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ESG Focus: NSW Modern Slavery Act Postponed

ESG Focus | Jul 12 2019

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

The postponement of the NSW Modern Slavery Act provides a great platform to discuss one of the most emotive and interesting economic issues in environmental, social and governance investing today, and its ramifications for investors and corporations.

  • The commencement of the pecuniary NSW Modern Slavery Act has been delayed
  • For now the Federal Slavery Act will be the guide for business, taking a softly-softly approach, but enforcement is likely to rise
  • Australian legislative changes are part of a global movement

By Sarah Mills

Businesses are no doubt breathing a collective sigh of relief after news the NSW Modern Slavery Act, which was due to commence in July, was postponed indefinitely, and may be repealed.

The Act, which was due to start on July 1, requires businesses with a consolidated revenue of $50m or more to make a statement to government describing the risks of modern slavery in its supply chains. Failure to comply would have exacted a $1m fine.

The Act also calls for a modern slavery commissioner. These are all commendable actions but their implementation at this point is impractical, hence, no doubt, the postponement of the legislation.

But businesses are not entirely off the hook as the much less burdensome Federal Modern Slavery Act came into effect in January. It is this statute that will likely set the tone for corporations for the next two years.

Under the legislation, any organisation conducting business in Australia with a minimum annual consolidated revenue of $100m will have to make a statement to government describing the risks of modern slavery in its supply chains. The legislation proposes no fines and no enforcer.

History and economics of slavery

Since William Wilberforce campaigned for the abolition of slavery in Britain and President Lincoln led the Union to victory in the American Civil War, slavery has been a defining issue for Western democracies and religions.

But it has also had a significant, less widely broadcast economic component. In the 1800s, the southern states of America with their well-organised, entrenched system of black slavery, had a significant competitive agricultural advantage over the free states of the north.

It was during this period that the American banking system, national currency, northern manufacturing base and income tax were established in the Union states. It was as much the economic buy-in of wealthy northern businessman and legislators, as well as the buy-in from Puritan Christian groups to supply their sons for the crusade, that turned the tide of American history.

Similarly, in Britain, the practices of unscrupulous slave traders and shippers were soon bleeding through to the pockets of other organisations, such as insurers, garnering support from various business interests for Wilberforce’s campaign in an industrialising Christian Britain.

It also bled into international relations, as African slave uprisings defeated Britain in the Caribbean.  Slavery practices, while profitable for slave traders and many slave owners, often had unintended consequences for broader economies, both good and bad, as argued in an article by The Economist titled ‘Did Slavery Make Economic Sense?’.

While the face of slavery has altered dramatically since the 1800s, the fundamental social and economic dynamics remain very much the same. Not only does it muddy the competitive waters, it skews global trade relations, potentially stymies innovation, and can increasingly trigger reputational and financial damage for global corporations and sovereign nations – not to mention the devastating impact on individuals.

In the past 40 years since the fall of the Berlin Wall and the collapse of communism in the Soviet Union, the mobilisation and globalisation of capital and labour with its accompanying focus on short-term profit, has resulted in slavery becoming a prominent, if less visible, component of western economies. Slavery has infiltrated nearly every supply chain in the world.

According to the Walk Free Foundation’s Global Slavery Index, as at September 2017, US$150bn was generated in the global private economy from forced labour alone, let alone from the broader spectrum of slavery as defined under the Modern Slavery Act.

One in 200 people are slaves. Roughly two thirds of human trafficking in the United States and Europe is of its own citizens.

Modern slavery is an umbrella term for crimes that include slavery, servitude, serious child labour, forced labour, human trafficking, debt bondage, slavery like practices, forced marriage, removal of organs and other slavery like practices.

As we shift to an age of enforcement, moves are afoot to deal with the problem, not just as a moral issue, but as a point of ensuring social stability and economic security.

The United Nations Guiding Principles (UNGP) on businesses and human rights have been developed to guide mutli-nationals on the issue of slavery. It evolved from early attempts at codes of conducts in the 1970s, to debates around the turn of the century regarding business responsibility for slavery and business rights, to its final iteration in 2011.

It is these 31 principles against which most ESG investing is benchmarked. The key onus of businesses is to display due diligence in this arena and the UNGP represents, at this stage, a soft law approach.

Sustainable Development Goals

In terms of the United Nation’s Sustainable Development Goals (SDG), slavery falls under:

  • SDG 5.2: Eliminate all forms of violence against all women and girls in public and private spheres, including trafficking and sexual and other types of exploitation;
  • SDG 8.7: Take immediate and effective measures to eradicate forced labour, end modern slavvery and human trafficking, and secure the prohibition and elimination of the worst forms of child labour, including recruitment and use of child soldiers, and by 2025 end child labour in all its forms.
  • SDG 16.2: End abuse, exploitation, trafficking and all forms of violence against and torture of children.

To continue with Part Two.

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