the reporting process in the first year, and ensure continuous improvement in years to come.

What are the reporting requirements?

• The Australian Modern Slavery Act 2018 aims to tackle one of the most significant ethical challenges of our time by driving transparency and accountability across businesses and their supply chains.
• The Act applies to all entities with an annual consolidated revenue of over AUD$100 million, whether they are Australian entities, or foreign entities carrying out business in Australia. These entities are called reporting entities in the Act.
• Reporting entities must prepare and submit an annual modern slavery statement that meets the mandatory reporting criteria of the Act.
• Reporting entities must submit their annual statement to the Australian Government within 6 months of the end of their reporting period. 

What is within scope?

The Act requires reporting entities to discuss modern slavery risks and any actions taken to address risks in an entities operations and supply chains. The Guidance to the Act defines operations and supply chains broadly and it is important to ensure you understand how it applies to your operations and supply chains.

• Operations: Activity undertaken by the reporting entity to pursue its business objectives and strategy in Australia or overseas
• Supply Chains: The products and services (including labour) that contribute to the entity’s own products and services. This includes products and services sourced in Australia or overseas and extends beyond direct suppliers

What have companies done in the first reporting period?

• Australian companies are taking a varied approach to compliance with the Act. For some, human rights and modern slavery due diligence has been part of their corporate DNA for many years, but for most organisations, this is a significant shift in thinking and approach to operational and supply chain management.
• Many organisations have articulated a corporate commitment to addressing modern slavery through a human rights policy or modern slavery policy
• Mapping operational activities and supply chains within scope is a common first step in the due diligence process
• Performing a risk assessment over operations and tier 1 suppliers, often using a supplier questionnaire, has been undertaken by many large reporting entities
• Some organizations have started to evaluate existing systems and controls to manage modern slavery risks to identify gaps

What can we expect in the second reporting period?

• Embedding due diligence more fully through implementation of additional controls in HR and procurement functions
• Delving deeper into their supply chains for high risk products and performing more in depth due diligence on high risk suppliers, sometimes through the use of third party audits.
• Identifying root causes for adverse impacts and remediation of harm is a longer-term goal, but is one that should be considered in the design and roll out of the modern slavery risk management approach.
• Establishing a plan to address modern slavery instances as they arise through the due diligence process is critical to establishing a robust system.
• Industry level collaboration. Many of the most significant modern slavery risks and impacts are systemic and industry wide, and will be more surmountable where an industry level approach is considered.

Where should responsibility reside within your business?

Many reporting entities are grappling with establishing appropriate governance structures to oversee modern slavery risk management. Depending on the organisation, overall responsibility for managing modern slavery risks may reside with teams responsible for: Corporate Affairs, Sustainability, Risk, Legal, Procurement, Operations or Supply Chains. In deciding how to best allocate responsibility within the organisation, consider the following:

• Is there a sufficiently senior role with overall responsibility for compliance with the Act and oversight of modern slavery risk management?
• Are the individuals within the business tasked with managing modern slavery risks sufficiently resourced and skilled?
• Are there systems in place to track the modern slavery risk management within the business?
• Is there clear and regular internal reporting on progress?
• Is there a need to establish a working group with representatives from all relevant business units covering the full scope of the Act?

What are we hearing about the statements submitted so far?

An interesting aspect of the Australian legislation is the requirement for companies to submit their statements to the Australian Government for review and publication on the Modern Slavery Register. While the register does not currently have any approved statements published, we expect the first tranche to be available this month.

The Minderoo Foundation recently hosted a webinar Addressing Modern Slavery in New Zealand Supply Chains, which you can watch here. During the webinar, a representative from Australian Border Force (ABF) shared some helpful insights on good and poor practice trends based on the statements received by the government so far (approx. 85 statements have been received by ABF to date).

Good and best practice trends:

• Using clear headings which align closely to the seven reporting criteria under the Act. This makes statements more comparable and accessible to readers.
• Clearly demonstrating a commitment to continuous improvement. The best statements come from companies which have a clear plan for the coming years. 
• Recognising the impacts of COVID-19 both in creating new modern slavery risks (for example through the procurement of PPE) and amplifying existing risks.

Poor practice trends:

• Entities failing to meet the technical requirements such as clearly identifying the reporting entity (particularly for large corporate entities).
• Omitting information on consultation with subsidiaries and other reporting entities (for joint statements).
• Failing to fully describe the risks of modern slavery. For example, ABF are seeing lots of statements which say 'we have identified a risk of modern slavery in our offshore supply chains' without specifically identifying what those risk areas are. According to ABF, to be compliant, these statements should either describe or give an indication of what the risk areas are.
• Relying too heavily on external documents (such as sustainability and annual reports). ABF noted that while it's good to refer to other relevant documents, a modern slavery statement should be a stand-alone document.

How are you finding the process of preparing your first modern slavery statement - I'd love to hear your thoughts or tips. Over to you!