Modern Slavery and conducting responsible business in a changing regulatory landscape – what do all developers need to know?
Modern slavery is a complex global problem, and it has been just over four years since the Australian Government introduced the landmark Modern Slavery Act 2018 (Cth) (MSA) in early 2019. However, since that time, we have seen rapid changes in Australia and abroad when it comes to the approach of addressing the issue of modern slavery.
The development and construction industries are both considered as part of a higher risk sector. Whether you are required to report under the MSA or not, taking steps to address modern slavery risks in your organisation’s operations and supply chain is an issue which requires proactive management with customers, consumers and investors who are increasingly concerned about ethical procurement. This is especially relevant in a sector that is known to have long and complex supply chains, where there is often less visibility over the operations of lower tier suppliers.
In this Article, our modern slavery team explores what the key trends are in this space and what to look out for in the next 12 months. The Maddocks team also provides a practical checklist for developers to help you assess your organisation’s anti-modern slavery maturity.
The current regulatory landscape and how we get here
There have long been calls for modern slavery laws to be adopted in Australia. So, what is 'modern slavery' and how bad is it?
Modern slavery is where coercion,
threats or deception are used to exploit victims and undermine or deprive them
of their freedom. It covers practices like slavery, servitude, human
trafficking and forced labour. For example, a report published by the Clean
Energy Council in 2022 detailed allegations of forced labour within a global
solar supply chain linked to the Xinjiang region of China, which is considered
a higher risk geographic area. Unfortunately, modern slavery is both a global
and local problem involving grave human rights abuses for victims and can occur
in the operations or supply chains of any organisation.
Importantly, as supply chains and procurement become increasingly complex, especially in the development and construction space where materials are often procured from overseas, so too does the prevalence of modern slavery. In fact, there are now more slaves in the world than ever before, even as laws against slavery have been in place for some time. To put it into perspective, the United Nations and the Walk Free Foundation, in its 2023 Global Slavery Index, estimate there are approximately 50 million victims of modern slavery around the world and approximately 41,000 modern slavery victims in Australia in 2021, despite having the strongest government response to modern slavery in the Asia-Pacific region.
The MSA was introduced in 2019 and requires large organisations (those with a consolidated revenue of at least $100 million) to submit an annual modern slavery statement to a public register, which must cover seven key criteria. While these bare minimum legal requirements of the MSA are fairly simple, the Australian Government has released detailed guidance on what it expects organisations to be doing to assess and address modern slavery risks in their operations and supply chain.
When the MSA was first introduced, it was billed by the Australian Government as a ‘step-up’ from other reporting regimes. However, in the first few years, both the MSA and reporting entities received criticism for mere ‘box ticking’.
However, four years on attitudes have changed. Monash University has conducted an annual review of the Top 100 ASX Listed entities and their compliance with the MSA. While Monash originally described the performance of the Top 100 ASX Listed entities as a “race towards the middle”, in its last report, it has stated that a clear leaderboard is emerging.
We are now seeing a “race towards the top”, which was the original intention of the legislation. We consider that some of the key drivers for this shift include:
- increasing commentary by civil society groups and NGOs on reporting entities’ reporting quality and supply chain transparency; and
- increased consumer, investor and regulatory scrutiny on reporting entities’ ESG efforts and ‘greenwashing’ – where modern slavery is a key part of the “S” and the “G”.
Entities which fail to take a meaningful and robust approach are starting to face real criticism. However, concerns remain that the laws do not go far enough in making a real impact when it comes to victims of modern slavery.
Key trends of modern slavery in the development and construction sector
The Australian Human Rights Commission (AHRC) has identified five higher-risk modern slavery industries, one of them being the construction industry. In 2020, the AHRC commissioned a report called ‘Property, Construction and Modern Slavery’, which states that an estimated 18 per cent of modern slavery victims are found in the construction industry globally, where at least 22 per cent of these victims have been found subject to forced labour in the manufacture and production of raw material in forestry, mining and quarrying – key suppliers for property and construction.
Further, the Commonwealth Government, in its own modern slavery statements, has identified five “high-risk areas with the greatest risk of harm to people to focus its efforts on”, saying that “construction represents a high-risk area for the Government”. As such, it has chosen risks identified in its construction projects as a prioritised area of focus for its next few reporting years.
