Section 54 of The Modern Slavery Act – “Transparency in Supply Chains Provisions” – is dedicated driving companies’ attention to the issue of slavery in their supply chains. This section, in the context of much broader regulatory provisions around slavery, highlights how important it is for the private sector to be engaged and held accountable for cases of modern slavery in their supply chains.
Contrary to the common belief that links modern slavery to cases of forced prostitution, slavery is mostly a supply-chains issue: about 60% of the 45.8 million victims worldwide are actually trapped in forced labour situations along global supply chains. To put that into perspective, it means that 7 out of 10 slaves produce the goods or harvest the food that is distributed and sold every day.
Section 54 requires that any commercial organisation in any sector, that supplies goods or services, carries on a business or part of a business in the U.K., and is above 36million GBP total turnover to produce a statement for each financial year of the organisation signed by a director or higher executive stating the steps the organisation has taken to ensure that slavery is not taking place in any of its supply chains, and in any part of its own business
Any company whose financial year ended in April has to produce a statement by September. Not much time, if we think that most businesses affected by the requirements had look for the first time at where and how breaches of human rights could be taking place in their supply chains, and that most of them had never produced similar statements before.
The Act does not give much guidance on what a “good” statement looks like, but only lists “recommended points” that businesses should cover. This has been done on purpose, as the intention of the Act is to engage businesses in a “performance race to the top” and inspire them to push their anti-slavery agenda forward through the ambition of being seen as leaders in the fight rather than through punishment. Indeed, non-compliance with the Act has limited penal consequences.
The ideal attitude for a company to embrace the Act would be to go “above and beyond” simple compliance. However, most of the first statements produced were actually nothing more than a general commitment to the cause, thus “failing” the test so far. This was a predictable result for the reasons explained above.
In our view, scrutinizing the second round of statements next year will be more interesting and decisive, because companies will need to demonstrate progress. Every published statement becomes a benchmark for the following one, a way to monitor companies’ yearly progress on this very specific and important issue.
The U.K. act’s approach takes a step forward – and reaches a higher number of businesses – from a similar piece of legislation, the 2012 California Transparency in Supply Chains Act, that affects only retailers and manufacturers with turnover of U.S. $100 million doing business in the State of California. With the turnover level set to £36 million in the U.K., now even medium-sized companies are involved in producing statements. Moreover, the U.K. Act affects “every company providing goods and services” broadening the categories of businesses involved.
The Act is a cutting-edge piece of legislation for other reasons as well. First, for its innovative terminology. The choice of the term “modern slavery” is a powerful one and comes at a point in time when we are witnessing a transition from describing similar situations as “human trafficking” to the much stronger definition of “modern slavery’’ cases. While the term “human trafficking” puts emphasis on the movement of victims, “modern slavery” focuses on the end-goal where the person is exploited, and highlights the main indicator of slavery-like conditions: the lack of freedom. Also, “slavery” is seen by many as an “exaggerated” word depicting a crime that has already been abolished. The additional adjective “modern” goes against this belief underlining that slavery actually constitutes the most serious crime against human rights in current times.
Second, the Act encourages companies to create supply chain transparency. The Act requests that businesses, prior to publishing their statements, investigate and disclose due-diligence processes in their supply chains, showing where there is a risk of slavery. An analysis conducted by an NGO¹ on about 200 of the first published statements showed that 35% said nothing on the subject. This is a significant omission for statements that are intended to be based around a due-diligence approach. Also, very few companies mentioned actual risks in countries, particular business areas or tiers of supply chains.
Mapping out a supply chain and investigating all its tiers is a difficult challenge. Modern supply chains are complex, composed of continuously evolving, multitier networks that comprise many thousands of factories around the world. It is widely acknowledged that the majority of forced-labour issues that occur in supply chains are happening below the first tier. Practitioners agree that if we are to bring about change, companies must start investigating the serious abuses that may be occurring several tiers down the supply chain. However, very few companies can claim to have successfully done so.
Despite the difficulty and the complexity of risk assessment, companies must stop postponing addressing Andhra Pradesh and start working with the data they have. To help this process, The Mekong Club is developing an innovative risk-assessment approach to guide companies toward better visibility over supply chains and identifying the areas most at risk, so they can use their limited resources for effective actions.
A third way the Act is cutting edge is requiring that each business’ statement be signed off by a director or a more senior executive. This was done to engage senior leadership and promote their accountability, which is pivotal to prioritise this issue, giving it the resources and attention it requires. Senior leadership engagement is a significant step toward breaking companies’ internal “silo attitude” that keeps CSR or compliance teams in isolation and prevents departments from collaborating and actively working to combat modern-day slavery.
The Mekong Club is working with businesses on how to effectively engage key internal stakeholders to ensure the commitment of peers and senior leaders, therefore mobilising internal functions and being able, as a company, to take action against risk after identifying it.
With all these new dynamics the Act put in place, we forecast that businesses will begin addressing the problem of slavery more seriously by implementing new processes and procedures. This said, one last question remains to be answered: How much should they disclose?
It will take time for companies to share internal issues, and the attitude will likely be to keep using statements as a window display to point out what a company is doing rather than what it is not. However, those companies brave enough to openly reveal gaps in their supply chains should be praised for promoting transparency and encouraged to share possible remediation more rather than being punished for their shortfalls.
Prime Minister Theresa May of Britain recently announced² that she is setting up the first ever government task force to address modern slavery. She claimed that she is “determined to make it a national and international mission to rid our world of this barbaric evil.” This means that the private sector should not put their heads in the sand: given the direction in which the legislation is moving, if companies do not take modern slavery very seriously it will not be long before they will be forced to do so.