Confronting modern slavery: Australia's push for ethical supplier due diligence

Australia recognises that tick-the-box modern-day slavery laws are not making a difference and has pointed to a supplier due diligence system as the answer for ESG-related supplier compliance.

The Modern Slavery Act (the Act) came into force in Australia in 2019. The Act currently requires entities with AUD100 million or more in annual consolidated revenue to prepare annual reports that identify the risks of modern slavery in their operations and supply chains and outline the actions taken to address those risks. While the Act asks for compliance, it has no real mechanism to enforce it.

To comply with the Act, very large companies in Australia drafted modern slavery statements for their websites and instituted a raft of questionnaires to their suppliers as part of their compliance initiatives. This approach was broadly consistent with those of companies in other countries with similar legislation.

Our observation is that many companies in Australia with a supply chain outside the country found it challenging to conduct substantive supply chain due diligence. They either relied on questionnaires being completed by non-Australian suppliers (that were rarely completed and, if completed, rarely challenged), or simply placed those suppliers as ‘out of scope’ for due diligence and instead relied on contractual positions that the supplier was not breaching any local laws on human rights.

Too many Australian companies never invested the time and effort into building a comprehensive modern-day slavery programme. While this might have been acceptable if a company’s suppliers were all in Australia and their risk assessment identified a very low chance of modern-day slavery issues happening, companies that procure products from emerging markets such as those in Asia, Latin America or Africa require a thorough due diligence process as part of a comprehensive modern-day slavery programme.

Compliance with the law turned into a non-substantive approach to eradicating slavery, leading to a lot of work on statements that didn’t necessarily move the needle on removing slavery from the planet.

What is changing?

In May 2023, the Australian Government released a report on the statutory review of the Act with a set of observations and recommendations.

The report acknowledged that the reporting obligation resembles a tick-the-box exercise for many entities and noted the above mentioned challenges about the need for more substantive due diligence. The report went even further to note that, to drive better compliance and root out modern-day slavery, companies need to be threatened with fines and investigations to act, rather than simply relying on their transparency initiatives and values to drive compliance. While this is an unfortunate observation, the reality is that companies do a better job at complying when a strong enforcement watchdog is looking over their shoulder.

The report made many recommendations that broadly follow new directives being promulgated in Europe on a similar topic. In addition to widening the scope of the companies that would need to comply with the legislation in the first place, the recommendations include:

• penalties for specific non-compliance with the legislation
• introducing a requirement that entities implement a due diligence system and report the actions taken under that due diligence system, including instances of modern slavery
• reporting on modern slavery incidents or identified slavery risks
• a requirement to implement grievance and complaint mechanisms.

Will these changes make an impact?

It remains to be seen whether the recommendations suggested by the report will be implemented as law in Australia, but, given their common sense nature and consistency with approaches in other countries, it seems likely.

If the Australian Government does implement the recommendations provided in the report, it is our view that it will make the legislation more effective at managing modern slavery risks across Australian businesses – particularly those businesses operating overseas, where the risks are significantly higher.

Can companies really conduct modern-day slavery due diligence and build a comprehensive system?

The main issue regarding modern-day slavery is in the supply chain and the second- or third-tier suppliers in that supply chain. For many Australian companies, that might include a supply chain located outside of Australia in an area like Asia, Africa or Latin America. Modern-day slavery is more apparent in these regions, and the risk that a supplier is involved in illegal practices is significantly increased.

Placing a due diligence requirement on companies to conduct supply chain due diligence is a very strong step in the right direction to drive better compliance with the legislation and remove the risk of modern-day slavery happening in those companies.

Conducting due diligence around the world is challenging for an Australian company, but it is possible. There is a large industry of due diligence providers that conduct due diligence in any country and on any topic. These providers can assist companies in conducting the due diligence, as a paper desktop research exercise through to an on-the-ground investigation or review of a manufacturing facility in a specific country.

These options should be part of a due diligence system that is designed to provide a set of solutions to address the different risks identified in the supply chain. At the most basic level, these solutions might include the use of questionnaires, reviewing public research, conducting interviews of key personnel, conducting on-site audits, and carrying out background checks of suppliers’ history, operations, ownership, workplace practices, litigation, media issues, social media and references. These solutions have all been available in the market and used by companies globally for over 30 years, so there is no excuse that because a supplier is located on the other side of the world they are excluded from due diligence.

Any due diligence system also needs to include:

• policies and procedures for conducting the due diligence, including procedures for engaging competent external resources
• awareness and communications and training on due diligence and the underlying risks in the supply chain
• guidance on how to interpret the results from any due diligence
• steps to remediate issues identified as part of the due diligence
• consideration of risk in the results of the due diligence
• buy-in, budgets, people, systems, technology, and commitment to monitoring, measurement and improvement.

What are best practices on grievance and reporting mechanisms?

Companies looking to manage their supply chain risks should look at a reporting mechanism for their suppliers and members of the public. Ideally, the reporting mechanism should:

• be available in any language
• support reporting from a mobile phone app
• be secure and anonymous (if requested), with data encrypted in transit
• be separate from the company’s internal reporting system.

Such a system would enable any company or person to make a report about a suspected supply chain compliance issue. Combined with a transparency retaliation system and transparency on investigation strategies, this is the ideal way to build a system.

Speeki can provide a reporting system for your supply chain. Contact us to learn more.

What should companies that want to build a comprehensive due diligence system do?

While this may be new in Australia, it is not new elsewhere in the world or across other risk areas (like bribery due diligence). There are experts that can help build a supplier due diligence system.

Speeki recommends that you develop your system according to a published standard known as ISO 37301. In fact, the original elements of this standard came from an older Australian compliance standard called AS 3806, which is well known to compliance professionals.

Following a standard like ISO 37301 coupled with Speeki’s Engage framework for building and implementing programmes will give you the best chance of building an effective and entirely defensible system. There are also newly released guidelines from the British Standards Institute that might provide additional guidance.

The experts at Speeki have been engaged in building thousands of supplier due diligence systems and would be happy to help build one for you. You could also utilise our ISO certification body status in Speeki Europe to certify your programme once it is built.

Reach out to your Speeki representative for guidance on how to build a programme that makes sense and will satisfy any of the proposed (and likely) changes to the Modern Slavery Act.