“Ignorance is no longer an excuse. The facts are sobering and real.  An estimated 45.8 million people experience some form of modern slavery in the world today and more than two thirds are in the Asia Pacific Region. Not only is this our regional backyard, it is also where millions of global supply chains intersect. Businesses need to be bold, authentic and transparent in our efforts”

(Dr David Cooke, Managing Director, Konica Minolta, 2016)

WHAT IS MODERN SLAVERY?

It is a common misconception that slavery was officially abolished in the mid-nineteenth century with the introduction of the 13th Amendment in the U.S. However, slavery is still extremely prevalent in modern society.

It appears in different forms and continues to harm people in every country in the world (Anti-Slavery, 2019). The Global Slavery Index estimates that there are over 40 million modern-day slaves, with 15,000 of these being in Australia (ACSI, 2019).

The Anti-Slavery International Organisation classifies someone as a modern-day slave if they are (Anti-Slavery, 2019):

  • forced to work through coercion or mental or physical threat;
  • trapped or controlled by an ‘employer’, through mental or physical abuse or the threat of abuse;
  • dehumanized, treated as a commodity or bought and sold as ‘property; and/or
  • physically constrained or restrictions placed on their freedom of movement.

THE MODERN SLAVERY ACT

What Companies need to know

Only last year, the Modern Slavery Act 2018 was passed in Australia, as a response to modern slavery issues.

The purpose of this Bill is to establish a modern slavery reporting requirement. It will require annual statements from:

  • Australian entities (including corporate Commonwealth entities and Commonwealth companies) with annual revenue of $100 million or more;
  • foreign entities operating in Australia with annual revenue of $100 million or more; and
  • the Australian Government (Commonwealth of Australia, 2018).

    “This legislation sends a clear message that modern slavery will not be tolerated in our community or in the supply chains of our goods and services”

    (Assistant Minister for Home Affairs, the Hon Alex Hawke MP Australian Government, 2018)

    In addition to this, the NSW state government also passed a Modern Slavery Act (NSW). This Act is similar to the Commonwealth Act, however, requires reporting from entities with annual consolidated revenue of over $50 million to report (NSW Government, 2019).

The Bill will come into effect on the 1st of January 2019, and first reports are expected in 2020 within 6 months of the entity’s reporting year and are required to be signed off by the entity’s principal governing body.

How do companies need to comply?

The Modern Slavery Act 2018, both the Federal and the NSW, will require companies to report on their risks of modern-day slavery, by providing a Modern Slavery Statement. The Australian Council of Superannuation Investors (ACSI) provides a framework for understanding the Australian modern slavery reporting requirements. This is the framework that must be complied with by all entities falling under the Bill requirements.

Essentially, a company’s statement must describe;

  • the entity’s structure, operations and supply chains; and
  • the potential modern slavery risks in the entity’s operations and supply chain

Penalties for Non-Compliance

While there are no financial penalties for non-compliance for the first three-years of the legislation, the Bill provides the responsible Minister the power to send “please explain” letters to non-complying entities, and further to publish the names of the non-complying entities. The negative harm that this will have on an entity’s reputation is considered so significant that it will compel a high degree of compliance (Deloitte, 2019).

Failing to comply with the NSW law, or providing misleading legislation, will carry a fine of over $1 million (NSW Government, 2019)

Understanding the Australian Modern Slavery Reporting Requirements (ACSI 2019)

Australian Compliance

These mandatory reporting requirements will force companies to increase the degree of transparency within their supply chains. However, this increased demand for transparency is not only being driven by legislation, but is increasingly required by consumers and external stakeholders, for companies to attain their social license to operate.

SUPPLY CHAIN TRANSPARENCY

Aside from mandatory laws requiring supply chain transparency, it is also being driven by a variety of external factors. Researchers at MIT Sloan School of Management, released a report that revealed consumers are willing to pay a premium for supply chain visibility and social responsibility (Holbrook, 2018).

“To satisfy the modern day socially conscientious consumer – supply chain transparency is critical. The amount of attention paid to supply chains has increased tremendously, and businesses are waking up to the financial, operation and reputational threats that could be lying hidden in their supply chains.”

(HSBC Bank USA, 2017)

Driving Factors for Interest in Supply Chains

There are a number of factors driving the growing interest in supply chains (HSBC Bank USA, 2017):

1-1

Increasing environmental concern: a focus on cutting carbon footprint, managing waste responsibly and reducing the business impact on finite resources.

