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ESG Focus: NSW Modern Slavery Act Postponed, Part II

ESG Focus | Jul 18 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:

This is Part Two in a two-part story on the postponement of the NSW Modern Slavery Act, which 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.

  • Accounting for slavery in a supply chain is an extremely difficult task, but the world is increasingly focused on addressing the problem
  • The current target is to remove slavery from the supply chain by 2030
  • Most companies in Australia will not have to report on their efforts to eradicate slavery until the second half of 2020

By Sarah Mills

Baby steps in the first instance.

It is not surprising that the NSW legislation has been delayed. While the government cited inconsistencies with Federal legislation as one of the causes for the delay, the fact that it was pecuniary and compliance difficult would have made its implementation a nightmare for businesses.

Accounting for slavery in a supply chain is an extremely difficult task, and even those companies with extremely deep pockets would be sorely tested to be able to confidently comply with the legislation within the allocated time frame.

However, its simple passing was a flag to businesses of the kind of enforcement to come: enforcement that may include rising fines and possibly criminal sentences if necessary to achieve the end result.

Already, the Law Council and Antislavery Australia Labor and Greens are pushing for penalties and suggest it should be made a crime to fail to prevent slavery in supply chains. This sentiment is echoed globally.

If history is any guide, it would be naïve to doubt the conviction of those driving the modern anti-slavery charge. One only has to recall the American Civil War to sense the steely resolve that can be brought to bear in this issue.

The target is to remove slavery from the supply chain by 2030.

After being given a free reign for nearly three decades, corporations have received notice that they can no longer disregard the social impact of their operations.

Global movement

While essentially a toothless tiger, the Federal Modern Slavery Act represents the first step towards ensuring Australia’s compliance within the global context.

Much of the Act is taken from the British Act, which was implemented in 2015, and is part of a widening global net to improve social stability. 

California’s Transparency in Supply Chains Act of 2010 took affect in 2012 and several bills are being pushed onto the Washington senate – the first, dealing with agricultural goods, was knocked back earlier this year. Canada is reported to be poised to follow California’s suit.

Human trafficking and slavery is illegal in most western democracies and is becoming increasingly linked to forced labour (as opposed to sexual slavery).

Back to Australia

Anti-slavery efforts are nascent. The British bill, introduced in 2015, has gained little traction with four out of five companies failing to comply. Many fear this will be the case in Australia, now that the more pecuniary NSW law has been postponed indefinitely.

Under the legislation, companies will have to report to the government on the steps they have taken to deal with slavery in their supply chains. The reports will be kept on the Modern Slavery Registry.

Most companies will not have to report until the second half of 2020.

The reports must:

  • Identify the reporting entity
  • Describe:
    • the structure, operations and supply chains of the entity;
    • the risk of modern slavery practices in the operations of the entity and any entities it owns or controls;
    • the actions that the entity  and any entities it owns or controls have taken to assess and address the risks identified including due diligence and remediation processes;
    • how the entity assesses the effectiveness of those actions;
    • the consultation process with any entities the entity owns or controls; and
  • Include any other information that the entity considers relevant.

Australia is considered particularly vulnerable given two thirds of the world’s slavery occurs in the Asia Pacific.

Fortescue Metals’ Andrew Forrest, a leading proponent of the Modern Slavery Bill says slavery is endemic in Australia’s supply chains.

Direct slavery exists in Australia today, largely on construction sites, in agriculture, in the food and beverage industry, and the sex industry. It is poorly prosecuted, partly because of the fear of the victims but also due to the lack of criminal enforcement focus.


From an ESG perspective, investor pressure is expected to be brought to bear on corporations to ensure information from these reports are included in annual general reports.

A quick glance at Macquarie Group’s 2019 annual report shows that while many pages were devoted to ESG, slavery didn’t rate a mention, pointing to the sensitive nature of the issue as well as the difficulties in tracking this information. No one is jumping the gun.

Generally speaking, only those that are already reporting on the issue in Britain, such as Rio Tinto and BHP Group, and those who have already suffered a scandal such as Qantas, are issuing early statements.

While much of the environmental, social and governance (ESG) investment focus has, to date, been on the E – the environment – the Act is a reminder of the quiet but growing focus on the social consequences of corporate activity, and the growing sense that corporations must earn a social licence to operate.

As with all ESG investing, there will be winners and losers. Those with deeper pockets can generally pay more to track supply chains. In this sense, reporting can create a barrier to entry and favours the strongest and most efficient organisations. Those with single direct suppliers as opposed to complex chains will also be at an advantage.

Increasingly, a poor track record in this respect may prove a flag to investors of a company’s instability as an investment – a suggestion that they are incapable of competing at minimum wage level, have weak reserves and are on unsturdy capital footing. In a post-ESG world, capital is king.

Given the emotion and potential reputational damage associated with slavery, there will be an initial advantage to being a reporting laggard but that is likely to change as the anti rises. Once much of the environmental issues, particularly around coal and plastics, are dealt with, ESG investor sights will turn more fully to social issues – in about five years time.

The Australian Council of Superannuation Investors’s CEO Louise Davidson says investor pressure will be brought to bear.

Minimal or legalistic compliance (to the new legislation) is unlikely to yield change. I anticipate that investors will need to apply pressure to ensure meaningful reporting,” says Davidson.

As with all ESG developments, slavery comes with its own suite of advisers and lawyers to assist both corporations and investors.

The Human Rights Due Diligence in supply chains project (HRDD) is helping map a path in this area to create a legal and regulatory framework, to help with the identification of human rights impacts, identifying avenues for mitigation, and tracking and monitoring software and processes.

Considerable time and money will be needed to map supply chains, engage stakeholders and human rights experts, and develop: human rights impact statements, supplier onboarding processes, codes of conduct, contractual protections, training, grievance mechanisms, remediation and termination protocols, reviews and investigations, third party vetting, a local presence, transparency, reporting, and internal legal expertise.

Sectors that are most vulnerable to slavery

The Australian Council of Superannuation Investors (ACSI) published a report earlier this year titled Modern Slavery, Risks, Rights and Responsibilities – a guide for companies and investors.

The report examines Australia’s corporate landscape and aims to prepare Australian businesses to meet new regulations for public disclosure and to understand the risks in their operations.

Somewhere in the supply chain of most business, forced labour or related practices are present,” says ACSI CEO Louise Davidson. “Eradicating slavery is a mainstream corporate responsibility. Every industry is exposed, and every company has a responsibility to act. The new law sends a clear message that Australian businesses must not unwittingly condone or facilitate slavery.

The report says that, due to their reliance on imported goods particularly those from South-East Asia, Australian companies are significantly exposed, and highlights five sector that are carry a particularly high risk:

  • Financial services
  • Mining
  • Construction and property
  • Food, beverage and agriculture
  • Health care.

FNArena will be reporting on each of these sectors in the next 12 months prior to introduction of the Federal reporting requirements. One would assume that retailers would also be vulnerable.

The ACSI report points to four intersecting factors that increase the risk to companies in these sectors:

  • Vulnerable populations
  • Business models structured around high-risk work practices
  • High-risk product and service categories; and
  • High-risk geographies.

In instance where these factors intersect, the risks rise sharply.

Where multiple high-risk factors co-exist, there is a higher likelihood of modern slavery and additional controls are required to ensure that risk doesn’t materialize,” says the report.

So for now, it’s softly, softly. The commencement of the more pecuniary NSW Modern Slavery Legislation has been stayed but its very existence sends a clear message to businesses. It is unlikely that any major developments will occur on this front for the next two years, save perhaps for individual scandals. We will keep readers updated on developments.

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