The first annual slavery and trafficking statements under the Modern Slavery Act (‘Act’) are due for qualifying businesses with financial year-ends on or after 31 March 2016. Organisations that ignore the Act risk being named and shamed by the new Anti-Slavery Commissioner and pressure groups. What’s more, businesses dragging their feet risk losing work if they are unable to certify their anti-slavery efforts in response to the growth of slavery and trafficking procurement terms. Below, we consider how organisations can prepare to report and review those statements already published.
The duty to report in overview
The Modern Slavery Act requires certain businesses to disclose what activities they are undertaking to eliminate slavery and trafficking from their businesses and supply chains, or state that they have taken no such steps.
The new reporting duty applies to companies and partnerships supplying goods or services (wherever incorporated or formed) with global turnovers of £36 million and above, providing they carry on business in the UK. The annual slavery and trafficking statement must be signed a director and approved by the board (or equivalent for partnerships) and made accessible on its homepage. The Government expects that publication will take place within six months of the financial year-end.
While penalties for a failure to report under the Act are limited, pressure groups and others are likely to monitor and test compliance. In response to the Act, qualifying businesses are already requiring supply chain contractors and suppliers to confirm their anti-slavery practices, causing a ripple effect onto smaller businesses not caught by the Act’s reporting duty.
The bigger picture: human rights reporting
The duty to report under the Act is not an isolated initiative. Broader human rights risks reporting exists under the UK Companies Act 2006 and this will be strengthened by the EU Directive on Non-Financial Reporting during 2016 (which requires certain large entities to report on their respect for human rights). The Act builds on the existing California supply chain transparency legislation and the United Nations Guiding Principles on Business and Human Rights, and may be reinforced by other jurisdictions, such as France, introducing supply chain transparency legislation. As such, businesses operating globally should give consideration to broader, global human rights reporting, as well as UK slavery and trafficking disclosure, to ensure a joined-up response.
Preparing to report under the Act
Group or subsidiary reporting?
Where there are group companies, bear in mind that if any single constituent company in the group meets the qualifying requirements (the turnover threshold and the need to carry on business in the UK supplying goods or services), it is legally required to produce a statement – i.e. take a company by company approach to applying the qualifying requirements. It is worth noting that, even where a constituent company does not have a presence in the UK, it may form part of another group company’s supply chain which does.
Where there are non-UK parent companies with UK subsidiaries, the Government Guidance states “having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act completely independently of its parent or other group companies.” In other words, having a UK subsidiary does not automatically require a non-UK parent to report unless it meets the qualifying requirements, although this remains an area of ambiguity in the Act.
Where a parent and one or more subsidiaries in the same group are required to produce a statement, the parent may produce one statement that subsidiaries can use to meet this requirement (provided that the statement fully covers the steps that each of the organisations required to produce a statement have taken in the relevant financial year and is approved and accessible from the relevant homepages of the companies covered).
What should the slavery and trafficking statement contain?
While the Act requires the publication of an annual statement, it does not prescribe the content and states that the following ‘may’ be included:
- information about the organisation’s structure, its business and supply chains;
- the organisation’s policies relating to modern slavery;
- its due diligence processes in relation to slavery and trafficking in its business and supply chain;
- the parts of the organisation where there is a risk of modern slavery and the steps it has taken to assess and manage that risk;
- its effectiveness in ensuring that modern slavery is not taking place, measured against appropriate performance indicators;
- training available.
Responding in practice
In our recent webinar (view the “Preparing to report” webinar here) we described the typical steps organisations should consider. In summary, these are:
- securing support from senior management; identifying a cross functional project team and allocating them responsibilities; and identifying stakeholders inside and outside the business, including those in supply chains, to assist;
- deciding whether to deal with the Act's reporting requirements in isolation or to integrate them with wider human rights reporting (see above);
- identifying what constitutes your "supply chain" and conducting risk assessments on how the business may be involved in slavery and trafficking in its operations and supply chain;
- testing the risk assessment results with stakeholders, prioritising severe risks and taking steps to stop, prevent or mitigate harm;
- embedding due diligence measures to prevent slavery and trafficking, for example, amending (or introducing new): policies, procurement and recruitment procedures, contract terms, codes of conduct, supplier pre-screening, supplier auditing or collaboration, whistleblowing mechanisms etc;
- devising training, KPIs and monitoring processes; to raise awareness amongst staff and prioritised suppliers, to monitor compliance, to enable concerns to be raised and to measure progress.
For those businesses with long or higher risk supply chains, the above steps can sometimes feel overwhelming. The Government has couched its expectations of business in terms of proportionality and that organisations are not expected to guarantee slavery-free supply chains. As such, businesses need to consider what is reasonable and proportionate when preparing to report under the Act; reflecting the severity and likelihood of slavery and trafficking risks; the size of the business and its resources; the nature and context of its operations (e.g. whether it is in higher risk sectors or countries); and its capacity (or leverage) to stop harm. Organisations should also familiarise themselves with the Government’s Guidance.
How are other organisations reporting?
A number of businesses have already published slavery and trafficking statements – early and on a voluntary basis. As such, some do not fully comply with the Act, however, they may be a useful reference for other companies and can be viewed here.
Some pointers from these statements which may also apply to your business:
- Confirming which companies, in a group structure, are covered by the statement;
- Setting out the twelve month period covered by the statement;
- Referring to membership of a relevant sector or cross industry initiative such as Stronger Together, the UN Global Compact and the Ethical Trading Initiative;
- Identifying which departments have responsibilities for aspects of anti-slavery activities;
- Identifying relevant policies with links to policies or a summary of their content;
- Describing the use of third party questionnaires, on-site audits, external social auditors or external audit standards and steps taken to verify workers’ conditions, such as anonymised interviews;
- Confirming that suppliers are required to hold their suppliers and sub-contractors to slavery and trafficking standards;
- Reporting steps taken with higher risk labour practices, e.g. ensuring that UK labour providers have a GLA licence as appropriate and banning the payment of job finding fees by applicants;
- Outlining any training undertaken including who is trained and the training content;
- Describing how contractors and suppliers falling under the Act should provide their slavery and trafficking statements for review;
- Outlining how non-compliant suppliers are managed;
- Setting up and monitoring new KPIs such as numbers trained, issues raised through grievances/whistleblowing, numbers of suppliers contacted and responded, positive/negative suppliers audits or responses, roll out of new anti-slavery contractual terms etc.
We are assisting a number of businesses as they prepare to report under the Act.