Australian retail’s role in beating the scourge of modern slavery

With anti-modern slavery legislation already in place in a number of countries, Australia’s own Modern Slavery Act came into force on 1 January 2019. It requires entities with an annual turnover of more than $100 million, as well as Commonwealth entities, to report annually (from 2020) on the risks of modern slavery in their operations and supply chains, and on the actions, they are taking to address these.

The wholesale and retail sectors are very much at the forefront when it comes to exposure to this risk – and increasingly to sanction if they fail to address it.

Deloitte Australia National Retail Leader David White sat down with anti-modern slavery and sustainability specialist, and Deloitte Risk Advisory Principal, Dr Leeora Black, to discuss what the new requirements mean for retailers and their supply chains.

David White: It seems appropriate to start with the central question: just what is modern slavery? How do we define it?

Leeora Black: Modern slavery is not the same as the slavery many of us learned about in school history lessons – as reprehensible as it was. Rather, it’s an umbrella term that describes a range of workforce situations used to exploit victims and undermine or deprive them of their freedom.

We’re talking about eight types of serious exploitation – specifically trafficking in persons, slavery, servitude, forced marriage, forced labour, debt bondage, the worst forms of child labor, and deceptive recruiting for labor or services. An example, might be someone entrapped – psychologically and financially, but also possibly physically – where they can’t refuse to work because of coercion or threat or deception. They might have their passport taken from them, or they may have wages withheld. They are basically restricted from leaving their situation which exists around work they are compelled to do.

Importantly, it applies to the most serious forms of exploitation. While the likes of substandard working conditions or underpayment of workers are serious issues also, they are not covered by the overarching modern slavery term.

And it’s a big, global problem. It affects around 45 million people around the world, mainly in poorer or developing countries, and USD $150 billion worth of profits are generated every year from this kind of illicit trade off the backs of slave labour.

DW: What legislation addresses this exploitation?

LB: Slavery is illegal in Australia and most other countries. Modern slavery transparency legislation has been in place in the UK since 2015 and similar legislation has been adopted in France and the Netherlands, among other places. Here in Australia, the new Modern Slavery Act is based on the UK’s legislation of the same name. It was legislated in 2018 and formally came into effect at the beginning of 2019. The Federal Government’s intention is to increase business awareness of modern slavery risks, reduce modern slavery risks in the production and supply chains of Australian goods and services, and drive a business ‘race to the top’ to improve workplace practices.[1]

This has been stated informally by various government representatives but for a certainty I have edited to cite from the Government’s official reporting guidance. Modern slavery occurs both onshore and offshore, but the government’s intention[2] is to drive transparency via, at least initially, larger organisations reporting on the nature of the modern slavery risks they have, the actions they are taking to manage and reduce those risks, and how they judge their effectiveness in managing those risks.

To comply, organisations will have to ask their suppliers some serious questions. Those suppliers will then do the same of their suppliers, and so on down the chain until we get to total transparency, and we can make a real difference.

It will take time, but ultimately it’s a collective, domino effect approach down the tiers of the supply chain to deliver impact – and end modern slavery – at source.

DW: How is the legislation relevant to businesses in Australia? And why now?

LB: The legislation is specifically targeted at entities carrying out business in Australia and with $100 million or more annual consolidated revenue in Australia. That’s whether it’s an Australian-owned company, a subsidiary of a foreign-owned company, a not-for-profit, a partnership, a university, or an NGO.

Estimates are that around 3,000 entities are covered by the Act.[3]. However, indirectly it’s likely to affect many more because when these 3,000 start asking questions of their suppliers and their supply chains, many below that reporting threshold will be affected and will need to start to think about their own modern slavery risks, and what they are doing about them. So while the primary targets in terms of formal and transparent reporting are above a specific revenue threshold, the Act will actually have a much broader effect, and therefore, impact.

Why now? It’s really imperative if we are to end pervasive and exploitative modern slavery practices. It’s not a problem we can simply stand by and accept.

DW: Where are you seeing the greatest risks, specifically for retailers, when it comes to modern slavery compliance?

