New Anti-Slavery Statement: are you prepared?

In October, regulations in the Modern Slavery Act 2015 will come into effect that will mean commercial organisations with a UK presence and a global turnover of £36 million or above will be required to publish an annual statement of the steps it has taken to ensure that slavery and human trafficking is not taking place in any of its supply chains or in any part of its business, including via a prominent link on their website homepage.

This duty is set out under section 54 of the Modern Slavery Act 2015. The definition of slavery in the Act makes it clear that it extends, among other things, to forced or compulsory labour. The Government has confirmed that guidance will be produced and published to coincide with this and that transitional provisions will be developed so that statements are not required where a businesses’ financial year end is within close proximity to the date that the duty comes into force.

Any lack of action will reflect poorly on the company and brand. Now is the time for business leaders to ensure that their company has active policies in this area to guard against forced or compulsory labour at any point in their supply chain.

Requirements

The turnover range is from £36 million (which could catch around 12,000 businesses). The turnover will apply globally to companies carrying out "any part of their business" in the UK, therefore it is not restricted to companies incorporated in the UK only.

Companies affected will need to disclose what steps they are taking to ensure that "slavery does not occur anywhere in the entirety of their operations".

It is proposed that this statement will have to be signed off by company boards and directors in order to ensure that those at the top level take the issue seriously.

What will you need to do?

Guidance on the format of the statement is set out in summary form under the Act, section 54(5) where reference is made to the provision of information about policies, supply chain, due diligence, risk management and training.

In summary, there will be 5 areas that a company will be expected to cover within this annual human trafficking and modern slavery statement:

a) A brief description of an organisations’ business model and supply chain relationships
b) Policies relating to modern slavery, including due diligence and auditing processes implemented
c) Training available and provided to those in (i) supply chain management and (ii) the rest of the organisation
d) The principal risks related to slavery and human trafficking including how the organisation evaluates and manages those risks in their organisation and their supply chain
e) Relevant key performance indicators (Key performance indicators are measures that will assist the reader of a slavery and human trafficking statement to assess the effectiveness of the activities described in the statement

Any statement should include details of the companies’ due diligence process to guard against forced labour and, most importantly, a risk assessment of its business and supply chain. This will help identify where there is risk of slavery and human trafficking and the risk management steps the company has taken to reduce that. This statement is likely to be the headline reference for any adverse publicity, so will be scrutinised by the business and competitors alike, as well as members of the public and press.

The Government has put forward these elements as guidance only rather than rigid minimum requirements because it is proposed that statements should not be a simple 'tick box exercise' but rather be relevant and specific to a companies’ own circumstances, therefore differing from business to business.

Who is most at risk?

Sectors vulnerable to forced labour will be those where there is a predominance of low-paid unskilled labour and this is particularly prevalent in the area of food production and processing. This new provision will therefore be of concern to food businesses, especially those taking supplies from jurisdictions where the level of labour protection is lower than the UK.

Intricate chains of contracting and subcontracting, both within the UK and abroad, mean many companies can be unaware of – or deny knowledge of – the conditions under which their goods are produced. Nevertheless, this new legislation will now place a spotlight on how larger companies monitor their supply chain, not just their immediate suppliers, but along the entire route, and particularly the use of third party agencies. The application of individual corporate responsibility means it is unlikely that companies will ever be held fully accountable for the failings of their third party suppliers. However, the risk of damage to their brand if standards are not met should mean, as a minimum, an incremental increase in scrutiny and application of standards throughout.

Brand owners will be particularly at risk of adverse publicity. Some leading global brands ,including those that have previously been on the receiving end of adverse media coverage such as Nike, Coca-Cola and Primark, already have strong corporate social responsibility and ethical trading policies that include steps taken to avoid forced labour in their supply chains. Recently, we have seen Nestlé’s brand KitKat announce by the first quarter of 2016 all KitKat bars will be made with cocoa that has been accredited by third party agencies to assure that it has been sustainably sourced worldwide. KitKat is the first global chocolate brand to make this pledge. However, the announcement did come a few days after a class action lawsuit made claims against Nestlé of knowingly using fish from a Thai supplier that uses slave labour for its cat food Fancy Feast. This illustrates the necessity for a comprehensive company-wide policy where possible.

Until now, most supply chain audits have centred around ensuring the quality and compliance of the product. In the cut-throat world of global commerce where price is key, few companies have taken the time to investigate their supply chains from a human rights perspective unless specific sustainability or ethical claims have been made for the product.

Summary

Those companies within the threshold boundary would benefit now from reviewing their systems and collating information ahead of the requirements coming into force, especially as statements will need to be signed off by company boards and directors.

The statement should include a risk assessment of the companies' business and supply chain and steps taken to reduce that risk where applicable.

This may be an opportunity for companies to showcase their diligence standards throughout their supply chain but equally the statement may pose its' own risk of adverse publicity to the company and brand.