Why is Modern Slavery
Important to business?
Awareness of the potential impact businesses have on human rights has been increasing over the last two decades and is gaining momentum globally. Businesses are coming under increasing pressure to be transparent about how they are assessing and addressing risk to people in their operations and extended supply chains.
Added to the devastating human cost that modern slavery has on people (including workers, their families and communities) there are many important business reasons for companies to identify and manage the issue.
For many businesses brand is everything and the reputational risk of being associated with modern slavery is enormous. Brand value can be wiped out overnight and the backlash against a company ferocious. Building trust with customers, shareholder, regulators and numerous other stakeholders can take years and the stigma can tarnish a company for decades.
Media attention and the speed of information dissemination means businesses need to be ready to respond to issues very quickly. Coupled with this, activists are becoming increasingly sophisticated at using social media platforms to disseminate their campaign messages to large audiences and into mainstream media very effectively.
Investor and customer expectations are on the rise with a proliferation of information and human rights / sustainability benchmarks detailing the performance of companies and their associated products. Financial institutions and lenders are looking more closely at the non-financial risks of potential customers (including human rights and environmental impacts) before investing in projects and corporations.
The direct financial impact of modern slavery on a business can be extensive. Investigations, court cases, upgrading systems, lost staff time, victim compensation and remedy, as well as lost productivity will all impact the business financially.
Legal frameworks and international agreements protecting human rights are rapidly evolving and businesses can face significant legal risks – even where they claim to not know what was going on within their operations or across their extenisve supply chain. Activists are using ‘innovative’ litigation processes that cross jurisdictions to hold businesses to account, access new information and ensure issues are kept in the media spotlight.
The discovery of modern slavery in operations or supply chains can have major operational implications for a business. Disruption of continuity of supply, loss of quality or consistency where new suppliers need to be found, increased costs, downtime, overdependency on a few suppliers, strikes or boycotts, impacts on customer and supplier trust, general stress on staff and other factors all impact on a businesses productivity and ultimately the bottom line.
Additionally, the impact on staff morale, along with the retention and recruitment of employees when a company is linked to modern slavery, cannot be underestimated.
1. Organisational culture, risk management and business models
Globally, business culture largely remains focused on keeping shareholders happy, rather than being accountable to stakeholders. However, stakeholders increasingly expect organisations to demonstrate a purpose-driven approach that helps reduce social and environment harm and contributes to the realisation of the global Sustainable Development Goals (SDGs).
In many organisations, risk management and due diligence frameworks focus internally, on risk to the business, not externally on risk to people outside the business, including workers in the supply chain.
Effective modern slavery or human rights due diligence needs to shift the focus towards addressing risk to people and communities outside the company’s own operations.
To do this, organisations need to:
- strike a fairer balance between profit and purpose;
- rethink their risk management processes to consider impacts on people outside their organisations;
- embed human rights principles into their culture, systems and processes.
2. Governance and due diligence
Board engagement on modern slavery risks remains low across Australian (and global) entities. There is an urgent need to engage and educate Board members and company executives and to review the composition of Boards. Businesses should consider whether their Board members have the knowledge and skills to effectively address modern slavery risks and sign off on their Modern Slavery Statement.
- Incorporate modern slavery risk management into policies, procedures and codes of conduct;
- Establish roles, responsibilities and accountabilities for identifying and managing modern slavery risks within an organisation’s operations and supply chain; and
- Develop clear modern slavery risk management strategies and action plans.
3. Supplier visibility, understanding and management
Most organisations we work with have a limited understanding of their supply chain and generally no visibility beyond their Tier 1 (or at very best Tier 2) suppliers. There remains a large amount of uncertainty of where products / raw materials are sourced, which increases the risk of modern slavery impacts and may result in reputational risk to the organisation.
Supplier engagement on modern slavery and other human rights issues remains limited among many businesses. While some organisations include broad sustainability requirements in supplier contracts, very few have clauses specifically on labour rights or on modern slavery risks. only very few organisations assess the level of compliance with contract clauses.
It is important for organisations to:
- Gain a better understanding of their supply chain risks, particularly beyond Tier 1.
- Develop and embed contract requirements, Codes of Conduct etc into supply chain management processes.
- Monitor and enforce contract requirements and verify their effectiveness.
4. Labour and recruitment accountability
One of the biggest modern slavery risks around labour and recruitment is the use of third-party labour hire contractors, many of who remain unregulated and unaccountable. Organisations may lack labour rights policies and do not have systems or processes to effectively inform workers of their rights. There is an over-reliance on government websites to communicate employee entitlements to workers.
Australian businesses request limited – if any – evidence of the recruitment and employment practices of their suppliers. Suppliers and contractors are generally not required to provide evidence of employment contracts or entitlements for their workers and provide little insight into their recruiting practices. Risks such as recruitment fees, unpaid overtime and exploitation or workers go unnoticed and unmanaged.
We encourage supply chain and contract managers to:
- Check the credentials of all labour hire contractors;
- Develop labour rights policies and ensure all workers are aware of their rights;
- Require key or high-risk suppliers to provide evidence of their recruitment processes and employment conditions of their workers (and verify their claims).
5. Training, information and feedback
Few organisations provide specific modern slavery or human rights training to employees, management or Boards. Responses to requests for information on a company’s approach to managing modern slavery risks are generally reactive as very few businesses have strategic modern slavery or human rights communication plans or strategies in place.
While Worker Health and Safety (WHS) incident management procedures are generally well developed, almost no organisations have grievance mechanisms or whistleblowing policies that specifically incorporate modern slavery, labour rights or human rights issues, particularly for workers in their supply chains.
There is little commitment to worker or employee voice processes among Australian businesses and considerable uncertainty and lack of understanding of what remedy (righting wrongs when impacts are discovered) looks like in an Australian context. Businesses remain unclear about who to call if/when slavery is found in their supply chain – either within Australia or internationally.
- Develop communications strategies for key internal and external stakeholders focused on on modern slavery and human rights risks and impacts relevant to the organisation;
- Embed modern slavery impacts into existing feedback, whistleblowing and grievance processes; and
- Have a clear process on how to manage modern slavery incidents when discovered and how to address and remedy the impacts.