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| The Modern Slavery Act 2018 (Cth) (Commonwealth MSA) came into force on 1 January 2019. Australian entities and international entities that carry on business in Australia (Reporting Entities) with an annual consolidated revenue of AUD100 million or more must report under the Commonwealth MSA annually.
The Commonwealth MSA prescribes mandatory reporting obligations, which require Reporting Entities to identify 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 supplier questionnaires and other means of conducting due diligence on suppliers, to enable Reporting Entities to describe the risks. It 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.
Global entities are conscious that the Australian legislation has mandatory reporting criteria which means that Australian modern slavery statements tend to provide more detail to consumers, business partners and other stakeholders in relation to their human rights commitment. As a result, the statements are being reviewed at global head offices as well as in Australia before being approved. There is significant pressure from commentators to improve statements and practices year-on-year, including comparative scoring.
Statements are published and made publicly available on the Australian Government’s Modern Slavery Register.
State
New South Wales is the only state or territory in Australia with their own modern slavery reporting regime, the Modern Slavery Act 2018 (NSW) (NSW Act). The NSW Act commenced on 1 January 2022, requiring NSW government agencies to take reasonable steps to avoid modern slavery in the supply chain of goods and services they acquire. However the reporting regime in the NSW Act only applies to NSW government agencies. This means that private sector businesses in NSW only need comply with the reporting regime under the Commonwealth MSA.
The NSW Act also empowers the NSW Anti-slavery Commissioner, the NSW Procurement Board, and the NSW Auditor-General to oversee efforts to remove products of modern slavery from public procurement. Dr James Cockayne was appointed the NSW Anti-slavery Commissioner for a five-year term and commenced in this role in 2022. The Commissioner has broad oversight over Government policies addressing modern slavery, the development and publication of codes of practice to provide guidance, and maintaining a public register that identifies any government agency failing to comply with the directions of the NSW Procurement Board, any state owned corporations not reporting under the NSW Act, and any other information that the Commissioner considers appropriate.
Other states and territories have ethical procurement strategies in place.
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| Following a string of recent corporate misconduct scandals and inquiries in Australia, shareholder activism is 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. On 27 February 2019, the ASX Corporate Governance Council published updated guidance relating to the disclosure of corporate governance practices by ASX-listed entities. It took effect for a listed entity’s full financial year commencing after 1 January 2020. The guidance suggests that listed entities should disclose any exposure to environmental or social risks, and how the listed entity 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 reflecting human rights risks.
The Australian Securities and Investments Commission (ASIC) has targeted sustainability-related products issued by funds for greenwashing. ASIC’s deputy chairwoman stated in December 2022 that “Greenwashing is not limited to environmental claims but extends to misleading ethical propositions. Entities which seek to promote ethical investing must ensure their statements are accurate and able to be substantiated”. The market can expect further infringement notices to be handed down by ASIC and civil penalty proceedings against entities found to be exaggerating or misrepresenting the ethical or environmental impact of their financial products.
Financial institutions are taking the risk that their customers are linked to modern slavery increasingly seriously, particularly for larger customers. This is partly driven by Equator Principles 4, which provide that human rights risks need to be included in the assessment of projects.
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| On 25 May 2023, a three-year statutory review of the Commonwealth MSA was tabled in the Australian Parliament. The review contains 30 recommendations to be considered by Government which include:
- Obliging entities to have a modern slavery due diligence system in place;
- Establishing a Commonwealth Anti-Slavery Commissioner;
- Lowering the consolidated revenue threshold for a Reporting Entity from AUD100 million to AUD50 million; and
- Introducing civil penalties for the failure to produce a modern slavery statement or producing a modern slavery statement which knowingly includes materially false information.
While the recommendations made in the review are yet to become legally binding, it is a matter of ‘when’ not ‘if’ the Commonwealth Act will be amended. As more stringent obligations are likely to be forthcoming, businesses must seek advice on the adequacy on their current approach and the way forward.
Additionally, civil society groups and academia have continued benchmarking the quality of Australian modern slavery statements, having particular regard to the year-on-year improvements made by Reporting Entities. These benchmarking reports have called out companies failing to implement meaningful human rights due diligence processes and adopting a tick box approach to MSA reporting. Benchmarking reports have also identified the companies that are adopting best practice and ‘leading the pack’ in their respective sectors. Typically, these companies have embedded modern slavery due diligence measures as part of their “business as usual” approach.
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