Modern Slavery Reporting Requirements: Australia Prepares for Strengthening Compliance

Modern Slavery Act 2018: The first three years

In May 2023, the Australian Government released an independent review of the first three years of the Modern Slavery Act 2018. The review found that:

• the act had failed to bring about meaningful change for people affected by modern slavery.
• many entities are not meeting the mandatory reporting criteria
• compliance with modern slavery regulations is too often seen as a box-ticking exercise and not being treated with the seriousness that the issue demands.

Key recommendations from the Modern Slavery Act review

The review made 30 recommendations to strengthen modern slavery obligations, including introducing mandatory due diligence and establishing an Anti-Slavery Commissioner.

The recommendations include:

Reduced reporting threshold

The Modern Slavery Act currently applies to entities with an annual consolidated revenue of $100 million or more. The review recommends lowering this threshold to $50 million, which would include an additional 2,393 entities. The expansion aims to increase the number of businesses actively reporting and addressing modern slavery risks in their operations and supply chains.

Mandatory due diligence system

Currently, due diligence only requires that entities report on the actions taken to address risks in their operations and supply chains. Under the proposed changes, entities would be required to take proactive steps to assess and manage modern slavery risks, rather than simply describing the actions taken. The system should cover not only their operations and supply chains but also their investment activities.

The due diligence system should be proportionate to the size and nature of the entity and the modern slavery risks it faces. It should also be informed by meaningful consultation with stakeholders, including workers and their representatives, and be regularly reviewed and updated to ensure its ongoing effectiveness.

Entities may be required to report on their due diligence processes in their modern slavery statements, providing transparency on the steps taken to identify and manage risks. Failure to establish and maintain an adequate due diligence system would be considered an offence under the revised Act.

Penalties for non-compliance

To address accountability issues, the review recommends introducing penalties for:

• failing to report without a reasonable excuse
• providing false or misleading information
• failing to establish a due diligence system.

Improve guidance to reporting entities

To support businesses in meeting their obligations, the review recommends strengthening the guidance provided to reporting entities. This includes clarifying the mandatory reporting criteria, highlighting best practices, and offering sector-specific guidance.

Declaration of high-risk modern slavery categories

The review recommends that the Anti-Slavery Commissioner be empowered to declare specific industries, sectors, products, services, or regions as high-risk for modern slavery. Entities operating in these declared high-risk categories may be required to establish and maintain a due diligence system, report on their actions to address modern slavery risks and be subject to penalties for non-compliance.

The review suggests that high-risk categories could include industries such as agriculture, construction, textiles, and mining, as well as specific products or services known to have a high prevalence of modern slavery, such as rubber gloves, cocoa, or cotton.

Preparing for enhanced compliance

As the regulatory landscape evolves, organisations must proactively assess their existing systems, identify risks, and implement robust policies and controls to ensure compliance and effectively address modern slavery risks within their operations and supply chains.

Understand and assess your existing systems

The first step in preparing for strengthening compliance requirements is to understand and assess your organisation's existing systems and processes related to modern slavery risk management. This involves conducting a comprehensive review of your current policies, frameworks, and controls to identify gaps and areas for improvement.

Engage with internal stakeholders across various functions to gain a holistic view of your organisation's approach to managing modern slavery risks. This assessment will provide a clear understanding of your current maturity level and help prioritise actions to strengthen your systems and processes.

Identify risks

Conduct a thorough risk assessment by mapping your operations and supply chain, and overlaying relevant commercial data such as spend, assets, and employees. Pay particular attention to high-risk factors such as vulnerable populations, high-risk business models, high-risk categories, and high-risk geographies.

Engage with external stakeholders, including civil society organisations, communities, and representatives to test your risk assessment and gain valuable insights into potential modern slavery risks.

Strengthen your policies, systems and controls

Due diligence system

Ensure your modern slavery statements meet the mandatory reporting criteria and provide comprehensive disclosure of your efforts to address modern slavery risks. Be transparent about your due diligence processes, risk assessments, and actions taken to prevent, mitigate, and remedy modern slavery in your operations and supply chains. Regularly review and update your reporting processes to ensure they align with evolving regulations and stakeholder expectations.

Consultation and grievance mechanisms: Engaging stakeholders and addressing incidents

Engage with internal and external stakeholders, including workers and their representatives, when developing and implementing your modern slavery risk management systems. Establish effective grievance mechanisms, such as anonymous reporting tools like Elker, to enable workers and other stakeholders to raise concerns and maintain a culture of transparency and accountability. Ensure these mechanisms are accessible and secure, and that incidents are promptly investigated and remediated.

