More than law: Impacts of the Modern Slavery Act

woman face behind a fence

The new financial year has brought with it the start of a new reporting period for Australia’s 3,000 largest organisations. But whilst the Commonwealth’s Modern Slavery Act only directly applies to big business, the impacts of the Act spread much wider.

The introduction of the Modern Slavery Act largely serves as a catalyst for bringing this global problem to the forefront of conversation, creating more transparency around an issue affecting more than 40 million people worldwide. It encourages all Australians to consider the source of the goods and services we consume and urges Australian businesses, small and large, to evaluate their own community footprint.

What is the Modern Slavery Act?

The Modern Slavery Act 2018 (Cth) commenced on 1 January 2019 and applies to corporations that operate in Australia and generate over $100 million in revenue – this captures approximately 3,000 organisations. The Act requires these organisations to report on risks relating to modern slavery (e.g. forced labour, human trafficking, bonded labour, child slavery) in their supply chains.

Whilst the Act commenced at the start of 2019, the new financial year running July 2019 to June 2020 marks the first reporting period.

The ripple effects

Although the Act only directly applies to Australia’s largest corporations, the ripple effect flows much wider.

Any business aiming to supply to the top end of town – or even supplying a smaller company that supplies the top end of town – will have their own supply chain come under scrutiny, as they will need to report to their larger customers regarding their supply chain. As such, businesses both large and small should consider reviewing their trading terms with downstream suppliers, as this may affect relationships with upstream suppliers.

But the relevance of the Act goes beyond functional updates. It brings to light ethical and social responsibilities, encouraging business to consider what they should do, not just what they have to do.

Finding the best course of action

Of the 40.3 million people estimated to be in modern slavery, approximately 10 million are children and 30.4 million are close to home in the Asia Pacific region. This is a serious and complex issue to eradicate and does not lend itself to tick and flick compliance.

For example, if a supplier is found to be involved in modern slavery practices, the knee-jerk compliance reaction may be to cut ties with that supplier to avoid repercussions under the Act. Whereas the more ethical approach, with a more positive impact for the workers in question, may be to work with that supplier to improve their operations.

As such, the Act does not bring with it any hard penalties for non-compliance. The reporting requirements require corporations to be honest about their current operations and aim to tease out the issues and commitments for rectifying them.

Reputations on the line

Although the monetary risk for non-compliance is low, there is a high level of reputational risk for organisations that allow, or turn a blind eye to, modern slavery in their supply chains. For many organisations, reputational risk is a far greater motivator than monetary penalties.

The reports provided under the Act will be published on an online register and will describe the organisation’s operations and supply chain, identify the risks of acts of modern slavery, outline actions that will be taken to assess and address these risks, and describe how the ongoing effectiveness of these actions will be assessed.

This public reporting provides two benefits – it creates reputational risk if the actions and remedies are not appropriately addressed by the organisation. But, when done well, it also provides guidance for other organisations about what best practice might look like in addressing modern slavery issues

If the reporting is not taken seriously and the organisation’s actions are not well considered, this will no doubt come under fire from media outlets and key stakeholders of the business. With an increasing trend favouring social good, this reputational risk could have drastic commercial consequences.

A world of good

A 2017 global study by Union+Webster revealed 77% of consumers would prefer to purchase from companies demonstrating community responsibility, and no doubt that figure is on the rise. And the 2019 Edelman Trust Barometer Global Report shows that the current number one topic that builds trust in an employer is societal impact, i.e. the organisation’s contributions for the betterment of society.

In a connected world of accessible information, the public are highly informed and consciously concerned about issues affecting the planet as a whole and people who are disadvantaged or mistreated. As such, consumers, employees, investors and government bodies are holding businesses to a standard beyond the law, expecting to see more responsibility and transparency around their actions.

From the me-too movement to climate change action, modern slavery is one of many issues that the public demands businesses to consider in operating ethically. Whilst giving back and doing right are strong ways for businesses to set their brands apart and build trust, I believe it will soon be the status quo and represent a vital part of operating a successful business.

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