Strengthening modern slavery reporting in line with the global shift away from a transparency based approach 8 min read
On 25 May 2023, the Attorney-General's Department released the outcomes of the statutory review of the Australian Modern Slavery Act 2018 (Cth) (the Act). The report makes 30 recommendations for change which, if adopted, will mark a substantial strengthening in Australia's efforts to combat modern slavery, as well as creating more onerous due diligence and reporting requirements for companies caught by the regime.
The review reflects the trend of governments looking to voluntary frameworks such as the United Nations Guiding Principles on Business and Human Rights when considering how to uplift due diligence and reporting requirements for business.
- The review proposes that companies be required to implement a due diligence system. If this recommendation is adopted, it will mark the first mandatory human rights-related due diligence obligation in Australia, and would be consistent with the global trend towards adoption of such laws. Companies will need to assess the adequacy of their existing due diligence systems and whether any uplift is required.
- The review includes a recommendation to reduce the reporting threshold from $100 million to $50 million. Companies should consider whether this means they would be caught by the Act, or whether any additional entities in their corporate group would be caught.
- The review considers the introduction of penalties and proposes that they apply, at a minimum, in four instances – failing to report without reason, failing to put a due diligence system in place, submission of a false statement, and failing to comply with a statutory direction to take remedial action.
- The introduction of offence provisions is expected to increase the level of scrutiny that companies and their boards apply to reporting under the Australian regime. This is primarily due to the boards requirement to approve the statement each year.
- There is no clear indication of when or whether the Act will be amended to reflect the recommendations but, given the general trend towards more robust business human rights obligations, companies should consider how they may future-proof themselves against the proposed legislative developments.
The Act came into force on 1 January 2019 and was hailed as a significant milestone in Australia's response to addressing modern slavery. While taking direction from the UK modern slavery regime, the Australian equivalent was more onerous, imposing mandatory reporting requirements on those entities captured by the legislation. In the years following its introduction, there has been a rapid global evolution as the modern slavery and human rights compliance landscape has shifted away from a transparency based approach to a mandatory due diligence based approach.
On 31 March 2022, the Federal Government announced a statutory review of the Act, to be led by Professor John McMillan AO. As part of the review, the Government released an issues paper initiating a three-month public consultation period, inviting submissions on key focus areas.
The broader global shifts have informed the review, the submissions made, and the recommendations delivered. These included whether the concept of due diligence should be a mandatory requirement of modern slavery reporting and whether additional enforcement measures should be introduced for non-compliance. Other issues contemplated included the appropriateness of the current reporting requirements and the option of establishing an independent Anti-Slavery Commissioner to oversee implementation and enforcement of the Act.
The review of the Act considered a range of views with 136 submissions received, 38 consultation meetings held with attendees from 285 organisations, and another 65 meetings held with Government officers in Australia and abroad. Three questions were at the heart of the review:
- can a law such as the Act be effective in combating modern slavery?
- could the Act be more effective if changes were made to how it is framed and administered?
- is the law being taken seriously?
While the report acknowledges that businesses are taking the Act seriously and investors are paying closer attention to the quality of modern slavery reporting, a widely held view expressed during the consultation was that there is limited evidence the Act has yet caused meaningful change for people living in conditions of modern slavery. The report states that while there has been improvement in the quality of statements year on year, that change is not enough, and for a portion of companies the reporting is a tick-box exercise.
Three main weaknesses were identified as part of the review:
- the standard of modern slavery reporting is variable;
- the reporting obligation is not enforceable; and
- the process is at risk of being 'drowned by a sea' of large and incompatible statements.
The report proposes 30 recommendations for change to address the weaknesses of the Act. While the report states that there has been improvement in the quality of statements year on year, this change is not enough, and for a portion of companies the reporting is a tick-box exercise. Several recommendations put forward in the review are focused on revising the official guidance document for improved clarity around reporting requirements for entities.
The recommendations seek to sharpen the reporting process and strengthen the effectiveness of the Act in combating modern slavery. The most significant recommendations for business are summarised below.
Mandatory modern slavery due diligence requirements
The most significant recommendation to come out of the review is for the Act to strengthen how it deals with due diligence by placing a mandatory due diligence obligation on entities. This was driven by overwhelming support during the consultations for a stronger due diligence framework. The Act presently only requires an entity to describe its due diligence processes and does not require due diligence to be conducted to any particular standard (or at all). Under the proposal, an entity would be required to explain the nature of the due diligence processes it has in place, as well as the activity conducted under those processes during the reporting period to identify and assess modern slavery risks. The report recommends that this obligation be supported with prescriptive minimum elements for a due diligence system set out as rules in the Act, and also goes further to propose that a civil penalty offence1 for an entity to fail to meet this requirement. If this recommendation is adopted, it will mark the first human rights related due diligence law in Australia and would be consistent with the global trend towards adoption of such laws.
