How corporate compliance with the Modern Slavery Act 2015 may help behavioral improvement for other human rights risks.

Richard Karmel is the Global Head of Human Rights at Mazars and is responsible for the firm’s award winning business and human rights reporting service line.

On his website he blogs about issues relating to human rights and corporate social responsibility in business.

Modern Slavery Act 2015

The Modern Slavery Act 2015 was enacted on the 26th March, 2015. Whilst it applies to individuals and corporate entities alike, Section 54 of it introduces an imminent more onerous obligation on companies.

It’s is entitled ‘Transparency in supply chains etc’. It’s not immediately apparent what the “etc” refers to, but it may relate to other business relationships that the company may have influence over. Clause 1 of this Section sets out how this transparency should be demonstrated:

A commercial organisation within subsection (2) must prepare a slavery and human trafficking statement for each financial year of the organisation.”

Subsection (2), which is referred to above, states that the size of the company preparing this trafficking statement will be determined by the Secretary of State; however, this has not yet been defined.

A clue to what this size could be, may be found in the EU Non-financial Reporting Directive, which will bite in 2017. This Directive will apply to all companies employing over 500 people, and given that it requires similar information in respect to human rights, it would make the most sense.

Clause 4 of Section 54 defines what the human trafficking statement should state:

“A slavery and human trafficking statement for a financial year is—

(a)  a statement of the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place—

(i)  in any of its supply chains, and

(ii) in any part of its own business”

Clause 5 of Section 54 helpfully sets out some examples of what companies may include in its human trafficking statement:

“(a) the organisation’s structure, its business and its supply chains;

(b)  its policies in relation to slavery and human trafficking;

(c)  its due diligence processes in relation to slavery and human trafficking in its business and supply chains;

(d)  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;

(e)  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;

(f) the training about slavery and human trafficking available to its staff.”

EU Non-Financial Reporting Directive

This is not wholly dissimilar to the EU Non-Financial Reporting Directive, which requires companies to disclose the following in regards to its respect for human rights:

(i) policies and its due diligence processes implemented

(ii) the outcome of those policies

(iii) the principal risks linked to the operations and its business relationships which are likely to cause adverse impacts and how the risks are managed; and

(iv) the relevant key performance indicators.

Essentially, in complying with the EU Non-Financial reporting Directive, all companies with over 500 employees, will also be complying with the new UK Modern Slavery Act so long as an EU defined “principal risk” for companies to respect human rights, is that of human rights trafficking in the supply chain.

The wider issue is, of course, that human rights trafficking is just one of several human rights risks that could exist in the supply chain. Other supply chain “principal risks” may well be worthy of similar disclosure, such as:

  • child labour;
  • forced labour (which arguably may be covered under the Act);
  • workplace health and safety; and
  • conditions of employment.

The Modern Slavery Act is bringing to the fore the need for companies to understand and take responsibility for behaviors taking place within their supply chain.

However, for many large groups this may seem to be a potentially herculean task given that some of these groups have over 100,000 suppliers.

So where to start?

Fortunately, we have the United Nations Guiding Principles Reporting Framework, which was launched in February 2015. More information can be found on www.ungpreporting.org.

This Framework, co-developed by Shift and Mazars, sets out the journey that a company needs to plan by focusing on those areas that pose the highest risk of creating a severe negative impact.

The reporting that a company should follow in respect of its identified salient issues, is clearly set out and is straightforward:

  1. The company should explain its policy in respect of the salient issue;
  2. The company should explain how it engages with stakeholders in respect of the salient issue;
  3. The company should identify how impacts are effecting the nature of the salient issue;
  4. The company should define how it integrates findings into its decision making process;
  5. The company should explain how it is tracking its impacts in this area; and
  6. The company should explain how it provides remedy for any impacts.

In considering supply chains and human trafficking, a company should start its focus by looking at the jurisdictions and the industries that pose the greatest risk.

Changes in approach

We already have companies such as Disney taking the lead. They have published the list of their suppliers demonstrating their position as a transparent company.

What the Modern Slavery Act is aiming to do is to take that transparency to the next level. For example, it is encouraging a company to demonstrate how it understands that human trafficking can’t be taking place in each of those suppliers.

As a result, what we’re seeing is the convergence of hard law, soft law and best practice; not just around modern slavery but the wider corporate respect for human rights.

This is fast becoming one of those ‘red lines’ that all companies will have to address if they not only want to comply with the law but also retain their social license to operate.  It used to be felt that this was only important for the Extractive industry; it is now becoming important for all other industries.

I have created a helpful webinar to assist companies implement a human rights policy, please watch it below.

How to implement a Human Rights Policy

Watch Richard's latest YouTube video