INSIGHT

Australia's Modern Slavery Act – one year on

By Dora Banyasz, Jessye Freeman
Corporate Governance Food & Beverage Government Human rights obligations International Business Obligations Risk & Compliance

In brief 7 min read

Australia's modern slavery reporting regime was introduced one year ago, and 2020 will see the first set of modern slavery statements published by reporting entities. This is, therefore, a timely moment to revisit the requirements of the regime, and its implications for the food and beverage industry.

Key takeaways

  • Legislation to combat modern slavery has been in force since 1 January 2019.
  • Supply chains within the food and beverage industries are at potentially higher risk of modern slavery issues, especially those involving fruit, nuts and spices.
  • The Modern Slavery Act 2018 (Cth) requires entities carrying on business in Australia with an annual consolidated revenue of at least $100 million to prepare a modern slavery statement. While no financial penalties apply for non-compliance at this stage, there is potential for reputational damage.
  • Affected entities should review their policies, training, whistle-blower mechanisms and contracting practices, in order to mitigate their modern slavery risk.

Who in your organisation needs to know about this?

Legal and those involved in the management of supply chains.

What is modern slavery?

'Modern slavery' is an umbrella term that refers to forms of contemporary slavery such as human trafficking, slavery, servitude, forced and bonded labour, and child labour. Such practices remain a widespread problem across many industries around the world, including the food and beverage industry. Globally, an estimated 40 million people are the subject of some form of modern slavery, with the Asia Pacific Region accounting for 60%.1

Over the last few years, several countries, including Australia, have taken steps to reduce the risk of modern slavery by imposing a modern slavery reporting requirement on business.

Australia's Modern Slavery Act

Australia's Modern Slavery Act has been in force since 1 January 2019.

The Act imposes an obligation on reporting entities (ie entities that have consolidated revenue of at least $100 million during the reporting period, and are either Australian entities or foreign entities carrying on business in Australia during the reporting period) to annually submit a modern slavery statement that describes, among other things, the modern slavery risks within their operations and supply chain, and the measures they are taking to address those risks. The reports must be approved by a reporting entity's board and signed by a director. Once submitted, the modern slavery statements will be publicly accessible online.

Modern slavery practices are often difficult for regulators to police, particularly when they occur offshore and within complex global supply chains. Approaching the challenge by imposing a reporting obligation on companies is, in part, a recognition of this; it places the onus on companies to identify, control and publish what is happening within their own supply chains and operations. It is also a recognition that entities themselves are often best positioned to take effective action to address modern slavery risk. By leveraging contractual bargaining power and existing relationships, entities can enhance transparency, encourage good practices (and disincentivise poor ones), promote awareness and educate participants within their operations and supply chains. The legislation's stated aim is to drive a 'race to the top' for companies to identify and address modern slavery risks in their operations and supply chains, and to assist investors and consumers to make more informed decisions.

How does this affect your organisation?

Australian entities or entities that carry on business in Australia at any time within a reporting period with an annual consolidated revenue of at least $100 million must prepare a modern slavery statement. The mandatory criteria require reporting entities to describe the following matters in their statements:

  • their structure, operations and supply chains;
  • the risks of modern slavery practices within their operations and supply chain, and any entities they own or control;
  • any actions taken by them, or by any entities they own or control, to assess and address modern slavery risks, including due diligence and remediation processes;
  • how they assess the effectiveness of these actions; and
  • the process of consultation with any entities that the reporting entity owns or controls.

To effectively address these criteria and meaningfully engage with the reporting regime, companies need to start considering these requirements early, put in place a plan that involves stakeholders from across relevant parts of the business, and understand their risk profile.

While there are no financial penalties for non-compliance, the Minister does have the power to 'name and shame' non-compliant entities.2 Entities should therefore be prepared for the possibility of reputational damage, public criticism and shareholder activism should such non-compliance be revealed.

What are the risks?

While modern slavery risks can arise in the operations and supply chains of most businesses, certain industries – including the food and beverage industry – have been recognised as potentially higher risk than others. That is due to the intersection of the following key modern-slavery risk indicators within the supply chains and operations of the food and beverage industry:

  • vulnerable populations (eg migrant workers, base-skilled workers);
  • high-risk work practices (eg third-party labour arrangements, outsourcing of workforce);
  • high-risk product and service categories (eg raw materials, services procurement, branded and un-branded goods not for resale); and
  • high-risk geographies (eg conflict zones or areas where the rule of law is weak).

Raw materials is a key risk area, and perhaps the area that will be most relevant to Australian food and beverage businesses. This is both because raw materials are such a central component of the supply chain of food and beverage businesses, and also because in Australia raw materials are frequently not procured directly from tier-one suppliers, but lie deeper in the value chain, where business may not have visibility. Those suppliers are frequently located in high-risk geographies or trade in high-risk material (such as cocoa, palm oil, coffee and seafood, among a range of others).

Of course, the typical food and beverage supply chain comprises many things other than raw materials. It encompasses processing, packaging, logistics and transport (including warehousing) and support services (eg security, cleaning). Modern slavery risks are present in all these areas. The sourcing of ingredients such fruit, nuts and spices can involve high modern slavery risk.

What can food and beverage businesses do to ensure compliance?

The appropriate actions to address modern slavery risk and be well positioned to prepare a robust modern slavery statement come reporting time will depend upon the nature of the entity, the available resources and the complexity of its supply chain. Generally, however, we recommend that businesses:

  • map, scope and thoroughly understand their operations and supply chain;
  • assess inherent risk of modern slavery in their operations and supply chain;
  • consider any mechanisms and controls that are currently in place to mitigate modern slavery risks, assess whether they are appropriate to manage that risk, and whether any other controls should be implemented;
  • engage with businesses in their supply chain, including to communicate expectations in this area and gain an understanding of how suppliers are managing this risk within their own business; and
  • use their leverage to ensure that risks are managed at all points of the supply chain.

In relation to engaging with suppliers, we are increasingly seeing coordination and collaboration between companies in a particular sector or industry. The idea behind this is to ease the burden of increased due diligence and information requests on suppliers, by developing joint resources and information sharing.

As for controls, there are a range of practical responses and control mechanisms that businesses can implement to mitigate modern slavery risk. The principles outlined in the UN Guiding Principles on Business and Human Rights, including the establishment of a policy commitment and a robust due diligence process, are a good starting point. Other important controls include:

  • implementing appropriate policies and supplier codes of conduct;
  • contractual controls;
  • training;
  • communication with key stakeholders; and
  • whistle-blower mechanisms.

So, by understanding their operations and supply chain, and assessing risks and controls within them, businesses will be well placed to prepare an initial modern slavery statement. The compliance 'race to the top' mentioned above is a long game and an iterative process. We therefore expect to see businesses' modern slavery statements, responses and processes evolving and becoming more detailed and sophisticated over time. The important thing for now is that you are genuinely engaging with the issues.

Footnotes

  1. The Global Slavery Index 2018.

  2. Ibid, s16A.