Lowered reporting threshold
The review proposes to reduce the reporting threshold from $100 million to $50 million. This would widen the scope of the Act both by capturing smaller businesses and also potentially by capturing a greater number of entities in a corporate group. A lowered reporting threshold would align Australia more closely with thresholds already applying or proposed in other jurisdictions including the United Kingdom, New Zealand and Canada. The proposal for a lowered threshold also recognises that human rights abuses must be the concern and responsibility of all businesses regardless of their size or sector.
Another key focus of the review was penalties, and the role they can play in driving continuous improvement in modern slavery reporting and risk management. The review takes the stance that the approach of voluntary compliance is no longer sufficient, and that it is incongruous for a reporting duty to not be supported by a procedure ensuring that duty is performed. The review proposes that civil penalties should apply, at a minimum, in four situations:
- for failing to report without reason;
- failing to put a due diligence system in place;
- submission of a false statement; and
- failing to comply with a statutory direction to take remedial action.
The report does not go as far as recommending penalties for inadequate reporting, but rather is focused on unequivocal reporting breaches of the Act. The report outlines that civil penalty offence provisions should not apply to an entity with a consolidated annual revenue between $50 and 100 million until two years after the entity has become subject to the Act's reporting requirements.
Amendment of the Act's mandatory reporting criteria
The review also recommends refining and, in some cases, extending the mandatory reporting criteria within the Act to provide additional clarity on key terms and sector-specific guidance.
The review proposes that consideration be given to the term 'operations and supply chains' being replaced with the term 'operations and supply networks'. The report found that the use of the term 'supply networks' could assist in better describing the range of business activities and relationships to be reported on. There is also a proposal to add several new mandatory criteria requiring an entity to consider and report on:
- any modern slavery incidents or actual risks identified by the entity during the reporting year including any incidents that were referred to law enforcement;
- grievance and complaint mechanisms made available by the entity to staff members and other people; and
- internal and external consultation undertaken by the entity during the reporting year on modern slavery risk management.
With the insight and experience that the past three years of reporting have brought, the review proposes a number of additional changes to the Act and related supplementary guidance materials, to enhance the modern slavery reporting process and ensure continued improvement. Some of these recommendations include:
Specific guidance for high-risk areas
The review proposes that the Act is amended to increase targeted guidance for specific areas through consideration of a mechanism for declaring high-risk regions, locations, industries, products, suppliers or supply chains that must be addressed in modern slavery statements. A reporting entity would be required to identify whether a declared high-risk area exists in its operations and supply chains, and address each of those risk areas in its modern slavery statement. The reason for this recommendation is to ensure attention is drawn to the matters that pose the highest modern slavery risk, and allow for easier comparison of company responses to address such risks across modern slavery statements.
Updates to the guidance for reporting entities
Several recommendations proposed in the review specifically focus on amendments to the guidance. The report proposes a review of how the terms 'operations' and 'supply chains' are described in the guidance to ensure that there is further clarity on what should be covered by both terms. This would allow reporting entities to know which suppliers should be mapped and which business relationships should be included. The review also calls for targeted sector specific guidance where business activities can differ across sectors (in line with submissions made by our Business Human Rights team), and clearer guidance on approval and signature requirements.
Streamlining the reporting process
Another important recommendation which acknowledges the significant resources that can go into the preparation of a comprehensive modern slavery statement, is that reporting entities have the option of submitting a modern slavery statement that addresses all requirements of the Act every three years, and in the intervening two years submit a report that updates the information in the full statement. This comes as a response to criticisms shared in many submissions, including a submission from Allens, that the present requirement is burdensome and time-consuming and adds little value where year on year statements have not substantively changed.
It remains to be seen which recommendations will be adopted by the Government, and when any amendments to the Act will be introduced. In a joint media release, the Government has commented that it will now consider the review and undertake consultations across government and key stakeholders in formulating a response.
There have been a range of recommendations put forward in the review, and if accepted, some may assist companies in preparing their statements and streamlining the reporting process, while others are likely to substantially shift the way some companies assess and address their modern slavery risks, in the broader human rights context.
In light of the recommendations and to ensure companies are best positioned to respond to any future developments, we recommend that companies:
- reconsider their policy commitments regarding human rights due diligence, including as against the UN Guiding Principles on Business and Human Rights, which is increasingly a touchpoint for legislative developments in the business human rights space;
- assess the adequacy of existing human rights due diligence processes;
- review and assess the effectiveness of any existing modern slavery risk management processes;
- develop and conduct training on human rights due diligence policies and procedures; and
- continue to monitor any legislative updates in this space.
Our Business and Human Rights team have specialised expertise in business human rights matters and have a detailed understanding of the legal framework surrounding human rights expectations on business. We have experience advising a clients in a range of industries on managing human rights risks in their supply chains, including in connection with modern slavery reporting requirements. Please reach out if you would like to discuss these developments.
The scope and nature of the proposed offence is somewhat unclear in the Report, but we expect this will be further considered and clarified should these recommendations be adopted.