Insights | Article | The Modern Slavery Act: A hard road ahead for the ‘race to the top’

The Modern Slavery Act: A hard road ahead for the ‘race to the top’

19 September 2022

New report finds companies operating in industries known to be at high risk of slavery are failing to identify obvious risks of forced labour in their supply chains or take action to address them.

The power investors have to drive better corporate behaviour on human rights has come to the fore in recent years. With increasing shareholder activism globally and responsible investment now accounting for 40% of the total Australian market, social sustainability isn’t just good for people; it’s good for business. Mandatory disclosure laws, such as the Australian Modern Slavery Act (MSA), are intended to extend investors’ repertoire of assessment tools to inform decision-making for social impact investing. The assumption underpinning the Act was that it would drive a ‘race to the top’, creating upward pressure on large businesses to learn, innovate and lead. Unfortunately, a recently published evaluation of early reporting under the Act indicates this reality is not panning out — at least not yet — and there is quite a way to go before corporate modern slavery statements reflect real action and measurable change on the ground.

Paper Promises: Evaluating the early impact of Australia’s Modern Slavery Act is the result of a two-year collaborative project by academics, non-governmental organisations and human rights specialists to evaluate companies’ early performance under the MSA. Passed in 2018, the MSA is intended to reduce labour abuse risks by requiring over 3000 organisations to report annually on their efforts to assess and address risk of slavery in supply chains and explain how they will measure the effectiveness of those actions. The report examines statements submitted to the Australian Government’s Modern Slavery Register by 102 companies sourcing from four sectors with known risks of modern slavery: garments from China, rubber gloves from Malaysia, seafood from Thailand and fresh produce from Australia.

To make this assessment, the authors developed a series of performance indicators that considered basic compliance with the Act’s mandatory reporting criteria as well as alignment with broader human and labour rights frameworks. Unfortunately, companies reporting under the MSA are failing to hit the mark. Broadly speaking, the report finds that only half of the assessed companies acknowledge they are operating in sectors that are widely recognised as being high-risk for modern slavery. Most companies’ reports fail to effectively disclose how they address modern slavery risks, the actions taken to assess those risks, processes of internal consultation and the composition of the entities and supply chain’s workforce composition. Very few statements include meaningful plans to assess the effectiveness of slavery-focused supply chain assurance.

China’s garment sector has faced a similar issues, with worldwide attention now focused on forced labour of muslim minorities in the Xinjiang Uyghur Autonomous Region. Across the four sectors analysed in the report, the garment sector has the highest number of public allegations of modern slavery; however, only one of the reviewed companies–Nike–addresses this in their statement and only one in four garment companies sourcing from China made any mention of the risk of Uyghur forced labour in their supply chains.

Similarly, the report finds that just under one in two food companies identify sourcing horticultural produce in Australia as high-risk for modern slavery practices and two in five seafood companies fail to identify seafood as a high-risk product in their supply chain.

Risk mitigation

Effectiveness of modern slavery reporting

Actions for investors

The upcoming three-year review of the MSA provides an important opportunity for investors to ensure the government is fulfilling its own obligations in terms of setting an appropriate bar. This includes creating efficiencies in risk assessment through data collection and research into high-risk sectors; and applying government leverage to prevent goods made with forced labour from entering the Australian market. Perhaps more than anything, the Paper Promises report demonstrates that a problem as diverse and evolving as modern slavery requires equally diverse and evolving solutions. Without these, the race to the top will surely have a long and hard road ahead.

Modern Slavery resources on Altiorem

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5 May 2022