Investors, consumers, and activists are pressuring big businesses to ensure the ethical security of their supply chains, but the first round of modern slavery statements shows varying degrees of compliance.
Investors, consumers, and activists are pressuring big businesses to ensure the ethical security of their supply chains, but the first round of modern slavery statements shows varying degrees of compliance.
Under the Modern Slavery Act 2018, it is mandatory for businesses with revenue of more than $100 million to submit modern slavery statements to the Australian Border Force.
The Act was implemented to help free the 40.3 million people around the world in modern slavery and was the result of lobbying from activists and business leaders, especially Western Australian mining magnate Andrew Forrest and his daughter, Grace Forrest, who is the co-founder of Minderoo Foundation’s Walk Free Foundation.
Information on companies’ efforts to eliminate risks in their supply chains can be found online on the Modern Slavery Register, which is soon to be updated with the second round of statements due in September and December this year.
According to the Australian Border Force, modern slavery involves situations where offenders use coercion, threats, or deception to exploit victims and undermine their freedom.
Walk Free Foundations’ Global Slavery Index 2018 found the five main goods imported into G20 countries at risk of being produced using modern slavery were electronics, garments, fish, cocoa, and sugarcane.
The first statements were due in June 2020, but the date was pushed back six months to give companies more time to report due to the disruption caused by the COVID-19 pandemic.
At the time of writing, 2,162 mandatory statements and 290 voluntary reports had been lodged and uploaded to the Australian Border Force website, covering 4,991 entities.
In July 2021, Australian Council of Superannuation Investors published a report it commissioned, which found the modern slavery statements provided by the ASX 200 companies varied in quality.
The report scored each statement out of 41, with only 31 statements scoring 20 points or more.
It found 65 per cent of statements did not identify any general modern slavery risk factors relating to companies’ operations, and only 17 per cent identified actions taken by companies to ensure they were receiving and responding to modern slavery complaints.
Monash University analysed the statements submitted by the companies which make up the ASX 100 and gave each a score out of 100.
It also found the standard of the statements submitted varied.
Businesses operating in the materials, real estate and utilities provided the best statements while healthcare companies scored low for struggling to describe their supply chain, modern slavery risk and assessment of effectiveness.
Supermarket retailer Woolworths was ranked as producing the best statement with a score of 85.01, followed by WA companies Fortescue Metals Group (84.96) and Wesfarmers (83.48).
Other WA companies to make the top 25 include Woodside Petroleum in 12th (70.04), South32 in 20th (67.68) and Origin Energy, which ranked 21st with a score of 66.78.
Modern slavery consultancy Intellek’s managing director, Jonathan Huston, said there had been very low levels of compliance overall.
“Most of the companies which are complying are large companies that already had an obligation under the British requirement, which was a 2015 Act that covered £35 million which is very similar to the $100 million that we had,” Mr Huston told Business News.
“You find companies that had large corporate governance infrastructure in place, like Wesfarmers, like Qantas, like BHP, like Rio [Tinto], like FMG, they are complying but the entire level of businesses below that aren’t.
“Even though it is an act of parliament, and even though it is a self-regulatory regime, there is no enforcement of organisations to ensure that it is being done.”
Larger companies, including Iluka Resources and Western Power, have shown their intent to clean up their supply chains by forming the Western Australian Modern Slavery Coalition.
Walk Free head of business engagement Serena Grant said while there was a large range of submissions, the broad standard of reporting in Australia had been quite good.
Ms Grant said she expected reporting to improve as companies became accustomed to submitting modern slavery statements.
“I think for many businesses, that large round of reporting, that was their first report … they were putting the policies and processes in place, so we have really been looking for continuous improvement from there,” she said.
Most statements uploaded to the register showed companies had only assessed their tier one suppliers, which are those directly contracted by the company.
Those suppliers further down the chain in tiers two, three and four, which are usually more likely to be at risk of modern slavery, were yet to be investigated.
New Zealand-based ASX-listed clothing brand Kathmandu provided a detailed 61-page modern slavery statement, which said it had full visibility of its tier one suppliers, partial visibility to its tier two (weaving, knitting, finishing, dyeing, printing and tanneries), and very limited visibility into tier three (raw material processing) and tier four suppliers (raw material production).
The company said it had increased dialogue with its tier two suppliers and, in 2022, would begin assessing them for their social and environmental performance.
Fortescue Metals Group, founded by Andrew Forrest, engaged with 2,173 tier one suppliers in the 2020 financial year.
Its 2020 statement said it had limited visibility of processes beyond its tier one suppliers, which posed a modern slavery risk, and that it would carry out further audits in the 2021 financial year.
