While climate change dominates everyone’s attention (and rightly so), for responsible organisations building back after the pandemic there is another item that should be high on the ESG agenda: modern slavery.

The issue is complex, falling within the broader human rights agenda. In the UK it has been subject to regulation since the Modern Slavery Act came into force on 29 October 2015 (the “Act”). Businesses with a turnover of £36 million or more are required to write an annual statement, setting out steps taken to address modern slavery risks in their operations and supply chains.  Enforcement is recognised as an important deterrent and a way to bring justice and reparation to victims. However, the corporate response to the Act has been inconsistent and enforcement, including prosecutions of those involved in modern slavery practices, low. Only 60% of companies where the legislation applies report on modern slavery and the majority fail to disclose risks in their sectors, meaning responses are often formulaic, and a tick box exercise.

The negative predicted impact of the pandemic coupled with Brexit has created the perfect storm, pressurising supply chains and raising the urgency of addressing modern slavery in the UK, giving greater momentum to the UK Government’s fresh look at regulation following consultation in 2019, resulting in stronger requirements on organisations.

The UK Anti Slavery Commissioner reported this year that with an estimated 16 million victims of modern slavery working for the private sector globally, it is the responsibility of businesses to ensure their commercial practices are not fuelling exploitation at home or abroad. The UK Government has been clear this year in announcing upcoming changes to regulation that,

“It’s not enough for government and businesses to simply say they don’t tolerate modern slavery. As we take stock of both the challenges faced and achievements made, we must match our words with actions.”

A package of proposed changes to the Act were announced in September 2020. There is no clear indication of when those changes are likely to come into force. The timescale provided is when parliamentary time allows. So for organisations to whom the Act applies there is time to get your house in order as part of a review of any anti-slavery policy and annual statements, but there is a need to get ready. The changes that are coming will have an impact on the requirements to produce a Modern Slavery statement including what the statement must contain and where that information should be published, with implications for non-compliance, including financial penalties.

The changes are as follows:

  • There will be six mandatory areas which must be covered in a Modern Slavery Statement. They are as follows:
  1. ­ The organisation’s structure, its business and its supply chains;
  2. ­ Its policies in relation to slavery and human trafficking;
  3. ­ Its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
  4. ­ 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;
  5. ­ 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;
  6. ­ That training about slavery and human trafficking is available to its staff.

If organisations have taken no steps within an area, it must be stated in the statement and they should provide a reason for this. The changes will also extend the reporting requirement to public bodies with a budget of £36 million or more. The changes to the public sector are applicable to England and Wales only – Scotland are to consult separately on this in due course.

We recommend any organisation to which the legislation applies (or will apply) considers and plans any actions required now. Even SMEs have a part to play, particularly where they form part of a bigger supply chain. If your business already produces a Modern Slavery statement, now is the ideal time to consider whether you are doing enough to cover the six areas outlined above or if there is work to be done to get ready.

It is also worth noting all organisations will be required to report on the same twelve month period (1 April to 31 March), with a single reporting date of 30 September (six months after the end of that period). We are expecting the changes to come into force in time for the September 2022 deadline (at the earliest). Group statements will be required to name all entities in the corporate group covered by the statement. Organisations will be required to file their statements with a Government registry. The UK Modern Slavery Register is now open but will not be mandatory until the changes to the legislation are passed. It is a centralised public register meaning it can be used as a way of demonstrating compliance as part of procurement or due diligence. Thousands of businesses are already registered.

As we move beyond COVID-19 businesses should be reviewing risk profiles. The UK Anti Slavery Commissioner recognised the opportunity for private and public sectors to consider operational and procurement models to create more transparent supply chains and hinted at stronger legislation being required if the majority of businesses do not voluntarily take action to clean up their supply chains.

That sentiment is reflected in a Private Member’s bill introduced earlier this year on 15 June 2021 which, if passed, will introduce criminal offences for making false or incomplete modern slavery statements with the potential for individual liability. Anyone responsible for a modern statement could potentially be liable, including a director. A defence would be available if all reasonable steps had been taken to ensure the statement is accurate.

The bill proposes a fine of up to 4% of global turnover or £20 million, whichever is lower, and/or imprisonment of up to two years for the relevant individual. The legislation also proposes the same level of fine if a company received a warning from the commissioner but continued to, for example, source from suppliers which have failed to meet minimum levels of transparency. Currently, there is no financial penalty for failure to comply with the Act. The penalty is limited to the Secretary of State being empowered to bring proceedings for specific performance but these powers have not been used since the Act was passed in 2015.

We can help by reviewing your modern slavery compliance requirements, including benchmarking any existing policy and statement, advising on audits and actions required and the modern slavery statement registry. If you would like to discuss this further, please get in touch.

We continue to monitor the progress of the changes to the legislation, which is in line with the wider direction of travel on corporate reporting. You can find more on this and other ESG matters on our Real World ESG hub as part of our comprehensive approach to all of these important topics.