Sunshine the best disinfectant for corporate supply chains – but what about those in the shadows?

How incomplete transparency punishes the progressive and protects the non-compliant in corporate reporting on modern slavery

This article is part of AASYP’s “Break the Chain” programme that highlights innovative solutions to modern slavery, human trafficking and forced labour.

Australia’s Modern Slavery Act 2018 is driving a “race to the top” in corporate reporting and action on modern slavery. But who is left at the bottom – and how can they be convinced to report?

The Act requires businesses operating in Australia with more than $100 million in revenue to produce an annual “modern slavery statement”. Essentially, businesses are required to report on and make available to the public actions taken to manage modern slavery risks within their operations and supply chains.

The Act aims to improve businesses’ awareness and management of modern slavery risks and to enable investors, consumers and businesses to make more informed choices when buying, selling and investing.

By many measures, the Act has been a success. Already, we’ve seen transparent statements, increased public dialogue on modern slavery, and the creation of a government-led register with more than 391 statements from 728 reporting businesses.

However, a lack of transparency about who is required to report leaves civil society, investors and consumers without the information to drive compliance for those at the bottom. Publishing a list of companies required to report will provide these groups with the tools they need to highlight a failure to report and drive compliance.

Handicapping the Court of Popular Opinion 

While mandatory, there are no penalties if a business fails to produce a statement, nor if it fails to meet the mandatory reporting requirements. 

Instead, the federal government hopes that compliance with the Act will be driven by a “race to the top” as reporting entities compete for capital, social licence and consumer support. This logic trades on the belief that given the opportunity, civil society, investors and consumers will trawl the register, identify poor performers and prosecute them in the “court of popular opinion“, thereby urging them to comply. 

Yet, in the absence of a public list of businesses captured by the Act, identifying companies that have failed to report is near impossible, particularly for budget constrained civil society organisations. 

Companies had until 31 March 2021 to submit their first statement. At the time of writing, there are approximately 3000 reporting entities captured by the Act and only 25 per cent have reported. Based on the reporting rate under the United Kingdom’s Modern Slavery Act 2015, a large number of entities are expected not to comply. 

The Cost of Compliance

Perversely, under the current regulatory regime, those who fail to report will go unidentified and unremarked while for those who choose to report, compliance is not without costs.

Companies that produce a statement are exposed to two streams of potential costs. The first is the financial costs of investing in modern slavery due diligence and preparing a statement. The second is the reputational risks associated with transparently describing the businesses’ exposure to risks of modern slavery. 

The government has estimated that compliance with the regulatory requirement will cost entities, on average, $21,950 AUD. However, the costs incurred are likely far greater for the majority of companies that seek external assistance to take action on modern slavery prior to reporting.  

In addition to the financial burden, media stories borne from recent modern slavery statements, such as the recent controversies surrounding Woolworths’ and Coles’ statements, highlight the potential reputational risks of transparent reporting. 

While both are worthy expenses, it is important to recognise the costs paid by those who comply while those who fail to comply go unpunished. Such protection of those who fail to act is inequitable and against the spirit of transparency that the Act seeks to drive. 

We Need Complete Transparency – Not Just a Pat on the Back for Those at the Top

Despite numerous calls for the government to disclose the list of companies required to report, such as those from prominent groups including the Law Council of Australia and Walk Free, the government has not provided clarity on the identity of the 3000 companies required to report.  

Maintaining a list of entities required to report won’t be without its challenges as consolidated revenue fluctuates annually and companies move on and off the list. However, both the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO) are expected to have access to information on which companies are required to report based on turnover. 

The Act does enable the Minister to request an explanation from non-compliant businesses and to publish information about their non-compliance. Nevertheless, this “naming and shaming” provision is not expected to be used widely.

Instead, the government has announced the development of a modern slavery “recognition scheme” designed to “incentivise and highlight the best practice compliance with the Act”. While the scheme may further improve the quality of disclosure for those at the top, it will do little, if anything, to motivate laggards to comply. 

The government must do more to enable the court of popular opinion – the mechanism on which the effectiveness of the Act precariously sits – to operate effectively.

Amplifying Effectiveness – Key Actions for Government in the Coming Year 

The federal government should make three changes as delineated in the diagram below.

Taken together, these actions will give consumers, investors and civil society the information they need to hold wilfully non-compliant companies accountable.

This article was written by Elizabeth Claridge, edited by Mokh Ardafillah, and reviewed by Choo Qian Ke.

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