Australia’s Modern Slavery Act (MSA) 2018 addresses modern slavery disclosure among top Australian companies. Australia’s MSA requires companies that generate A$100 million or more in revenue, to produce an annual modern slavery statement, which must be approved by the board and signed by the director. Although a measure has been established, Monash University’s Centre for Financial Studies (MCFS) and ISS ESG show that just six of Australia’s largest companies listed on the S&P/ASX300 (ASX300) demonstrate acceptable practice in their modern slavery disclosures.

The key gaps in modern slavery reporting and performance outlined in this report – assessing operational-level modern slavery exposure; identifying risks in the extended supply chain; and enabling remediation – call into question the effectiveness of the mandatory disclosure legislation model.

Modern slavery statements are vital for investors to assess risk.

The Covid-19 pandemic has redefined the buyer-supplier relationships, and raises concern for responsible supply chain management. MCFS propose that around 41% of ASX300 companies do not provide a clear assessment of their risk in operations. Among those that did, most assessed their exposure to modern slavery risks to be low.

ISS ESG indicates 41% of ASX300 companies have operations in countries considered high-risk for modern slavery. Yet, only 4% of ASX300 companies describe themselves as high-risk in their statement. Indeed, this issue raises concerns for investors looking to manage modern slavery risk.

There are numerous companies with operations in countries where ISS ESG’S Norm-Based Research (NBR) has identified labour rights violations – being China, India, Thailand, and Madagascar. Furthermore, ISS ESG’s NBR indicates that roughly 76% of modern slavery controversies occur in global supply chains, with both direct and indirect suppliers.

MCFS finds more than half (59%) of modern slavery statements do not provide clear information on whether their supply chain extends beyond direct suppliers. This issue creates a lack of visibility over indirect suppliers and vulnerabilities to modern slavery exposure.

To mitigate the risk along the supply chain, MCFS established the “S.O.M.E” model. The S.O.M.E model represents screening, onboarding, monitoring, and engagement of suppliers.

• Screening involves mapping risks and prioritising the most severe impacts.
• Onboarding ensures companies develop contract controls regarding modern slavery provisions, and communicate about grievance mechanisms.
• Monitoring of key performance indicators (KPIs) is important for companies to measure the effectiveness of their modern slavery risk management.
• Engaging and training suppliers is recommended for companies to improve awareness and build capacity.

ISS ESG’s NBR assessed over 350 corporate controversies, with only 4% having reasonable remediation measures adopted. Most ASX300 companies (80%) reported having a whistle-blower policy, but less than a third describe grievance mechanisms and how they have been implemented. In reality, if accessible and credible, a grievance mechanism can assist companies to mitigate risk prior to escalation.

Investors will be better able to identify companies committed to mitigating their modern slavery risk and remediation scheme, with the publication of modern slavery statements. Furthermore, investors are essential in ensuring Australia’s major companies are being transparent and effective in their approach to tackling modern slavery.

1. There is a significant difference between ASX300 companies' own assessment of operational modern slavery risks statement, and the external assessment of companies' risk conducted by ISS ESG. ISS ESG assess that companies are understating their modern slavery risk.
2. Companies' modern slavery statements could be beneficial for investors since it provides the company's exposure to modern slavery. Furthermore, investors could encourage companies to map the supply chain to further manage their modern slavery exposure.
3. The majority of modern slavery controversies for companies occur beyond their direct supplier (Tier 1). In addition, MCFS identifies most modern slavery statements do not disclose supplier risks beyond Tier 1.
4. The S.O.M.E model is essential for tackling modern slavery risk. The S.OM.E. model includes: screening and mapping possible risks within the supply chain; onboarding a grievance mechanism to prevent problems escalating; monitoring the management of slavery risks; and, engaging with suppliers to improve awareness of possible risks.
5. A proper and effective grievance mechanism can assist companies to mitigate slavery risks. Practical grievance mechanism includes - a public apology from companies, phycological and medical care, compensation for loss of income, and affirmation the practice will not occur in the future.
6. The key gaps in modern slavery reporting and performance outlined in this report – assessing operational-level modern slavery exposure; identifying risks in the extended supply chain; and enabling remediation - call into question the effectiveness of the mandatory disclosure legislation model.
7. The modern slavery reporting gaps challenge the MSA’s intention to incentivise best practice. They also suggest that most S&P/ASX 300 companies are not taking their responsibilities to rights-holders seriously in their operations and supply chains.
8. Without transparent disclosure on the effectiveness of mechanisms to address the root causes of exploitative labour, simple disclosure can provide a sense of ‘action’ at the same time as undermining meaningful progress on modern slavery.