REUTERS | Tiksa Negeri

Modern slavery and human rights: new directions for company reporting

Outside the narrow world of those few of us who work as specialist advisors to companies and institutions on labour and human rights, the UN Guiding Principles on Business and Human Rights (UNGPs) have not had an enormous impact on broader legal practice; neither in terms of awareness, nor implementation. This will change significantly in the UK in the coming year, predominantly because of the impact of section 54 of the Modern Slavery Act 2015 (MSA).

The bulk of the MSA is concerned with toughening the criminal law and state enforcement powers related to trafficking and keeping people in slave-like conditions. However, anti-slavery campaigners and many leading businesses, co-ordinated by the Ethical Trading Initiative, were successful in promoting a stand-alone “transparency in supply chains” clause in the MSA, which requires larger companies to report on what they are doing to address slavery and trafficking.

Section 54 provides that businesses with a UK presence, irrespective of where they are registered or domiciled, with annual global sales of more than £36 million, should make an annual modern slavery statement. This should be signed off by a director and prominently positioned on their website. It is recommended that it cover:

  • Relevant policies.
  • Processes for identifying modern slavery risks in their own operations and supply chains.
  • The actual risks identified.
  • Actions taken to reduce the risk and monitor performance.

The provisions first come into effect in relation to all companies whose financial year end falls on or after 31 March this year and we have already seen several companies reporting in advance.

Key points for businesses about the new rules

1. Reporting is obligatory, detail and action is not

Enforcement is relatively weak under the legislation. The Secretary of State may take High Court proceedings in respect of companies who don’t report at all, although in our view, there will be few such actions. What’s more, it is open to a company simply to report that they do nothing to assess risk and also have no policies or specific actions in relation to modern slavery. While theoretically possible, and fully compliant with the legislation, for many companies this is a non-starter.

2. External pressures and scrutiny more likely to drive action

Large companies in the line of sight of non-governmental organisations, civil society organisations and trade unions are likely have their MSA statements reviewed, benchmarked and critiqued. This will be a significant driver for action. Many other companies will find that business-to-business pressures will affect the way they report.

So, for example, several organisations (public and private) are starting to ask their suppliers and contractors for modern slavery statements. The fact that the statements are legally mandated and publicly available will mean that they soon become a regular part of procurement due diligence.

3. This is about something more than having a policy and putting clauses in contracts

There are many businesses that have a policy on modern slavery issues, which often covers much broader labour rights issues, and may also include contractual clauses backing up this policy for their suppliers and contractors. Important as this is, it should not be the only action that a business takes.

The expectation contained in the MSA and its associated guidance is that companies should carry out a risk evaluation of their own operations and those of their business partners. They should identify functional or geographical risk areas and then devise appropriate steps either alone, or in collaboration with others, to address any identified risks. This approach is in line with the UNGPs and the way leaders in the field of business and human rights work.

4. Is there a risk appetite for the disclosure of risk?

One of the consequences of going beyond a “policy/contract” system and taking a “risk assessment/action” approach is that there may be some areas of a company’s business (or that of its suppliers) where there is an identified risk of modern slavery. If this is the case, one of the most difficult issues to address will be the extent to which this identified risk, and any response, is disclosed in the MSA statement. Our analysis of early statements and those made under the equivalent California legislation indicate that a broad description of process, geographies and issues may be more likely than detailing specific instances.

5. The law is relatively straightforward, company practice less so

While there are several issues that still need to be ironed out under the MSA (for example, the degree to which a non-UK parent company needs to report where there is already reporting through its subsidiary) the basic legal duty is relatively minimalist and clear. More difficult are the practical actions companies need to take to address the risk of modern slavery in an appropriate, relevant and meaningful way.

Many of the MSA statements of companies operating in a relatively low-risk environment will correctly reflect a minimal level of action. However, for businesses that either do, or should, have a significant programme of action on modern slavery and human rights, their disclosed statement may not reflect either the actual or optimal level of activities in the first years. This is because either they are yet to develop their human rights and modern slavery due diligence or they are uncomfortable about disclosing everything they find or do. Although there is a growing depth of understanding about what such due diligence may look like, and there are many useful examples from some sectors, we are still in the early stages of developing a broader professional understanding of what is required.

Our experience with clients is that the mere fact that a statement has to be prepared and disclosed is starting to cause businesses to think beyond the statement to the process and systems they require to assess modern slavery risk and human rights impacts in a way that they have never done before. This is particularly noticeable in sectors outside the obvious areas like supply chains to supermarkets or clothing retailers or the extractive industries. This process will take time and, given the seriousness of an issue like modern slavery, anything that encourages the private sector to take a realistic and proactive approach to contributing to its eradication can only be welcomed.

Ergon Associates Steve Gibbons

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