Australia’s Modern Slavery Act: compliance cost or business opportunity?

Australia’s Modern Slavery Act 2018 (Cth) (the Act) is a significant move towards the eradication of slavery that has been largely well received by business and embraced by civil society. The Business Council of Australia welcomed the establishment of the Act, noting that '(b)usiness is committed to identifying forced labour and weeding it out of tainted supply chains'. The Business Council also acknowledged that greater transparency in supply chains will drive 'better practice'.

Aiming high – the positives for business

'Better practice' is to be welcomed, but Australian companies should be aiming for best practice. This means not only undertaking excellent value chain due diligence– taking meaningful action to identify and address risks – but also seeing modern slavery as a part of a wider framework of human rights responsibilities.

Viewed in this light, the compliance requirements of the Act are an opportunity for businesses to demonstrate respect for human rights, and to actively work to identify, prevent and mitigate adverse human rights impacts. In return, there is an opportunity for businesses to build a strong brand and reputation, enhance sustainability and promote investment, and drive long term shareholder value.

Sound business sense

Environmental, social and governance (ESG) indicators are increasingly used by businesses to report on their sustainability, and by investors to assess the long term viability of their assets. Macquarie Group research has shown companies with top ESG scores outperformed low ESG performing companies by 2.7% annually since 2011.

In 2016, 32% of investors in Australia said they would immediately rule out an investment if there were evidence of human rights risks ('Human Rights in Investment', AHRC & EY April 2017). The thinking, policies and practices behind ESG reporting have significant interface with human rights.

There is little doubt that in 2019, boards and executives should be aware of the human rights impact of their business. Individuals may be liable for corporate failure to manage a range of human rights issues (work health and safety, bribery and corruption, modern slavery and trafficking). Companies are expected to identify, assess, mitigate and remediate human rights risks as part of building sustainable business success. Crisis management is often necessary where these risks have not been adequately addressed.

A clear global trend

States are increasingly requiring business to address a range of human rights impacts. The California Transparency in Supply Chains Act 2010, the UK Modern Slavery Act 2015, the French corporate vigilance law (2017), the NSW and now Commonwealth Modern Slavery Act (both 2018) are all indicative of a broader trend.

There is also momentum in the Netherlands for a Child Labour Due Diligence Act, and in Germany the 2017 National Action Plan states that if 50% of large German companies fail to have human rights due diligence processes in place by 2020, the Government will consider legislation.

An opportunity to think more broadly

At a time when Australian business attention is focussed on the compliance requirements behind the Act, and is anticipating the final report of the Financial Services Royal Commission, there is a significant opportunity for Boards to think more broadly.

The Act's due diligence requirements give Board members an opportunity to strengthen their company’s respect for human rights more generally, and to ensure preparedness for wider human rights obligations in the future.

The UN Guiding Principles on Business and Human Rights (unanimously endorsed by the UN Human Rights Council in 2011) provide a useful framework for businesses to effectively work through their human rights responsibilities, and address their human rights impacts.

Business leadership should now be considering how to:

• embed respect for human rights into culture, understanding and practises throughout the business;
• identify and understand the most severe risks to human rights, not only modern slavery;
• put in place policies and procedures to address those most severe risks;
• communicate their approach to stakeholders; and
• report on the most severe human rights risks and put grievance and remediation mechanisms in place.

By doing this it is possible to see the compliance requirements of the Act as an opportunity rather than a compliance cost, and for leadership to embed broad human rights due diligence and remediation across the business.