Modern Slavery legislation: Competition instead of the Big Stick

Modern Slavery legislation came into force on 1st January 2019 requiring organisations with turnovers greater than $100M to report on their efforts to eliminate modern slavery from the supply chain. What is particularly interesting about this legislation is that there are no penalties. Instead regulators have introduced legislation that will encourage market forces to achieve the desired outcome.

What is Modern Slavery?

Modern slavery is a broad term that captures multiple ways in which people are denied their human rights.  These include forced labour, debt bondage, human trafficking, descent-based slavery, child slavery, forced and early marriage. There are estimated to be more than 40 million people globally  that are suffering under one or more of these forms of slavery. In Australia, we can often be “cocooned” from such global issues, but it exists here too, with estimates of 15,000 people in Australia impacted .

How’s this legislation different?

The legislation calls for organisations to influence their supply chains with what some have termed “best efforts”. There are no criteria to comply with or evidence that needs to be provided, although many believe this will come in time. What is being asked of companies is to influence their supply chains where they have the commercial competitive advantages to change behaviours. If everyone does this, change will occur.

The other key difference with this legislation is that there are no penalties for non-compliance. Instead the intent by the regulators is to require larger businesses to report and in doing so have them demonstrate that they are “doing more” than their competitors. If all competitors attempt to “do more” then entire industry supply chains can be influenced for positive outcomes.

Regulators have done well to realise that a strict compliance regime is simply not going to work given the global nature of supply chains we operate within. But by using competition we stand a chance of those with commercial positions that can influence the necessary change in behaviour, will over time “infect” entire industry supply chains.

What do I need to do to comply?

Companies operating in Australia with revenues over $100M will be required to report. In NSW the requirement is $50M.  Guidance for reporting can be found here. The reporting requirements include seven mandatory criteria to report against, however in essence these criteria represent the elements of a risk management approach to this issue:

1. Context: understand your supply chain and your ability to influence changes in behaviours. Where do you have commercial influence to make change?
2. Identify the risk: The first thing that’s required is to understand where modern slavery might be occurring within your supply chain.
3. Assess the risk: How significant is the exposure?
4. Treat the risk: What can you do to influence a change in behaviour within your supply chain. To this extent the ultimate risk mitigation is to change supplier, however this is not always practical. Your ability to commercially influence must be considered.
5. Monitor and review: This can’t be once off, review the way you select new suppliers, consider how supplier’s performance is reviewed.
6. Consult: How do you engage and communicate with your supply chain to work together too achieve the desired outcomes?

Given the risk managed approach required by the legislation it is logical to embed this requirement into your organisation’s enterprise risk management framework.  To understand how this might be achieved, contact Victual.