LB: The Act asks entities to report on the nature of modern slavery risks in both operations and supply chains on their first full financial reporting year after 1 January 2019. The earliest reports will therefore be on the FY 20 financial year and need to be submitted by December 31, 2021.  When it comes to operations, that means looking at who’s on the payroll and what are the conditions under which they are on the payroll. Are contractors or temporary workers given the same kinds of rights? If labour hire companies are used, are they contracting in the right way?

Down the supply chain though, both onshore and offshore, there are certain types of products and product categories that are known to be higher risk. The food and agriculture supply chain, construction and manufacturing, electronics, and the apparel, textiles, and footwear supply chains in particular stand out for having known risks. I think the impact will be mostly felt in these areas, although no supply chain is immune.

We’re going to see companies in those industries asking more questions of their suppliers in terms of pre-screening and ongoing engagement. They’ll also be expecting their suppliers to make commitments to do their best to stamp out problems and understand the nature of risks that they may be exposed to themselves.

I expect we’ll see a lot more factory auditing and a lot more partnerships with not-for-profits (such as The Freedom Hub – www.thefreedomhub.org) that have skills in helping to deal with and remediate victims of modern slavery. While instances of modern slavery that might be found onshore in Australia would be referred to the Australian Federal Police, if a company finds a problem in its supply chain in lower tiers and offshore, it’s not always so straight forward when it comes to a response, and so partnerships with NGOs with specialist skills and understanding in this area, are going to be increasingly important.

I also think we’re going to see a lot more collaboration between retailers in particular sectors – a type of pre-competitive collaboration that unites them in the cause and provides a shared understanding about the kinds of things they should be asking their suppliers. And where there are shared suppliers, to make efforts to streamline the administrative burden for those suppliers by collaborating on, for example, requests for information about their approach to managing modern slavery risk.

Ultimately, the impact on retailers in Australia is likely to be significant in terms of new procedures they will need to embed within business-as-usual, and new ways of working with industry partners and not-for-profits.

DW: Further to this, what would be the top consideration for retailers as they prepare for compliance?

LB: Ahead of formal compliance, and most importantly, organisations need to tackle the task of doing a modern slavery risk assessment, and mapping their supply chains, with their operations as well as the interests of modern slavery victims in mind. They have to really understand their suppliers – who they are, where they’re operating, what types of risks exist in supplier country’s origin and operation, what types of risks are inherent in the products they provide.

Only with an intimate understanding of the nature of the risks, will they be in a position to start to formulate a risk management plan.

They also should be doing awareness training and ensuring their suppliers are readying themselves in terms of things like their own risk assessments, ethical codes of conduct and their current onboarding and relationship management arrangements.

DW: Compliance will obviously be critical, but what should retail businesses be doing to manage, for example, the reputational risks that might be associated with modern slavery?

LB: The Government expects reporting entities to take a ‘continuous improvement’ approach to compliance[4] as the problem is so insidious and largely hidden. This means lifting the bar, year-on-year. This is ultimately going to play out over decades, not just 12 or 24-month timeframes.

The compliance requirement will involve submitting an annual report that lays out the nature of the risks the organisation faces, what they are doing to address those risks, and how they assess the effectiveness of their approach. 

So doing what we might call the hard yards on risk assessment, management and action will be critical. In terms of reputational risk, it’s almost counterintuitive, but if a retailer is fulsome and open in their explanation of the risks and their approach to the risks, and that includes framing risk from both business and victim perspectives, there is better reputational upside than if they try to minimise the risks.

It’s clear that retail supply chains are relatively higher risk in terms of modern slavery, and everyone is going to be exposed to associated risks in some way, and investors and consumers are simply not going to accept a ‘nothing to see here’ approach.

The government has actually emphasised that a business disclosing an issue involving modern slavery should be celebrated, in what might seem like a strange way. If a business speaks openly and plainly about its challenges, and carefully considers and respects the rights of victims where actual instances of modern slavery are uncovered and reported, this will enhance its reputation for being a business that takes the risk seriously and really wants to make a difference in addressing it.

References:

[1] Commonwealth Modern Slavery Act 2018 Guidance for Reporting Entities, p 13.
[2] Ibid.
[3]Explanatory Memorandum to the Modern Slavery Bill 2018
[4] Commonwealth Modern Slavery Act 2018 Guidance for Reporting Entities, p. 15