The Chair of the Foreign Affairs and Aid Sub-Committee, Mr Chris Crewther MP, yesterday tabled the Joint Standing Committee on Foreign Affairs, Defence and Trade's (Committee) Inquiry Report seeking to address the scourge of modern slavery in Australia and abroad ( Report). The Report has made 49 recommendations with respect to introducing a proposed Modern Slavery Act. The most significant recommendation is the requirement for companies, organisations, government and other legal entities with an annual revenue above $50 million to publish an annual modern slavery statement (Statement), including the following criteria:
- the organisation's structure, its business and its supply chains;
- its policies in relation to modern slavery;
- its due diligence and remediation processes in relation to modern slavery in its business and supply chains;
- the parts of its business and supply chains where there is a risk of modern slavery taking place, and the steps it has taken to assess and manage that risk;
- its effectiveness in ensuring that modern slavery is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate;
- the training about modern slavery available to its management and staff; and
- any other actions taken.
In addition, it is recommended that the Statement:
- be approved at the board level and signed by the equivalent of a director;
- be published on the company's website, or in their annual report or other public document if they do not have a website; and
- be filed in a publically accessible central repository (potentially as part of a combined international repository to provide for consistency and to avoid unnecessary duplication, particularly for entities reporting in multiple jurisdictions).
Definition of reporting entities
The Committee has recommended that the definition of "entities" subject to the mandatory supply chain reporting requirement include, but not be limited to: companies, businesses, organisations (including religious bodies), governments, bodies corporate, unincorporated associations or bodies of persons, sole traders, partnerships, trusts, superannuation funds and approved deposit funds.
What are the timeframes for compliance?
The recommended timeframe for the provision of Statements is within five months after the end of the Australian financial year. Assuming the Bill is passed before July 2018, entities would likely have to submit first year Statements by November 2019.
Are there penalties for non-compliance?
The Committee does not envisage the imposition of financial penalties for non-compliance in the first year of reporting, but recommends introducing penalties for entities that fail to report in the second year of reporting onwards. The Committee recommends a review of further penalties as part of the first three-year review of the Act.
Reputational risks amid increasing public and investor scrutiny are likely to promote compliance with the reporting requirements. One of the recommendations is the publication of a list of entities required to report, a list of entities above the threshold who have reported, and the entities below the threshold that have reported voluntarily. This will work to improve accountability, transparency and reward compliance. It is also recommended that a list be published with the entities above the threshold that fail to report after the second year of reporting onwards.
Suppliers to the Commonwealth Government
Entities that supply goods or services to the Australian Government should note that the Report recommends that the Australian Government only procure from entities that comply with the modern slavery supply chain reporting requirement, regardless of whether their income exceeds the proposed revenue threshold or not. In the event that this recommendation is accepted by Parliament, it will have significant implications for many entities involved in servicing the Government sector.
What can entities do now to prepare?
In light of the bipartisan support for a Modern Slavery Act, it is likely that the legislation will be passed in the House of Representatives and the Senate in the new year. Now is therefore an ideal time to review your business's operations and supply chains for human rights impacts.
Having regard to the reporting criteria, companies and other legal entities ought consider the following steps:
- Mapping the organisation's structure, businesses and supply chains.
- Formulating policies in relation to modern slavery – this will involve collating current policies, identifying gaps, adapting existing policies and formulating new policies, as needed.
- Carrying out a human rights risk assessment – identifying those parts of the business operations and supply chains where there is a risk of modern slavery taking place.
- Assessing and managing identified risks – this may include carrying out further due diligence in the entity's operations and supply chains and reviewing contract terms and codes of conduct with suppliers.
- Considering and establishing processes and KPIs to monitor the effectiveness of the steps taken to ensure that modern slavery is not taking place in the business or supply chains, including by way of corporate giving.
- Carrying out remedial steps where modern slavery is identified.
- Developing training for staff on modern slavery risks and impacts.
By undertaking these steps, businesses will be well placed to respond effectively to new regulations and show that they are committed to eradicating modern slavery, in Australia and overseas, and taking concrete steps to achieve that objective.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.