Australian Modern Slavery Act Review: what you need to know and how you can prepare
With the end of year fast approaching, many large companies have their Modern Slavery Statements due or are coming to the end of their reporting period.
In recent news Monash University has released its annual report on Modern Slavery disclosure quality for ASX 100 companies. Notably the bar has been raised for ASX 100 entities with over 40 percent achieving an A rating. Meanwhile the highly anticipated Report of the Statutory Review of the Modern Slavery Act 2018 (Report) was released earlier this year by the Federal Attorney-General. The Report sets out 30 recommendations to amend the Modern Slavery Act 2018 (Cth) (Modern Slavery Act) which, if implemented, would have significant implications for all organisations caught by the regime.
The Modern Slavery Act first came into effect on 1 January 2019 which introduced an annual modern slavery reporting requirement for reporting entities whereby the Modern Slavery statements were required to be published on a world-first government run public register. At the time, this was seen as a “step up” from the UK’s Modern Slavery Act. However, in the years following the Modern Slavery Act’s introduction, the regulatory landscape has changed substantially with a number of more onerous modern slavery frameworks (including in NSW) and ESG issues have only increased in importance.
The original premise of the Modern Slavery Act was that it would tackle modern slavery by increasing transparency and essentially requiring businesses to examine their supply chains to understand their modern slavery risks. However, over time, the Modern Slavery Act was initially criticised as being a “race towards the middle” and, subsequently, not meaningful in its effectiveness. Over the years independent civil studies and government evaluations also reported considerable levels of non-compliance with reporting obligations. For example, in the November 2022 Broken Promises study found that 66% of a sample of reporting entities had failed to address all mandatory reporting criteria, which was only down from 77% in a February study.
Monash University has released its annual report on Modern Slavery disclosure quality for ASX 100 companies. Notably the bar has been raised for ASX 100 entities with over 40 percent achieving an A rating. Other key findings include:
Where are we now?
As part of Australia’s broader response to modern slavery domestically and overseas, the Australian Government published its Report into the review of the Modern Slavery Act on 25 May 2023. Through its consultation process, the Report identified three main issues with the current application of the Modern Slavery Act, being that:
- the standard of modern slavery reporting is variable
- the reporting obligation is not properly enforceable
- the reporting process is at risk of being drowned by a sea of large statements that are incompatible with the mandatory reporting criteria.
In unpacking these three issues, the Report proposes 30 recommendations. We have summarised the key recommendations made in the Report, the potential implications and our recommendations for preparing your organisation below. The full Report is available here.
What are the key changes proposed?
We have summarised the six key recommendations which we consider would have the most significant implications for reporting entities, both big and small if they were adopted by Parliament.
1. Lowering the reporting threshold to $50 million
- The Modern Slavery Act currently applies to entities with an annual consolidated revenue of at least AU$100 million.
- Recommendation 4 of the Report proposes that the Modern Slavery Act should reduce the reporting threshold to AU$50 million.
- If implemented, this proposal would rapidly increase the scope of entities who would be subject to the obligations under the Act.
- The lowering of the reporting threshold would also align the Modern Slavery Act reporting threshold with other reporting regimes such as in the UK and Canada.
2. Introducing of a Due Diligence Obligations
- Mandatory reporting criteria 4 under the Modern Slavery Act requires reporting entities to describe what actions they are taking to assess and address the risks of modern slavery practices occurring in their operations and supply chains, including due diligence and remediation processes in their modern slavery statement.
- The terms ‘due diligence and remediation processes’ are not currently defined under the Act.
- The Report proposes to introduce a duty on a reporting entity to:
- have a due diligence system
- explain in their modern slavery statement what activity has been undertaken in accordance with their due diligence system.
- If implemented, this proposal would significantly increase the obligations placed upon reporting entities not only in terms of assessing and addressing modern slavery risks, but also in terms of the scope of information which must be included in their modern slavery statement, as they would be required to go beyond merely describing the actions taken to address modern slavery risks.
- Interestingly, the Report does suggest that the extent to which a reporting entity must initially comply with this proposal should vary depending upon the size of each entity. Accordingly, the Report recommends that the due diligence obligations should not apply to an entity with a consolidated revenue between $50-$100M until two years after the entity has become subject to the reporting requirements under the Act.
- Like many other proposals, this would align the Modern Slavery Act with the growing number of due diligence based frameworks internationally.
- The report acknowledges that mandatory due diligence is the global norm and suggests that the Modern Slavery Act will move beyond a mere reporting requirement.
- The Report proposes to introduce a duty on a reporting entity to:
3. Introducing an option to submit a full modern slavery statement every three years and updated report in the intervening two years
- As the Modern Slavery Act currently stands, reporting entities are required to submit a modern slavery statement every year.
- The Report proposes to provide reporting entities with an option to submit a full modern slavery statement every three years, as opposed to every year. If a reporting entity adopted this approach, they would be required to include the following information in their updated report in the intervening two years:
- changes to operations and supply chains
- critical incidents
- other risk management developments.
- This proposal seeks to make the reporting process more productive for reporting entities by shifting their attention from formal compliance with the reporting requirements to focusing on due diligence efforts and not being preoccupied with what was criticised in the formal submissions as burdensome and time-consuming reporting requirements.
4. Expanding the mandatory reporting criteria
- Section 16 of the Modern Slavery Act currently outlines what information must be included in an entity’s modern slavery statement.
