A year after the introduction of the business reporting obligation in the Modern Slavery Act 2015 we take a look at the approach taken to statements to date and possible future developments in this area.
Modern slavery and human trafficking are two of the biggest human rights challenges of our time. The Modern Slavery Act 2015 seeks to tackle these issues in a number of ways, including imposing a requirement on organisations carrying out a business (or part of a business) in the UK, and with a turnover of £36 million or more, to publish an annual modern slavery statement.
The statement must detail the steps the organisation is taking to ensure that modern slavery and human trafficking are not present in its business or global supply chains. The statement must be signed by a director and a link to the statement must be included in a prominent place on the organisation’s website homepage. Companies with a year end of 31 March should already have published their statement, whereas those with a 31 December year end are due to publish in the first half of 2017, giving the latter the advantage of being able to review and benchmark their statements against those already published.
For background on the reporting requirement in the Act, please see our blog post of October 2015.
One year on, the question is what approach are companies taking to their Modern Slavery Act statements, how much interest have the press and consumer groups shown on this topic and what does this say about the initial success of the reporting obligation?
Compliance to Date
The Business & Human Rights Resource Centre is currently maintaining a public registry of statements published to date and has written two reports analysing published statements.
Press reaction to date has been critical of how businesses have approached the reporting requirement, with statements being labeled ‘lacklustre’, and criticised for not going far enough towards tackling modern slavery issues. Importantly, it has been reported that up to a third of companies are reported to have failed to comply with basic elements of the reporting provision, such as obtaining director approval (which can be evidenced by including a director’s signature in the statement) and including a link to the statement on the organisation’s homepage.
One comprehensive report by Ergon Associates, based on an analysis of 239 published statements, revealed that the bulk of reporting companies (69%) are from the UK, either at parent company level or specific subsidiaries. The next highest sources were North American companies (14%) and European companies (9%). Ergon Associates considers that the topics which are the most well covered in published statements are explanations of the organisation’s structure and policies covering modern slavery, while the least well-described topics relates to key performance indicators used to assess effectiveness of modern slavery policies. This comes at no surprise given it is difficult to come up with KPIs that would be both appropriate and effective for a lot of businesses.
Ergon Associates also reports that contractor relationships are a key gap in statements, particularly as agency workers and outsourced services may pose significant risks Notably, they conclude that 35% of statements say nothing on the question of risk assessment process, which Ergon states is “surprising for statements that are intended to be based around a due diligence approach”. In addition, Ergon observes very similar wording in some statements from otherwise unrelated companies, which may point either to the use of template or model statements or indicate that companies are looking to published statements for more than just general guidance.
These initial reports show that although the Act lacks teeth in terms of legal sanctions for non-compliance as explained in our previous blog, businesses can expect academic and journalistic critique of their statements which in turn may impact credibility with consumers and investors.
The Reality for Business
The aim of the reporting requirement is, of course, to encourage businesses to take a long term, sustainable approach to tackling modern slavery rather than a short term, reactionary approach simply to comply with a reporting requirement. But this is no easy task for a lot of businesses. Recent research by Hult International Business School showed that 51% of companies surveyed cited a lack of sufficient resources to conduct due diligence and to support supplier improvements on modern slavery as a key barrier to addressing this issue.
A further issue is the wide variety of teams who could theoretically be involved in the production of a statement (e.g. compliance, HR, legal, procurement, commercial etc.) posing a problem for both businesses with large teams in each of these areas and those with very limited resources already spread thinly across these areas.
One way of addressing this is being open in the statement that introducing initiatives uniquely designed to consider and tackle modern slavery issues takes time. Your first statement may primarily cover plans for the future, acknowledging that this area is a work in progress (but one the business is committed to tackling).
There is also nothing wrong with learning and taking inspiration from statements already published by other companies, and replicating ideas covered in those statements in your own business. That said, it is important that the statement is tailored to your business and industry, as well as your business’ personality and culture.
So what future developments can we expect on this topic?
In terms of the legislation itself, changes are pending in the form of the Modern Slavery (Transparency in Supply Chains) Bill. Once passed, companies will be required to publish their modern slavery statement in their annual report. Organisations that have not published a slavery and human trafficking statement where required to do so will be excluded from tendering for public sector contracts.
These changes show the Government is making efforts to put the reporting requirement higher up business’ priority list. However, as the press reaction to date already shows, the real driver for engagement is likely to continue to be risk to reputation.
For more information on the Modern Slavery Act 2015 please get in touch with Jo Powis at JPowis@reedsmith.com.