In Australia, we have seen significant movement within the corporate landscape in relation to adhering to modern slavery laws and other business human rights obligations over the past year.
The Modern Slavery Act 2018 (Cth) (Commonwealth MSA), which came into force on 1 January 2019. The state of New South Wales is currently in the process of harmonising its own MSA with the Commonwealth MSA (its act is not in force). Australian entities and international entities that carry on business in Australia (Reporting Entities) with an annual consolidated revenue of AUD100 million (USD75million) or more must report under the Commonwealth MSA annually. The Commonwealth MSA prescribes mandatory reporting obligations, requiring them to identify and mitigate risks of modern slavery in their operations and supply chains. The reporting criteria are:
- identify each relevant Reporting Entity;
- describe the structure, operations and supply chains of each reporting entity;
- describe the risks of modern slavery practices in the operations and supply chains of each reporting entity and any entities each reporting entity owns or controls;
- describe the actions taken by each reporting entity, and any entity it owns or controls, to assess and address those risks, including due diligence and remediation processes (this expressly includes training);
- describe how each entity assesses the effectiveness of its actions;
- describe the process of consultation with any entities each reporting entity owns or controls and, if the statement is given jointly with other entities, the entities giving the statement.
The obligation on Reporting Entities to describe their modern slavery risk (in relation to their operations and supply chains and those of their owned or controlled entities) has driven significant change in corporate behaviour. It has resulted in a broad adoption of questionnaires and other means of conducting due diligence on suppliers within Australia. The need to describe actions taken to manage modern slavery risk has also resulted in widespread adoption of modern slavery and human rights policies and procedures, including modern slavery/human rights obligations in supply agreements. Larger entities and governments are driving change in smaller entities by adopting procurement processes that require suppliers to demonstrate their commitment to managing their human rights impacts. The planned trickle-down effect is working.
Global entities are conscious that the Australian legislation is the high water mark so, for now, Australian modern slavery statements provide the most detail to consumers, business partners and other stakeholders in relation to their human rights commitment. As a result, the statements are being reviewed at head office as well as in Australia before being approved.
Reporting entities have now started submitting their Statements in accordance with the Commonwealth MSA ahead of the deadline for the first reporting year. These statements will be published and made publicly available on the Australian Government’s Modern Slavery Register.
Following a string of recent corporate misconduct scandals and enquiries in Australia, shareholder activism in on the increase, led by institutional investors, demanding greater corporate accountability on issues relating to human rights, Indigenous and cultural rights, and climate change. The Australian Stock Exchange (ASX) has similarly amplified its focus on promoting compliance of business human rights best practice. Earlier this year, the ASX Corporate Governance Council published an updated guidance relating to the disclosure of corporate governance practices by ASX-listed entities. One of the changes provides that listed entities should disclose any exposure to environmental or social risks, and how it manages or intends to manage such risks. The definition of ‘social risks’ is wide-ranging, including the potential negative consequences to a listed entity through any activities which adversely affects human society, such as modern slavery, aiding human conflict, facilitating crime or corruption, or harming the local community. Accordingly, more annual reports of ASX listed entities are also reflecting human rights risks.
Financial institutions are taking the risk that they are linked to modern slavery via their customers increasingly seriously, particularly for larger customers. This is partly driven by Equator Principles 4, which provides that human rights risks need to be included in the assessment of projects.
What do you predict for 2021?
We consider that the trend of entities developing their human rights platforms and programs will continue. The trickle-down effect will mean that smaller entities that do not need to report still need to address their human rights impacts to meet procurement requirements. A lot of entities that adopted high level reviews of their suppliers in 2020 are planning deeper dives for 2021.