Richard Boele, partner, KPMG Banarra, Human Rights and Social Impact Services and Meg Brodie, associate director, KPMG Banarra, Human Rights and Social Impact Services discuss the impact of Modern Slavery legislation

Thousands of companies in Australia are going to have to consider how they manage the risk of modern slavery in their businesses after Minister Hawke introduced the Modern Slavery Bill 2018 to the floor of the Federal Parliament today. The targeted legislation, comes after an extended consultation period involving business, civil society, and subject matter experts.  The government’s preferred approach to encouraging greater transparency and better management of modern slavery risks is clear.

Australia joins a global trend towards increasingly potent public corporate human rights reporting obligations, adopted in the broader context of the United Nations expectation that corporates honour their responsibility to respect human rights. Australia adds to requirements for business to report on human rights risks in other countries including the UK, US, France, and the Netherlands. Many other governments have pledged their introduction. The risk to business for non-compliance will increase exponentially over time as each new country implements its own human rights risk requirements. If your company has a global footprint the smartest response to Australia’s modern slavery legislation is to develop a robust, measurable approach to identifying and managing human rights risk.

Australian businesses are mostly at the start of their human rights risk journey. The modern slavery legislation is clearly designed to encourage compliance through greater collective transparency. Strong leadership, particularly by those companies which have already reported under similar legislation in the UK, is helping to drive the conversation beyond a narrow focus on legal compliance towards practical responses to managing modern slavery risk. While entities on the edge of the $100 million annual revenue threshold may need to do some work determining whether they are captured, and important consultation will need to take place amongst groups of entities about joint responses, in the main the legislation focuses our attention on the mandatory reporting criteria and who bears responsibility over reporting accuracy.

We have known for a long time now that the Australian government wants boards to own the entity’s response. The legislation confirms that a director will need to sign the publicly available, annual ‘modern slavery statement’. We are already seeing an uptick in board interest, along with specific requests from audit and risk committees, company secretaries, and heads of legal, risk and compliance. This shift away from sustainability or corporate social responsibility teams – the historic internal champions for improved human rights or social impact performance – represents the start of the mainstreaming of human rights concerns as core business. Compliance with the modern slavery legislation must be now a critical entry on corporate risk registers.

The mandatory reporting criteria clarify the next steps for Australia’s large and leading companies.  As a starting point, we recommend Boards ask management to address the following four questions:

  • Do we have accurate records and high visibility over our supply chain?
  • Do we have a practical, actionable plan to identify and manage modern slavery risks in our operations and supply chain?
  • What will we do when we inevitably find modern slavery?
  • How do we measure our effectiveness at stopping slavery?

Each entity’s unique risk profile will shape the specific responses you need to make in order to be ready to report. High risk product categories and high risk geographies should be a necessary first focus. However, it is also a confronting realisation that there may be slavery-like conditions right here in your Australian supply chain, and for some, directly within your operations. In our experience, many companies have only partial visibility over who actually provides the products or services they use, especially beyond the first tier.

Australia’s modern slavery legislation is a game changer for business and human rights in this country. For example, we are already aware of a number of budding sector-based initiatives which aim to take a pre-competitive approach to the mitigation of modern slavery risk. In a race to the top, open promotion of leading practice and shared learning will drive change.

Other stakeholders have a critical role to play in supporting this process. As the Parliament determines the final form of the legislation, government will need to provide clear guidance to business in order that they might comply and promote genuine change. Partners in civil society, investors, the media and consumers will influence corporate responses too. Beyond calling out wilful non-compliance, one important response will be constructive dialogue with companies which use their annual modern slavery statements to proactively come forward to identify modern slavery risks. This is crucial to fostering continued transparency and protection of vulnerable populations.

Identifying risk is at the heart of the new Australian modern slavery legislation. Some companies may choose to do the absolute minimum but is that really enough when it comes to a company potentially causing human rights harm? Those companies that want to do more than just comply will go beyond modern slavery and identify the other human rights risks that are present in their supply chains and operations. All companies are about to experience increased scrutiny of how responsible they are in respecting human rights.