The UK has enacted ground-breaking legislation, the Modern Slavery Act 2015, which will require large manufacturing companies to be transparent regarding the impacts of their supply chains.
Commercial organisations with an annual turnover of £36 million, which supply goods or services in the UK, will be requiredto publish an annual slavery and human trafficking statement to report on what actions they have taken to ensure slavery and human trafficking is not taking place in their supply chains, or any part of their business. The statement must include “a statement of the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains” or that they “have taken no such steps”.
The statement may include information about:
- the organisation’s structure, business and supply chains;
- its policies in relation to slavery and human trafficking;
- its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
- the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk;
- its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate; and
- the training on slavery and human trafficking available to its staff.
The statement must be approved by the board, signed by a director, and published on the company’s website.
WHEN WILL IT TAKE EFFECT?
The legislation came into force at the end of October 2015. The statement must be published after the end of the organisation’s financial year (Government Guidance suggests within six months). There are transitional provisions for companies whose next year end falls between 29 October 2015 and 30 March 2016; these organisations will not be required to publish a statement until the end of the following financial year.
WHY IS IT RELEVANT FOR MANUFACTURERS?
This legislation is particularly applicable to large manufacturing companies. The trend in the sector is towards leaner sourcing models, which can lead to peaks and troughs in labour supply, increasing the risk of exploitation. Verifying supply chains are “slavery free” presents a real challenge for manufacturers, particularly past Tier One where there is decreased visibility. Suppliers in certain jurisdictions pose a particularly high risk, where the use of low paid, temporary or migrant workers is prevalent.
Affected manufacturers have three options:
- publish an annual statement setting out the steps it has taken during the financial year to ensure slavery and human trafficking is not taking place in any of its supply chains or any part of its business; or
- publish a statement that it has taken no such steps; or
- decline to publish a statement.
Only options (1) and (2) will be legally compliant. Manufacturers need to consider now:
- what time, resource and money will be required to comply;
- how feasible is it to identify all supply chains and take steps in relation to each;
- what steps are actually required in practice;
- what is the relationship with suppliers and where does the bargaining power lie;
- what competitors are doing. What is the general approach of the sector/market;
- what are the potential risks to reputation and negative attention from the UK’s independent anti-slavery commissioner, shareholders, investors, customers, trade unions and civil society, such as non-governmental organisations and human rights groups; and
- what is the potential for exclusion from tendering for public sector or private sector contracts in relation to businesses who have themselves published a statement of steps and/or require their suppliers to.
Organisations who engage with the legislation will need to take steps to address each part of the annual statement. These are likely to include:
- mapping of suppliers and identification of high-risk activities/ geographies;
- creation of new policies and procedures on slavery and human trafficking;
- review of existing policies and procedures to ‘dovetail’ with slavery and human trafficking processes;
- implementation of a confidential reporting line;
- proactive risk management, including supplier audits;
- training of employees, suppliers, contractors; and
- identification of key performance indicators allowing progress to be benchmarked and monitored.
In the first year of compliance, an organisation may choose to simply set out its strategy for combating modern slavery risks, rather than taking material and substantive steps. It will, however, be critical for the organisation to continue to build on, and begin implementation, of its strategy year-on-year.
With so much at stake, companies and their directors need specialist advisors to help them navigate this new terrain. With leading labour law, human rights and regulatory and government advisory expertise, along with our global reach and local knowledge of the salient risks pertinent to each jurisdiction, we are ideally placed to support companies during the complete life-cycle of human rights issues.