On 29 October 2015, the UK Government published its guidance on the transparency in supply chains provision in section 54 of the Modern Slavery Act 2015: "Transparency in Supply Chains etc. A practical guide for organisations". As indicated in our July 2015 client alert, transitional provisions have been introduced to give businesses sufficient time to prepare a "credible and accurate" slavery and human trafficking statement and confirm that organisations with a financial year ending on or after 31 March 2016 will be the first required to comply. As well as setting out the timing for implementation, the Guidance also sets out details of which organisations are required to comply, where the statement must be published and gives content suggestions.
Actions that organisations should be taking now include:
- looking at the group structure and determining which entities in the group are caught by the legislation;
- reviewing what steps the organisation currently takes within its own business and through the supply chain to ensure slavery and human trafficking does not take place;
- considering whether there are further steps the organisation wants to take so that they can be included in the first statement;
- ensuring all supply and other contracts adequately deal with these issues; and
- thinking about the contents of the statement, where it will be published and the process for getting its approval within the required timescale.
The Government recognises that many organisations may not be in a position to prepare a slavery and human trafficking statement immediately following commencement on 29 October 2015. The Guidance, therefore, states that that the first businesses required to publish a statement will be those with a financial year ended on or after 31 March 2016.
Organisations will be required to produce a statement covering the whole financial year. However, the Guidance states that where an organisation has only recently undertaken activities to address the issue of modern slavery, the organisation may choose to produce a statement that indicates that activity undertaken only covers a particular part of the financial year.
Organisations are expected to publish their statements as soon as reasonably practicable after the end of the relevant financial year and the Government is encouraging organisations to report within six months of financial year end. For listed companies, this six month longstop should not prove onerous as the annual report and accounts must be published within four months and the Strategic Report is already required to include information about human rights issues to the extent necessary for an understanding of the development, performance or position of the company's business. It is worth noting that the Guidance envisages that companies may choose to publish a statement alongside their annual report and accounts.
The table below sets out example reporting deadlines based on the Guidance:
Click here to view table.
Who must publish a statement?
The requirement to publish a statement applies to any commercial organisation that:
- is a body corporate or a partnership;
- carries on a business, or part of a business, in the UK;
- supplies goods or services; and
- has an annual turnover of £36 million or more.
The Guidance clarifies that the turnover requirement is calculated by looking at the total turnover of the relevant organisation together with the turnover of any of its subsidiary undertakings (whether or not they operate in the UK). It is not limited to turnover originating from the UK.
Accordingly, an overseas parent company with a turnover of over £36 million who conducts the majority of its UK business via a UK subsidiary but retains a small amount of direct UK sales (accounting for £1 million of turnover), would be required to produce a statement. In this scenario, the UK subsidiary would also be required to produce a statement.
Within a group structure utilising the same supply chain, it would be onerous if each entity was required to produce a personalised statement. This is recognised in the Guidance which provides that 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 the requirement. We envisage that many groups will avail themselves of this provision and produce statements covering the steps taken within the group as a whole, particularly those with a UK incorporated ultimate parent or standalone UK division.
Where must the statement be published?
The legislation requires the statement to be published on an organisation's website together with a link to the statement in a prominent place on the homepage. Where an organisation has more than one outward-facing website, the Guidance recommends placing the statement on the most appropriate website relating to the organisation's business in the UK.
The Guidance also confirms that placing a link to the statement in "a prominent place" means either a link that is directly visible on the homepage or is part of an obvious drop-down menu. It will not be sufficient for a user to have to click through to another page, such as a CSR page, to find the link.
Whilst these requirements may be manageable on the website of a UK incorporated ultimate parent who is producing a statement for the entire group, we can envisage difficulties where the entity conducting business in the UK is only a small part of the overall group, is preparing a separate statement and does not have its own website. In these circumstances, it appears that the parent would need to put a direct link to the statement on its homepage. As shareholders in these circumstances are unlikely to be aware of the Modern Slavery Act requirements, we would suggest the statement contains an overview of the requirements as well as the steps taken to tackle modern slavery. It may also be worth considering whether the entity conducting business in the UK should have a separate website.
Contents of the statement
Whilst the statement must contain the steps an organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains, and in any part of its own business, neither the legislation nor the Guidance is prescriptive about the details the statement should contain.
The Modern Slavery Act provides that the statement may include information about:
- the organisation's structure, business and its 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 about slavery and human trafficking available to its staff.
The Guidance provides information on the types of activity that could be taken under each of the headings above but indicates that this is only a guide. It does envisage that organisations will build on their statements year on year and that statements will evolve and improve over time. The Guidance also provides case studies with examples of steps action by other companies.
Organisations will need to digest the guidance and examine their own supply chains and the disclosures they propose to make. This may involve examining existing group policies and associated training together with reviewing supply and other contracts to ensure they adequately address modern slavery issues. Organisations will also need to ensure they know when their reporting obligations will apply and that an appropriate timetable is developed to produce and approve their statement.