Supply chain transparency

Increase transparency in your supply chains to better identify and address modern slavery risks. Engage with suppliers to build their capacity to manage modern slavery risks and ensure they adhere to ethical practices. Implement processes to regularly monitor and assess supplier performance, and take appropriate action when issues are identified. Consider using technology solutions to enhance supply chain visibility and transparency.

Systems and controls

Establish consistent and repeatable processes for identifying and assessing modern slavery risks, incorporating explicit modern slavery risk considerations into your overall risk management processes. Assign clear accountabilities for modern slavery risk management at both functional and executive levels, and develop modern slavery KPIs for employees with relevant responsibilities.

Continuously monitor and assess the effectiveness of your systems and controls, making adjustments as needed to ensure they remain robust and effective in addressing modern slavery risks.

Continuous improvement

Establishing a clear framework for measuring the effectiveness of your modern slavery risk management efforts is crucial. This framework should include the voices of affected stakeholders, such as supply chain workers or their representatives, and incorporate time-bound key performance indicators developed in consultation with internal and external stakeholders.

Develop an ongoing approach to monitoring and evaluation, supported by relevant data from your anonymous reporting tools, analytics, and engagement across your supply chain. Use this information to identify areas for improvement and continuously refine your policies, systems, and controls.

As stakeholder expectations evolve, organisations will be increasingly expected to demonstrate the actual impact of their due diligence programs. Prepare to provide greater clarity and detail on how you are identifying, assessing, and responding to modern slavery risks, as well as the impact of your actions. Ensure your board is confident in the due diligence program that underpins your modern slavery statement, and consider seeking assurance of your modern slavery statements alongside other sustainability assurance.

By focusing on continuous improvement, regularly monitoring and evaluating the effectiveness of your efforts, and providing clear and transparent modern slavery reporting, your organisation will be well-positioned to meet the evolving expectations surrounding modern slavery risk management and compliance.

Understanding modern slavery

Modern slavery is a term that encompasses a range of serious human rights violations and criminal offences, including human trafficking, slavery, servitude, forced labour, debt bondage, and child labour. Practices involve the exploitation of individuals for personal or commercial gain, often through coercion, deception, or the abuse of power.

Modern slavery can occur in any industry or sector and can be particularly prevalent in high-risk industries such as agriculture, construction, manufacturing, and mining. It is a global problem that affects millions of people worldwide, including in Australia.

The urgent need for effective reporting

According to the International Labour Organization (ILO), there are an estimated 40.3 million victims of modern slavery globally, with 24.9 million people in forced labour and 15.4 million in forced marriage. Women and girls are disproportionately affected, accounting for 71% of modern slavery victims.

In Australia, the Global Slavery Index estimates that approximately 15,000 people are living in conditions of modern slavery. However, the hidden nature of modern slavery means that the true number may be higher. The Australian Institute of Criminology has identified a range of industries where modern slavery risks are prevalent, including agriculture, construction, domestic work, hospitality, and sex work.

Current mandatory reporting requirements

Under the current Modern Slavery Act 2018, entities with an annual consolidated revenue of AU$100 million or more are required to submit an annual modern slavery statement. This statement must outline the risks of modern slavery in the entity's operations and supply chains, and the actions taken to assess and address those risks.

The $100 million threshold captures approximately 3,000 entities in Australia, including large corporations, foreign entities conducting business in Australia, and the Australian Government. However, the 2023 independent review of the Modern Slavery Act has recommended lowering this threshold to $50 million, which would significantly increase the number of entities required to report.

Reporting criteria: structure, operations, supply chains, risks and actions

Modern slavery statements must address the mandatory reporting criteria set out in the Modern Slavery Act. These criteria require entities to report on:

• Structure, operations, and supply chains
• Modern slavery risks in their operations and supply chains
• Actions taken to address these risks, including due diligence and remediation processes
• How they assess the effectiveness of these actions
• The process of consultation with any entities owned or controlled by the reporting entity
• Any other relevant information

Entities are also encouraged to describe their modern slavery risks in the context of their broader human rights approach and to consider how modern slavery risks intersect with other social and environmental risks.

Conclusion

As the regulatory landscape evolves, organisations must take proactive steps to ensure compliance and effectively manage risks. This involves assessing existing systems, identifying risks, and implementing robust policies and controls. Regular monitoring and evaluation of these efforts, along with clear and transparent reporting, demonstrate an organisation's commitment to combating modern slavery and meeting stakeholder expectations.

Strengthening Australia's response to modern slavery requires collaboration between government, businesses, and civil society. Organisations that prioritise these efforts will be well-positioned to navigate the evolving regulatory landscape and contribute to the fight against modern slavery.