The Property Council of Australia has also expressly acknowledged the risks of modern slavery in the property and construction sector and has created a number of dedicated resources for its members to use, including a supplier online questionnaire, to help mitigate identified risks.
As such, the development and construction sector has been recognised as facing an elevated risk of modern slavery within its operations and supply chains as a result of factors such as:
- high demand for a lower-skilled labour force who are at higher risk of exploitation;
- low or poor visibility over long and complex supply chains;
- lower-tier suppliers conducting business in high-risk geographies; and
- tight project deadlines and seasonality of work.
There are also several product related risks in this sector. Raw materials such as polysilicon and cobalt, which are frequently used in solar activities (including the construction of solar farms) have been linked to forced and child labour in regions such as the Xinjiang region of China and the Democratic Republic of Congo. Further, Personal Protective Equipment, which are widely used in the construction industry, have been noted to be high-risker of modern slavery, especially due to high demand during the COVID-19 pandemic.
As an inherently higher risk sector, reporting entities should ensure that they are continuously assessing and addressing the risks of modern slavery in their operations and supply chains. This can be overwhelming, however, a good start would be considering our Practical Steps to Compliance checklist below.
What might change in Australia?
Australia is following the trend of tougher modern slavery obligations. The Australian Government has completed its review of the MSA and released its report (Review Report) on 24 May 2023, which outlines 30 recommendations for reform of the MSA. The Review Report aimed to answer three key questions:
- Can a law such as the MSA be effective in combating modern slavery?
- Could the MSA be more effective if changes were made to how it is framed and administered?
- Is the law being taken seriously?
Some of the key issues and recommendations in the Review Report include the following:
|No.||Issue for consideration||Forecast and observations|
|1.||Lowering the reporting threshold|
The Review Report has recommended lowering the reporting threshold from $100 million to $50 million.
An additional 2,393 businesses, including many organisations in the development and construction sector, would become reporting entities if the threshold was lowered to $50 million.
That said, there are concerns that it is premature to lower the reporting threshold and that a lower threshold would place an unnecessary and disproportionate administrative and reporting burden on small and medium-sized businesses.
|2.||Introducing enforcement measures for non-compliance, including financial penalties|
The Review Report has recommended that the MSA should be amended to make it an offence for a reporting entity to:
- fail, without reasonable excuse, to submit a modern slavery statement within a reporting period for that entity;
- submit a modern slavery statement that knowingly includes materially false information;
- fail to comply with a request given by the Minister to the entity to take specified remedial action to comply with the reporting requirements of the MSA; and
- fail to have a due diligence system in place that meets the requirements of the MSA (discussed below).
Whilst some have argued that civil penalties are undesirable and that instead, there should be a focus on stronger government guidance and multi-stakeholder collaboration to address poor reporting and non-compliance, others have suggested that penalties should be introduced for unequivocal reporting failures that breach objective standards (such as for the points listed above).
|3.||Due Diligence obligations||While the MSA requires entities to describe “due diligence and remediation processes”, this is not clearly defined in either the MSA or associated guidance. As such, there is some inconsistency with how entities report on this requirement.|
The Australian Government is exploring defining this term under the MSA to encourage some consistency in the actions that reporting entities take to assess and address risks in their operations and supply chains.
The Review Report has recommended that the MSA should be amended to provide that a reporting entity must:
- have a due diligence system to identify and assess modern slavery risks (that meet the rules made under s 25 of the MSA); and
- in the entity’s annual modern slavery statement, explain the activity undertaken by the entity in accordance with that system.
|4.||Definition of modern slavery||The Review Report recommends that the Australian Government, either through or in consultation with the Commonwealth Anti-Slavery Commissioner, initiate discussion with other jurisdictions in Australia and internationally on options for defining ‘modern slavery’ for the purpose of mandatory reporting laws such as the MSA. The current definition references the definition of Modern Slavery in the Criminal Code Act 1995 (Cth). The Review Report considers whether the definition should use more generic phrasing to be less technical so that more risks are possibly captured.|
|5.||Additional mandatory reporting criteria||The Review Report discusses the|
introduction of three potential new mandatory criteria that would require a
reporting entity to report on:
- details of modern slavery incidents and actual incidents identified during the reporting period, as well as cases referred to law enforcement or other regulatory bodies;
- grievance and complaint mechanisms put in place by the reporting entity to receive notifications from staff, the staff of suppliers or members of public; and
- any consultation undertaken by the entity during the year on modern slavery risks with staff and with external bodies such as industry and civil society bodies, unions and representatives of vulnerable communities.
