Supply Chain Transparency – new legal duties now in force
The Modern Slavery Act 2015 (MSA) has introduced a new obligation on businesses to report what they are doing to combat slavery and human trafficking.
Section 54 of the MSA came into force in October 2015, and applies to any commercial organisation which:
- carries on all or part of its business in the UK;
- supplies goods or services; and
- has an annual turnover of over £36 million (including subsidiaries).
Commercial organisations include public and private companies and partnerships.
The MSA applies regardless of where an organisation is incorporated/domiciled and so it can apply to foreign companies as well as UK-incorporated entities.
The Home Office has published guidance, a copy of which can be found here.
What is the obligation?
Commercial organisations are required to publish a statement annually that either: (1) details the steps taken by the commercial organisation to ensure that slavery and human trafficking are not taking place in any part of its business or supply chain; or (2) explains that no such action was taken.
What does the statement have to say?
The MSA does not specify exactly what a business should do in relation to supply chain transparency and there is no prescribed form of transparency statement. However, the MSA suggests that the statement "may" include a description of:
- the organisation's business model and supply chain relationships;
- its policies on slavery and human trafficking;
- the due diligence process in relation to slavery and human rights trafficking;
- the training available to staff on these issues;
- the principal risks related to slavery and human trafficking, including how the organisation evaluates and manages those risks in its organisation and its supply chain; and
- any relevant key performance indicators.
The statement must be approved by the most senior officials in an organisation (e.g. the board of directors in a corporate body, or a partner in a partnership).
If the organisation uses a website, it must publish the report on that website and include a link to it in a prominent place on the website’s homepage.
How should international groups approach this?
Where a parent and one or more subsidiaries in the same group are required to produce a statement, it will be acceptable for the parent to produce one statement that covers its own activities and those of its subsidiaries. Where a foreign parent company is carrying on business in the UK, it will be required to produce a statement.
When should the statement be published?
Although the requirement is now in force, businesses with a financial year ending on or before 30 March 2016 do not need to publish a statement for the current financial year. There is no set deadline, but the guidance suggests that businesses should publish their statements "as soon as reasonably practicable" after the end of the relevant financial year, with six months indicated as a reasonable timeframe.
What happens if there is no compliance?
If companies do not comply, they can be served with an injunction by the Secretary of State. Additionally, we expect that campaigning organisations will "name and shame" those companies that do not comply.
Human rights issues, as well as supply chain transparency, are of increasing importance for companies. Not only is pressure coming from customers, employees and the general public, but governments are now placing additional burdens on companies. In 2013 the Government required listed companies to report publicly on social, community and human rights issues to the extent necessary for an understanding of the development, performance or position of the company. The MSA is a further extension of the Government's commitment to this issue. Additionally, from 2016 onwards reporting requirements will be placed on "large public-interest entities" operating in the Europe Union. This is an area that will continue to develop.
A proactive approach to this issue now will allow companies to stay ahead of the regulatory requirements. Many companies have recognised this and have now signed voluntary commitments such as the Global Compact, or the Equator Principles, or have adopted comprehensive policies. From a risk perspective, whether legal, operational or reputational, a failure to act could be costly.