2

Technology: greater access to information allows business activities to be picked over in much greater detail and for that information to be shared more widely.

3

Social change: enhanced sense of social responsibility, a more cynical and less trusting society and millennial generation that prioritises ethical behaviour and is prepared to challenge existing ways of working.

4

Ethics in mainstream: movements such as Fairtrade, which seeks to stamp out unethical labour and sustainable farming practices have gone from fringe to mainstream, offering consumers more choice.

5

Health and Safety: a greater focus on acceptable working conditions and a culture that stringently enforces these.

 

Benefits from Increased Transparency

Despite increased transparency requiring an increased effort from businesses, there are also inherent benefits involved in transparency.

A recent survey found that 81% of global consumers take a business’s corporate social responsibility (CSR), which includes supply chain, into account when making buying business decisions (Cone Communications LLC, 2015). Smart businesses are using their CSR credentials for competitive advantage. Other benefits from increasing transparency include:

(HSBC Bank USA, 2017):

  • Risk Reduction: a thorough understanding of your supply chain can help identify issues early, so that action can be taken
  • Performance improvement: greater visibility over your supply chain may help you spot opportunities to reduce lead times, boost efficiency or reduce waste
  • Quality control: changes or improvements may add value to the end product or ensure it meets the standards expected

IS YOUR SUPPLY CHAIN AT RISK FROM MODERN SLAVERY

Supply chains can be extremely complex, spanning across different countries, industries and sectors. Detecting the presence of modern slavery within a supply chain is an extremely complex task.

“Somewhere in the operations or supply chains of most businesses, forced labour or, other related practices are likely to be present.”

(ACSI, 2019)

High Risk Countries

The Global Slavery Index 2018 estimated the prevalence of slavery by country, noting the 10 countries that had the highest prevalence (The Minderoo Foundation Pty Ltd. 2018):

  1. North Korea
  2. Eritrea
  3. Burundi
  4. The Central African Republic
  5. Afghanistan
  6. Mauritania
  7. South Sudan
  8. Pakistan
  9. Cambodia
  10. Iran
Map

High Risk Categories:

ACSI, 2019 identified the top three high risk categories of modern slavery as:

  • raw materials
  • services procurement
  • branded and unbranded goods not for resale
Raw Materials For many ASX200 listed companies, raw material procurement will not take place from a direct, tier one supplier.
This reduces visibility over raw materials in the supply chain.
Companies need to be aware that raw materials may be being sourced from conflict-prone countries or geographies which are regarded as high risk
Services Procurement Key modern slavery risks relevant to most sectors are found in services procurement, including building services, travel, security and maintenance services
Branded & Unbranded Goods, not for resale Goods that are used for a company’s internal or corporate functions are often housed within separate procurement teams or have decentralised procurement responsibilities
While the complexity of the supply chain is no different, there are frequently limited systems or controls in place to monitor the human risks that might be associated with the products manufactured and sourcing of such products
These are often low spend categories and therefore are not captured in the risk matrix

High Risk Sectors:

Financial Services The risk tends to be lower as it relies on a highly skilled workforce.
However, they are increasingly acknowledging that they are in fact exposed to modern slavery risk through their supply chain.
High risk areas include;  IT procurement, Logistics and property, Building services
“Understanding and identifying human rights risks arising from business relationships along our value chain, from suppliers through to customers, is the most significant area of human rights risk faced by NAB. This is because we cannot directly control or mitigate these risks ourselves – they are the responsibility of third parties (Rosemany Bissett, Head of Sustainability Governance and Risk, NAB)”
Property The vertical integration of many property sector companies across both development and management levels leave the sector exposed to modern slavery risks in construction and the procurement of services engaged in property management.
Property faces challenges with complex supply chains where all the high-risk factor categories in Table 1 are present.
Australian companies commonly source raw building material from Asia (high risk countries), including India, Pakistan, North Korea, Cambodia, Myanmar, Bangladesh and the Philippines
Food, Beverage & Agriculture

The supply chains of the food, beverage and agriculture (FBA) sector have a high-risk of modern slavery due to the nature of the work necessary in the production, processing, packaging and transport of the food and fibre.
The ILO has identified that 11% of forced-labour victims worldwide are within the agricultural and fishing sector.
Specific categories carry additional risks in the FBA sector. For example, a range of commodities sourced by Australian companies, such as, cocoa, coffee and palm oil are known to be associated with child labour in their supply chain

“In Australia, about two thirds of the seafood that we eat is imported (Professor Jessica Meeuwig).” “Most of it comes from the countries where we know there is a high risk of slavery being used to provide the fish (Professor Jessica Meeuwig).”