Meanwhile NSW has its modern slavery laws which go a step further than mere reporting. Under this regime, there is a positive obligation on NSW government agencies to ensure its goods or services are not the product of modern slavery. In other words, if any developer wants to do business with the NSW Government (or NSW Local Councils), you will need to be able to demonstrate that you have systems and processes in place for assessing and addressing modern slavery risks and a clear understanding of your supply chain.
Key trends abroad
As developers often operate in multiple jurisdictions, it is important to know what obligations an organisation has in other jurisdictions with respect to modern slavery. In the past 2 years, we have seen a clear trend abroad towards tougher modern slavery laws that go beyond mere reporting obligations, with some laws or proposed laws requiring entities to take positive steps to ensure that their goods or services are not a product of modern slavery. These include the following:
|No.||Country / State||Laws / Proposed Laws|
|1.||United States of Americ||The Uyghur Forced Labor Prevention Act took effect on 21 June 2022. This is a hard import ban on goods mined or produced in Xinjiang, China. This Act is in addition to the existing Californian Transparency in Supply Chains Act 2010.|
|2.||European Union||The European Commission published its proposal for a Corporate Sustainability Due Diligence Directive (Directive) on 23 February 2022. On 1 June 2023, the European Parliament agreed on its position on the Directive. The Directive requires EU and relevant non-EU companies to identify and mitigate human rights and environmental impacts across their operations and value chains.|
|3.||United Kingdom||The UK Government is looking to amend the UK Modern Slavery Act 2015 to strengthen its requirements around the annual modern slavery statement, including imposing civil penalties for non-compliance.|
|4.||Canada||The Canadian Parliament has just enacted the Fighting Against Forced Labour and Child Labour in Supply Chains Bill which will be in force from 1 January 2024. This will impose similar reporting obligations to the Australian and UK Regime.|
|5.||New Zealand||The New Zealand government is similarly considering new legislation which aims to address modern slavery and worker exploitation in supply chains.|
What should all developers be doing?
The modern slavery landscape is changing quickly and we have seen clients in the development and construction sector using innovative technologies and digital solutions to drive business benefits. It is clear that there are significant business benefits to taking a meaningful approach to anti-modern slavery compliance.
In addition, modern slavery is a core part of ESG strategy, which is increasingly a top concern for organisations.
Those organisations which do not have a clear framework or governance structure will struggle to keep pace with the evolving landscape and will face increasing risks such as legal and reputational risks or the ability to do business with Government and other entities.
While each organisation has its own set of values and drivers, some practical questions to ask include:
|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.|
|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?|
|Have we created policies and procedures and made them publicly available (where appropriate?) |
Are these ‘operationalised’ within the business and our procurement processes?
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?
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? As mentioned modern slavery 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?|
About the authors - how can Maddocks help?
Maddocks works with major clients on their Modern Slavery compliance and management of all areas of Social Impacts (under ESG). The team has a high profile reputation for delivering solutions that are commercial, relevant and practical. The modern slavery team have worked with a significant number of ASX listed and other entities on their modern slavery compliance commonly integrated into broader ESG strategy. They have a proven track record of taking clients from zero to mature frameworks as evidenced by her clients achieving an A rating in the Monash Independent Review.
The Maddocks team have been assisting a range of clients with their anti-modern slavery compliance needs. We have deep expertise in anti-modern slavery compliance and assist clients with a wide range of advice and deliverables:
- conducting threshold assessments and preparing Modern Slavery Statements for submission;
- delivering training and education for a range of staff (including with key stakeholders and executives);
- developing anti-modern slavery compliance roadmaps and strategies;
- assisting with risk assessments for organisations’ operations and supply chains;
- developing a range of anti-modern slavery policy and procedures, and supplier surveys and supplier codes of conduct;
- developing modern slavery clauses for inclusion in supply agreements;
- assisting clients with modern slavery related negotiations in supply agreements; and
- advising clients on anti-modern slavery strategy and ESG strategy.
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