ESG trends: modern slavery reporting reform and environmental impacts

Regulatory change in the ESG space  

Proposed reforms to Australia's modern slavery regime

Australia's modern slavery reporting regime is undergoing its most significant transformation since the introduction of the Modern Slavery Act 2018 (Cth) (Modern Slavery Act).

Currently, the Modern Slavery Act requires companies with an annual consolidated revenue of over $100 million to publish an annual statement on the steps they've taken to assess and address modern slavery risk in their operations and supply chains. However, there are no associated offences or civil penalties. As we have previously reported, we have anticipated reforms to this regime.

On 16 July 2026, the Government announced its intention to introduce:

• a civil penalty regime and enforcement powers to address non-compliance with existing reporting obligations; and
• a new criminal offence directed at companies with an annual consolidated revenue of above $100 million that fail to prevent modern slavery in their supply chain.

A defence will be available in which a company can demonstrate, likely on the balance of probabilities, that it took reasonable steps to prevent modern slavery.

On 21 August 2026, the Attorney-General's Department released a consultation paper titled Strengthening Australia's legislative response to modern slavery in supply chains, seeking feedback on the legislative design of the proposed failure-to-prevent offence. The paper addresses two areas.

Part A – proposed core legislative components of the offence:

• application to companies with revenue over $100 million, but not directors or other officers;
• the underlying criminal conduct to be prevented (slavery, servitude, forced labour and debt bondage under Divisions 270 and 271 of the Criminal Code);
• the connection required between the offending conduct and a corporation's supply chain and conduct, noting a sufficient connection is required before criminal liability may be imposed;
• the fault element (with absolute liability the likely approach);
• the reasonable steps defence, including the issuing of Ministerial guidance on reasonable steps to support compliance;
• penalties (potentially the greater of 100,000 penalty units, three times the benefit obtained, or 10% of annual turnover); and
• a proposed 12–18 month delayed commencement.

Part B – alternative enforcement mechanisms:

• a possible scheme for Deferred Prosecution Agreements; and
• pathways to civil remedy for victims of modern slavery.

The consultation period closed on Friday, 25 September 2026, with targeted consultations to follow on more complex issues.

Businesses should expect that demonstrating 'reasonable steps' will require a compliance program encompassing:

• governance and risk ownership, ensuring that there is a high level of demonstrable understanding and awareness from top level management that underpins a robust culture of prevention;
• risk assessment, with documented assessments informing the program;
• ongoing due diligence for assessment, monitoring and investigation;
• training, including role-specific training for relevant functions where required;
• grievance mechanisms that provide reporting channels and avenues for remediation; and
• ongoing monitoring and review, including stakeholder engagement.

The 'reasonable steps' guidance will likely draw on comparable regimes such as the foreign bribery adequate procedures guidance and the UNGPs, which provide a human rights lens for modern slavery risk management, including guidelines on due diligence and grievance mechanisms.

Now that these reforms have been proposed, businesses should ensure that they are:

• briefing legal, risk and compliance, as well as sustainability and human rights teams, on these reforms;
• assessing their potential liability (including indirect exposure of directors, officers and employees);
• undertaking a privileged risk assessment to determine potential risk mitigants; and
• strengthening controls and procedures.

Climate and nature-related impacts on Europe's food and beverage sector highlight the commercial importance of robust climate and nature governance

Developments in Europe in recent months have underscored the vulnerability of food and beverage manufacturers to climate and nature-related risks - particularly risks related to drought, excessive heat and water scarcity.  

Last year, the European Central Bank (ECB) flagged surface water scarcity as 'the most significant risk to the Euro area’s economy'. According to the ECB, under an extreme but plausible drought with a 25-year return period, nearly 15% of economic output would be at risk.  Of all sectors, the ECB predicted agriculture would suffer the largest proportional output loss. Up to 30% of agricultural output at risk in Southern Europe, the bank said. The EBC projected lower yields because of reduced water supply from rivers, lakes, reservoirs and upper soil layers, amplified by persisting drought and excessive withdrawals and unsustainable consumption. Manufacturing was identified as another sector with over 20% of output at risk in Southern Europe (and 10% elsewhere), with water scarcity potentially impacting the sector by disrupting operations and increasing costs. The ECB also highlighted that over the long term, the effects of persistent water shortages can spread through commodity markets, driving up water and food prices and contributing to broader inflationary pressures.

The warnings from the ECB are now materialising, with water scarcity and heatwaves directly impacting Europe's primary production sector.

• The recent heatwave in Europe has materially impacted production. In July, the European Association of cereals, rice, feedstuffs, oilseeds, olive oil, oils and fats and agro supply trade (COCERAL) cut its forecast for the 2026 grain harvest across the EU and UK because of the impacts of the heatwave. COCERAL now expects total grain production to reach 286.6 million tonnes, which is down from 295.5 million tonnes forecast in June and well below the 310 million tonnes harvested last year. In other words, the heatwave is expected to reduce this year's grain crop by about 3% compared COCERAL's forecast from just a month earlier. The UK's Energy & Climate Intelligence Unit has separately suggested that the UK’s exceptionally dry and hot spring and summer could have knocked as much as 2.5 million tonnes off the country’s cereals and oilseed harvest compared to earlier forecasts, costing UK arable farmers as much as £390m in lost revenue.
• In Italy, Bloomberg has reported that the river Po, which supports 32% of the nation's agricultural production, is at record lows and that water shortages are causing farmers to consider switching to crops such as barley that are both less water intensive and less profitable.
• Freight is also being disrupted. According to multiple media reports, the drought and extreme heat in the EU are causing major disruptions to inland shipping routes such as the Rhine and the Danube, leading to increased shipping costs for companies that depend heavily on inland shipping routes for transport.

Investors and asset managers are starting to scrutinise how businesses with exposure to impacted water sources are responding. In Germany, Allianz GI is reportedly looking to engage with companies with exposure to the Rhine (both from a water consumption and logistics perspective) to understand how risk management systems have changed and what strategic and financial commitments are in place to respond. Again, this highlights the economic transition risks that may arise for companies that fail to build resilience to climate impacts or where preparation fails to meet expectations of financial stakeholders.

In short

• These developments in Europe underscore that climate-related risks pose acute, costly and foreseeable risks across the food and fibre value chain.
• The foreseeable nature of these risks gives rise to legal implications for financial planning, strategy, investor engagement and disclosure. Food & beverage businesses in Australasia should ensure that the financial assumptions underpinning capital allocation decisions, transition planning and scenario analysis are keeping pace with what is actually happening on the ground and continue to be defensible on that basis. This will be particularly important over the next year as we face what meteorologists are warning will be the most severe El Nino on record. Investors are increasingly focused on whether foreseeable water and heat related financial impacts have been explicitly identified, costed and reflected in strategy and disclosures.
• Businesses should also be thinking about how these risks – which may cause substantial disruption and financial impact - are being allocated in contracting arrangements and covered under insurance policies. This is particularly important in a context where force majeure clauses are unlikely to provide protection (given the foreseeability of these impacts), and/or where insurances do not cover non-damage financial impacts (such as third-party business interruptions that impact on agribusiness distribution lines).