The Australian government is on the cusp of legislating modern slavery reporting and compliance obligations with the bill for the Federal Act introduced into Federal parliament.
The Federal Act will establish a requirement on certain large business and other entities to make annual public reports (Modern Slavery Statements) outlining their actions to address modern slavery risks within their operations and supply chains. A NSW Act has also been passed with criteria similar in practice to the Federal regime.
Benefits to organisations for completing Modern Slavery Statements
- A comprehensive Modern Slavery Statement can be employed by entities as a strategic reputational asset that reflects an entity's values and contributes to an entity's (or group's) overall corporate, economic, environmental and social strategy.
- A Modern Slavery Statement can be used as a tool for businesses competing for investment. Investors are increasingly considering an organisation's social footprint and human rights issues are becoming a growing focus of responsible investment criteria.
- Businesses that undertake detailed analysis in their Modern Slavery Statements may receive more favourable lending rates and attract more cost-effective finance.
- A comprehensive Modern Slavery Statement may have a positive impact on consumer purchasing where consumers choose to buy from businesses seen as 'ethical'.
Piecing the NSW and Federal Legislation together
Entities outside the scope of the Federal Act may volunteer to provide a Modern Slavery Statement. Once an entity volunteers, they are taken to be a 'reporting entity' and must comply with all aspects of the Federal Act. An entity that has volunteered or 'opted in' for a reporting period cannot opt out – it may only revoke its 'opt in' status for a reporting period prior to commencement of the period (i.e. future reporting periods). This may act as a tool to demonstrate an entity's commitment to identifying and mitigating modern slavery risk in their operations and supply chains.
A commercial organisation that has revenue between A$50m and A$100m and is carrying on business in NSW would only need to report under the State-based legislation. Given the similarity of the requirements, these entities could elect to voluntarily submit a Modern Slavery Statement under the Federal Act (which, unlike its NSW counterpart, carries no penalties in its current form). The NSW Act provides that where a commercial organisation is subject to obligations under a law of the Commonwealth or another State or a Territory that is prescribed as a corresponding law, the obligation to prepare a modern slavery statement under the NSW Act will not apply. If the Federal Act is prescribed as a corresponding law for the purposes of the NSW Act, the entity may provide a Modern Slavery Statement under the Federal Act and be exempt under the NSW Act.
Modern slavery legislation
The Federal legislation
The Federal Act will apply to all Australian entities with annual turnover of A$100m or more and will require reporting entities to provide a Modern Slavery Statement outlining their actions to address modern slavery in their operations and supply chains.
The Modern Slavery Statement must be provided to the responsible Minister and will be published online on a central register. Entities will also be able to publish the Modern Slavery Statement on their websites or along with their annual reports or other relevant reports.
Penalties for noncompliance
The legislation is not intended to be punitive in nature (given there are no penalties associated with the Federal Act) and entities who are not caught have the option to 'opt in' to the reporting framework.
A Modern Slavery Statement prepared by a reporting entity must address the mandatory criteria by identifying the reporting entity and describing:
- the reporting entity's structure, operations and supply chains
- modern slavery risks in the reporting entity's operations and supply chains, including in the operations and supply chains of any entities it owns or controls (subsidiary entities)
- actions the reporting entity has taken, and any of its subsidiary entities have taken, to assess and address those modern slavery risks, including due diligence and remediation processes
- how the reporting entity assesses the effectiveness of those actions
- the process of consultation with subsidiary entities in preparing the Modern Slavery Statement, an
- any other information the reporting entity considers relevant.
May be prepared and submitted on behalf of one or more reporting entities, allowing for situations where a parent entity provides a Modern Slavery Statement on behalf of its corporate group. The criteria for Modern Slavery Statements when prepared jointly must incorporate application of the criteria above for each reporting entity and include details regarding the consultation between entities within the group and the entity preparing the joint statement.
The Modern Slavery Statement must be signed by a responsible member of the entity, and approved by the principal governing body of the entity and provided to the Minister within six months from the end of the entity's financial year.
The criteria requires analysis and reporting on certain actions taken during the reporting period, which in turn relates to the due diligence and investigations conducted. The degree of due diligence undertaken and incorporated into each organisation's Modern Slavery Statement will depend on the complexities associated with the entity's supply chain and operations. Entities must consider and act early in analysing the degree of risk mapping and assessment that will be relevant to their organisation (and where relevant, their group) and consider appropriate steps to mitigate any identified risks prior to the end of the reporting period.
The Australian government has indicated that it will issue additional administrative guidance to clarify the meaning of 'risks', 'operations', 'supply chains', 'due diligence' and 'remediation process'.
The NSW legislation
The NSW Act dictates that the reporting requirement applies to all commercial organisations who have an annual turnover of A$50 million, calculated based on the entity's reporting period. The NSW Act requires the commercial organisation to have at least one employee in NSW for the regime to apply with reporting criteria similar in practice to the Federal regime. Organisations with fewer than 20 employees will be exempt for the first 18 months following commencement.
For the purposes of the NSW Act, a commercial organisation is defined as an entity that supplies goods and services for profit or gain and has a total turnover in a financial period of not less than $50 million (or such other amount prescribed by the regulations). In practice, this will require NSW entities who are outside of the scope of the Federal Act, but caught by the NSW regime, to publish a report under the NSW rules.
Penalties for noncompliance
In comparison to the Federal Act, significant penalties (up to $1,100,000) will be imposed under the NSW Act for commercial organisations that fail to prepare a modern slavery statement or fail to make their modern slavery statement publically available. These will apply to a person who knows, or should have reasonably known, that information provided under a statement is false or misleading.
The NSW statement must contain information required under the regulation for or with respect to steps taken by the commercial organisation during the financial year to ensure that its goods and services are not a product of supply chains in which modern slavery is taking place. This includes reporting on:
- the organisation's structure, its business and supply chains
- its due diligence processes in relation to modern slavery in its business and supply chains
- the parts of its business and supply chains where there is a risk of modern slavery taking place, and the steps it has taken to assess and manage that risk, and
- the training about modern slavery available to its employees.
Where to next?
There is no 'one size fits all' approach, though the proposed law means there will be a detailed legal framework within which to report. In our experience, many organisations are now gearing up to use Modern Slavery and other environmental and social reports as a means to demonstrate to stakeholders their willingness to address matters of broader community concern.
All relevant entities should already have a compliance plan and supply chain checklist which they should start reviewing in light of their potential new obligations.