Despite investor pressure, the UK is losing its leadership position, as Australia and the US progress on laws to eradicate modern slavery from supply chains.
It is an uncomfortable open secret that slavery persists today in plain sight. From the international stage with forced labour migrants building the stadium for 2022’s Qatar World Cup to the USA facing a child labour crisis, modern slavery is on the rise with the number of people affected growing to 50 million since 2018.
The dire situation is a manifestation of extreme inequality, says Grace Forrest, Founding Director of NGO Walk Free. “It is a mirror held to power, reflecting who in any given society has it and who does not. Nowhere is this paradox more present than in our global economy through transnational supply chains.”
In recent years, governments have introduced legislation to hold business and accountable for exploitation that occurs in global supply chains such as the EU, USA, Germany, Norway, Switzerland, Canada, Australia and Japan. The UK was the first out of the blocks with the Modern Slavery Act enacted in 2015.
Section 54 of the Act requires large companies with turnover of £36 million or more to publish a statement outlining steps to ensure that modern slavery is not taking place in their business or supply chains.
But the effectiveness of Section 54 has been questionable, and with other countries fast catching up on legislation, the UK is losing its leadership position. Some investors are demanding the law is toughened up.
Investor initiatives on modern slavery
Jakub Sobik, Communications Director at the Modern Slavery and Human Rights Policy and Evidence Centre, says one of the key issues is that there is no penalty if a company does not publish a modern slavery report. He adds that evidence shows that even if a companies mostly complies with the law in publishing reports, it doesn’t necessarily translate into changing corporate behaviour in preventing modern slavery.
A clear example of this was the case of fashion giant Boohoo, which was embroiled in a modern slavery scandal in 2020, but had published a modern slavery statement since 2018.
UK-based investors Rathbones and CCLA also both agree that the UK Modern Slavery Act lacks teeth and should be reformed to include some form of sanction for non-compliance.
Both investors have taken leadership positions in steering improvements and awareness of modern slavery legislation. CCLA runs the Find It, Fix It, Prevent It initiative that engages with the UK government to create a meaningful regulatory environment for tackling modern slavery and with companies and data providers on improving action on the issue. Rathbones’ Votes Against Slavery initiative targets FTSE350 companies which fail to do modern slavery statements.
Matt Crossman, Stewardship Director at Rathbones, which sits on the steering committee of CCLA’s initiative, says the projects are very complementary. He says Votes Against Slavery, with the backing of 122 investors managing £9.6 trillion, is trying to provide soft enforcement in the absence of government action. “Effectively there’s not been any enforcement of Section 54. The government does have some enforcement powers, but to our knowledge, they’ve never used them,” says Crossman.
To strengthen enforcement, Rathbones wants sanctions for failure to comply with Section 54 or supplying misleading statements, to consider disqualification for directors of a company.
CCLA also wants stronger sanctions, such as financial penalties for non-reporters, says Martin Buttle, Better Work Lead at CCLA. It also wants reporting to be extended to the public sector and the financial sector, including their own investment portfolios, says Buttle.
Rathbones however does not believe this is the right approach to take. “I think we have to very cautious about that as I don’t know what real world impact that would actually have and what benefit the information [from the finance sector] would actually give,” says Crossman. He says portfolio level reporting on modern slavery risk could distract attention from the real-world action of getting all sectors to engage more deeply on eradicating modern slavery from one’s supply chains.
Reforms to Australia’s modern slavery act
Australia’s Modern Slavery Act 2018, which has similar requirements on a modern slavery statement to the UK, does require investors to report alongside corporates (of a certain size).
Mans Carlsson, Head of ESG at Ausbil Investment Management, chairs the Human Rights Working Group for Responsible Investment Association Australasia (RIAA). The working group fed into work on advice to Australia’s government on reforms to its Modern Slavery Act, as part of three-year reviews to the act in statute. Carlsson says an issue with the Australian law is that companies feel it is a compliance exercise, outsourced to lawyers and consultants, who can turn it into a goldmine.
As part of the review, investors, says Carlsson, called for elements such as a mandatory human rights due diligence law akin to EU, and for a lowering of the threshold for mandatory reporting from companies to A$50 million turnover. Investors also recommended penalties for non-compliance and further robust guidance on reporting for the financial sector.
One of the most important asks from investors, he adds, is for a duty on reporting entities to take effective action to identify and assess risk and track performance on addressing them to encourage firms to report instances found of modern slavery. Carlsson says only one company, Woolworth, has reported actual cases of modern slavery.
Also, investors want a mechanism like the US’ Uyghur Forced Labor Prevention Act that bans imports linked to forced labour in China. Carlsson says if there are areas of high risk linked to a certain product or supply chain, this should be considered in the reporting process. . One of the recommendations from the review is that a minister or an anti-slavery commissioner should be able to specifically call out such an area for reporting.
Crossman at Rathbones indicates that there is similar thinking in the UK too, with the investor seeing in the last 18 months, in light of the US’ move, that a more productive avenue for legislation or regulatory work is import and export controls.
Buttle also highlights the new US law, saying it could change dynamics by bifurcating international supply chains, where products made with forced labour avoid the US, instead entering other jurisdictions with weaker laws.
As Australia moves to strengthen its Modern Slavery Act, and the US introduces new trade laws to ban goods made by forced labour, progress in the UK appears to have stagnated. In 2022, 46% fewer modern slavery statements were uploaded by companies than in 2021 and the position of Independent Anti-Slavery Commissioner has been vacant for 12 months.
The former Anti-Slavery Commissioner, Dame Sara Thornton, now consults for CCLA on modern slavery, and regularly advocates in parliament on the issue. But CCLA’s Buttle admits it doesn’t see much movement happening on the issue under the current parliament and it is already looking to what happens after an election, with conversations already under way with devolved governments and the shadow cabinet.