Mining
Representing 16% of the ASX200, the mining sector has operations which are high risk for modern slavery.
Generally, the mining sector is relatively mature in addressing environmental and work health and safety risks.
Transportation is a high-risk category in the mining sector, and involves many logistical challenges, including the movement of heavy metals and materials from remote mines across the world.
The modern slavery risks associated with global shipping and other freight services have attracted attention, with more emphasis being placed on managing these risk contexts.
Healthcare

Representing 8.2% of the ASX200, the healthcare sector faces the highest modern slavery risks in the procurement of medical goods, including electronics and surgical equipment and medical supplies.
Most Australian healthcare companies source their workers and goods from Asia, where low-cost labour is widespread. Factories around Asia are also highly reliant on migrant workers from nearby developing countries, arriving either illegally or through ‘guest worker’ programs.

“Despite their legal and moral responsibilities, the health care sector and government in Australia are failing to address labour and human rights violations linked to the production of healthcare goods (Australian Nursing and Midwifery Federation, 207).”

 

SUMMARY

There are organisations that are performing well within the Modern Slavery legislation. Our article on Supply Chain Assurance showcases how they are doing this.

Many of our clients are already adhering to the Modern Slavery requirements, through their responses to the Modern Slavery UK Act. This adherence will make them ready to meet the requirements of the Australian legislation.

If you are not ready, the Siecap team can help by providing the following services:

  • Education and awareness on modern slavery
  • Assistance in developing policies, processes and procedures
  • Provide auditing and assurance that companies are performing
  • Desktop studies on stated vs actual processes
  • Conduct detailed site-based assessments on supply chain processes
  • Assist with:
    • Supply chain transparency and mapping
    • Supply chain assurance and auditing

Contact the Siecap Team to discuss how we can assist you.

Further Reading

Supply Chain Assurance

Transparency requires detailed supply chain process mapping,  which can be achieved through (SCA)

Build a Resilient Supply Chain

Changed demands are giving greater weight to the design of resilient supply chains.

Supply Chain Risk & Spend Analytics

Mapping annual procurement spend by leveraging data and implementing new capabilities.

References:

ACSI. (2019). Modern Slavery: Risks, Rights & Responsibilities. Retrieved from https://assets.kpmg/content/dam/kpmg/au/pdf/2019/modern-slavery-guide-for-companies-investors-feb-2019.pdf

Anti-Slavery. (2019). What is modern slavery? Retrieved from Anti-Slavery: https://www.antislavery.org/slavery-today/modern-slavery/

Commonwealth of Australia. (2018). Modern Slavery Bill 2018. Retrieved from Parliament of Australia: https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd1819a/19bd012

Cone Communications LLC. (2015). 2015 Cone Communications/Ebiquity Global CSR Study. Retrieved from Cone: A Porter Novelli Company: https://www.conecomm.com/research-blog/2015-cone-communications-ebiquity-global-csr-study

Dell Inc. (2018). Dell Supply Chain Assurance.

Deloitte. (2019). Modern Slavery Act 2018. Retrieved from Deloitte: https://www2.deloitte.com/au/en/pages/risk/articles/modern-slavery-act-2018.html

Fairtrade Australia New Zealand. (2016). What is the Fairtrade mark? Retrieved from Fairtrade: https://fairtrade.com.au/What-is-Fairtrade/What-is-the-Fairtrade-Mark

Holbrook, E. (2018, December 20). Study Shows Consumers Willing to Pay Premium for Supply Chain Transparency. Retrieved from Environment + Energy Leader: https://www.environmentalleader.com/2018/12/study-shows-consumers-are-willing-to-pay-a-premium-for-supply-chain-transparency/

HSBC Bank USA. (2017, July 3). Social Responsibility + Supply Chain Transparency? Swipe Right! Retrieved from HSBC: https://www.business.us.hsbc.com/en/us/article/social-responsibility-and-supply-chain-transparency

NSW Government. (2019, February 28). Modern Slavery. Retrieved from NSW Government: https://www.nsw.gov.au/improving-nsw/projects-and-initiatives/modern-slavery/