Whilst still in its infancy, the effects of the Modern Slavery Act are now starting to emerge. So far, more than 1,000 organisations doing business in the UK have produced a modern slavery transparency statement. Many more are expected over the coming months. So why is this so important, and what do businesses now need to do?

To find evidence why transparency in the supply chain is so important, look no further than the BBC’s recent Panorama expose on the alleged use of child refugee workers in Turkey to produce clothes for high street favourite Marks & Spencer.

Alternatively you can read Amnesty International’s report linking Colgate toothpaste and Dove soap to the production of palm oil by children as young as eight.

In a world where brand is king, and consumers want greater visibility over the provenance of what they buy, these stories are enough to have a serious and long-lasting impact.

What does the Modern Slavery Act have to do with this?

The Act requires certain organisations to produce and publish an annual statement setting out the steps taken to ensure that no form of modern slavery exists anywhere in its business or its supply chain. The aim is to encourage organisations to take responsibility for not only their own use of labour but also the use of labour in the organisations that supply goods and services to them. The intention is that in doing so, this will raise standards across the board.

The Act applies to all commercial organisations producing goods or services that do business in the UK and have an annual global turnover of over £36 million.

It’s not where you come from that matters…

Importantly, an organisation does not need to be based in the UK to be considered to be doing business in the UK. An overseas-based foreign parent company supplying goods to its UK subsidiary is likely to meet the requirements.

The trickiest part of working out if an organisation is required to comply with the Act is the financial question. When calculating if an organisation meets the financial threshold, account must be taken of the turnover of all subsidiaries (not parents) of that organisation. Taking an example, consider the following company structure:

In this example, if Company A is operating independently of its subsidiaries and not carrying out any business in the UK, it will not need to produce a statement. Its turnover becomes irrelevant when deciding if any of its subsidiaries need to produce a statement.

If Company B is a commercial organisation carrying out business in the UK, to work out if it meets the financial threshold, account need to be taken over the turnover of all three of its subsidiary companies. As, combined, their turnover exceeds £36m, Company B will need to produce a statement.

To make life easier, we have developed a free, quick and easy assessment tool to help organisations find out whether they need to comply with the Act and what sort of statement they might need.

The clock is ticking

So why is this relevant now? Those organisations covered by the Act must produce their first statement within six months of the end of the first financial year date on or after 31 March 2016. For example, those organisations whose financial year end fell on 31 March 2016 were required to produce their first statement by 30 September 2016. Many others whose financial year end is on 31 December 2016 will have until 30 June 2017. So, expect the number of statements to rise considerably early next year.

It is also worth stressing that this is an annual obligation. Each year, organisations will be expected to review the steps that have been taken over the previous 12 months and update their statements accordingly – so this is far from a box-ticking exercise.

Publishing a statement

Whilst the legal sanctions for non-compliance are fairly tame (with the Secretary of State able to bring an injunction to force an organisation to publish a statement) the real teeth to this legislation is likely to be the potential reputational impact. Against the backdrop of high profile news stories involving the likes of M&S, no organisation will want to be identified as not taking this issue seriously.

This is why the publication requirements of the Act are so important. The Act requires a statement to be published in a prominent location on an organisation’s website (whichever is most appropriate to its UK business). A public register of those who have made statements so far is also available here. It will become increasingly obvious which organisations have and have not complied.

There is of course a more positive side to this. The aims of the Act, insofar as it seeks to reduce the prevalence of modern slavery globally, are clearly laudable and organisations can rightly use the requirements of the Act to review and improve the steps taken to ensure that modern slavery plays no part in its business or supply chain. It is also an opportunity to be clear about the standards which are set and how they are delivered.

And if that was not enough, the government is now consulting on introducing a requirement for a statement on slavery and human trafficking to be included in an organisation’s annual report and accounts. The message is that this is clearly here to stay.