Similarly, Edith Cowan University assessed its tier one supply chain in its 2020 report and said it was committed to exploring the risks of modern slavery in its tier two supply chain this year and in 2022.
Ms Grant said this was okay for the first year if companies looked beyond tier one in future statements.
Good modern slavery statements included information about what businesses were doing about specific risks in their supply chains, she said.
“They are not just saying, ‘We have got a risk in the cleaning services that we use’ or ‘Because we buy [this] garment’, they are saying ‘We have got risks in this sector in this country and this is what we are doing about it, and actually we found ten incidents of exploitation and this is how we provided remedy’,” Ms Grant said.
Wesfarmers, which owns the Kmart, Target and Bunnings businesses that operate in high-risk industries, recently completed its 2021 modern slavery statement.
It said it audited 1,475 of its suppliers and identified 386 critical breaches, defined as an incident of non-compliance that a supplier was not willing to address, in 138 businesses.
The statement said the group could exercise its right to terminate a contract if suppliers did not comply, but it aimed to work with them to remedy situations.
In its Bunnings division, Wesfarmers said, it remedied more than 1,300 non-conformances identified by third-party audits, improving the working conditions of 50,000 people in 15 countries.
Ms Grant said it was important to have an on-the-ground presence to audit suppliers, either through a third party or employees.
“I would also encourage companies to go and visit when they can; I think you understand a lot more about a supplier and their business and their practices by seeing it yourself,” Ms Grant told Business News.
A spokesperson for Wesfarmers said the business had local, in-country teams in Bangladesh, China, India, and the United Arab Emirates, with more than 800 people working in various supply chain roles.
“Having in-country teams helps our businesses understand potential ethical sourcing and modern slavery risks and builds stronger links with suppliers, government, non-government organisations and other brands, in the countries we source from,” the spokesperson said.
The spokesperson said this was especially important during the pandemic when international travel was limited.
The Modern Slavery Act is up for review in early 2022.
Walk Free’s Ms Grant said there were improvements the government could make to ensure a higher level of compliance.
“There are things they could do to strengthen that like appointing an independent anti-slavery commissioner like they have in the UK, or introducing penalties where people are not complying,” she said.
“I think the Act was always intended to be transparency legislation, so it’s about what you are doing in your supply chain and what are you disclosing to the public about that; but I think there is a range of other tools out there, policy and legal tools, that the government could consider to strengthen what companies are doing.”
Garry Johnson says the changes have led to financial and business benefits. Photo: David Henry
Voluntary statements
Voluntary statements WA work boot manufacture Steel Blue is one of 290 businesses in Australia to voluntarily submit a statement to the Modern Slavery Register, despite its revenue being below the $100 million threshold.
The company has been working to rid its supply chain of modern slavery for the past six years. Steel Blue chief executive Garry Johnson said the motivation to change came from a trip to Europe in 2015, where he noticed a move towards fair trade items.
“We came back, and we started thinking about it more, discussing it at an executive and board level and it led us to work with our partner in Indonesia,” Mr Johnson told Business News.
He said once Steel Blue’s partner in Indonesia understood why the change was needed, they were on board.
An audit of Steel Blue’s partner found small changes, unrelated to modern slavery, that needed to be made, including ergonomic chairs and fire drills through to more serious things like pay, Mr Johnson said.
The changes Steel Blue made resulted in the company receiving FDRA Responsible Factory Accreditation.
He said the change had translated into financial and business benefits, including a more engaged workforce.
“People aren’t going to make a quality product unless they have a passion for that brand and product and a real sense of ownership, and to do that you have to give people the best possible conditions whether that be in Australia, Indonesia, or somewhere else,” Mr Johnson said.
Steel Blue has gone further than most companies in terms of auditing its tier two suppliers.
“For most of them, they were minor things because, typically, being a premium brand, we deal with quality supplies; we get our leather from Tasman Tannery in New Zealand, we get our polyurethane from Coim, its manufactured in Italy,” Mr Johnson said.
“It’s when you get down to that tier three, tier four supply chain, that’s a little bit more challenging, especially now because we can’t do physical visits of our suppliers.
“We are relying on Zoom, so you are relying on someone holding the camera at the other end and having those discussions.”
Steel Blue has a goal to eliminate the risk of modern slavery in its supply chain by 2025 and Mr Johnson said the business was well on track to meet its target.
“I think that’s the next phase, building that innate culture with a focus on making sure there is no slavery in the operations … that all our people have the right to work and be paid well and work in fair conditions,” he said.