- This includes information (among others):
- the structure, operations and supply chains of the reporting entity
- risks of modern slavery practices
- actions taken to assess and address risks of modern slavery practices
- how the reporting entity assesses the effectives of actions taken to address modern slavery risks.
- The Report suggests multiple changes to the mandatory reporting criteria under the Modern Slavery Act. Of these changes, the most significant include:
- replacing the phrase ‘operations and supply chains’ with ‘operations and supply networks’
- inserting additional reporting criteria, which would require an entity to report on:
- modern slavery incidents or risks identified during the reporting year
- grievance and compliant mechanisms made available by the entity to staff members and other people
- internal and external consultation undertaken by the entity during the reporting year on modern slavery risk management.
- Of particular importance is the change in ‘supply chains’ to supply networks. In practice, this would mean that joint venture partnerships, investors and upstream / downstream value chains in an entity’s network would possibly be captured under the reporting criteria.
- The wording change is also responsive to criticisms that better guidance is required on to what extent entities should be mapping their supply chains.
5. Introducing the proposed functions of the Commonwealth Anti-Slavery Commissioner
- The Modern Slavery Act does not currently provide for a Commonwealth Anti-Slavery Commissioner.
- Given that the Federal Government has previously committed funding for the appointment of a Commonwealth Anti-Slavery Commissioner in the May Federal Budget, the Report considered the role and scope of powers such a Commissioner should have.
- This included recommending that the Commissioner be responsible for:
- identifying high risk regions, locations, industries, products, supplies or supply chains that must be taken into account in the reporting process by reporting entities
- providing guidelines on special issues relating to reporting obligations under the Act.
- As $8 million of federal government funding over 4 years has already been allocated, it seems at least likely that this recommendation will be accepted by the Australian Government.
6. Introducing offences and penalty provisions
- The Modern Slavery Act does not currently include any offence or civil penalty for non-compliance with obligations under the Act, however, it does provide the Minister with the power to publish an entity’s failure to comply with the reporting requirements on the Modern Slavery Register.
- The Report recommends that penalty offence provisions should be introduced, to provide that it is an offence for a reporting entity to:
- fail to submit a modern slavery statement within a reporting period
- knowingly submit a false modern slavery statement
- fail to comply with a Minister’s request to take certain remedial action to comply with the Act’s reporting requirements
- fail to have a due diligence system in place that meets the requirements outlined in the Act.
- The Report does not make a recommendation as to the monetary amount for such penalty offences and therefore reporting entities will need to await the determination of Parliament as to the value of penalties if this recommendation is adopted.
- In addition, the Report recommends that the penalty offence provisions should not apply to an entity with a consolidated revenue between $50-$100M until two years after the entity has become subject to the reporting requirements under the Modern Slavery Act. This recommendation is intended to provide reporting entities with a two year grace period to ensure compliance with their obligations under the Modern Slavery Act.
- Much like the Anti-slavery commissioner recommendation, given that the federal government’s budget made reference to the introduction of penalties for non-compliance with the Modern Slavery Act combined with criticisms that the Modern Slavery Act does not have “teeth”, it seems at least likely that this recommendation would be adopted.
What should you be doing now?
The modern slavery landscape is changing quickly and, based on our experience advising clients, it is clear that there are significant business benefits to taking a meaningful approach to anti-modern slavery compliance.
Although the Report only contains recommendations which have been tabled in Parliament, it is important that organisations continue to monitor the modern slavery space, as it is likely that at least some of the recommendations will be implemented into the Modern Slavery Act.
In order to prepare for these proposed reforms, we strongly recommend that all entities, whether or not they are currently captured by the Modern Slavery Act, ask themselves the following questions:
Practical Steps to Compliance
|Do we know what modern slavery laws apply to us, including global laws? We are still finding that entities have failed to comply with the MSA despite it being in force for some time.|
Are we aware of which entities have reached the $100 million annual consolidated revenue reporting threshold?
|Do we have a deep understanding of the modern slavery risks in our operations and supply chains – does this extend beyond our Tier 1 suppliers?|
Do we engage with our suppliers and, in particular, suppliers that carry higher risks of modern slavery?
|Have we created targeted policies and procedures which identify, analyse and address modern slavery risks? Have we made them public (where appropriate?)|
Are these ‘operationalised’ within the business and our procurement processes? How will our organisation perform its due diligence obligations in its operations and supply networks?
Given addressing modern slavery is a ‘continuous improvement’ issue, do we have a long term road map which sets out our priorities, KPIs and how we are going to assess the effectiveness of what we are doing?
|Have you formed a project team and assigned roles and responsibilities for the execution of your strategy?|
Is leadership actively involved to create a top down culture?
Have we undertaken training and education amongst our organisation to identify, assess and address modern slavery risks? Are these policies and procedures available for other individuals in the organisation?
How does the Board monitor and review implementation?
|Have you considered how anti-modern slavery compliance and ESG more generally aligns with your organisation’s core values?|
Have you allocated enough resources (including budget and people) to undertake anti-modern slavery compliance and ESG strategy more broadly?
|How does your anti-modern slavery strategy fit within your broader ESG strategy? Modern Slavery compliance is a key part of the “S” and “G”.|
|Do you have processes in place to stay up to date with the latest trends and changes in the modern slavery space, including the 2023 and future Global Slavery Indexes and any reform of the MSA that may result from the recommendations and discussions in the Review Report?|
|Do you have processes in place for the community to make complaints to your organisation in respect of your anti-modern slavery compliance?|
Does your organisation have the ability to remediate any anti-modern slavery complaints?
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