Building on previous similar reports, and ahead of the release of the findings of the government's recently completed
review of the Modern Slavery Act 2018 (Cth) (MSA),
the Australian Council of Superannuation Investors (ACSI) has released its
latest report assessing the quality of ASX 200 companies' third round of modern slavery statements.
The report offers insights into the areas where the quality of reporting has improved since the last round of reporting and also highlights areas where ACSI considers improvement is still required.
Our key takeaways are below.
Only 'incremental improvement' since the last report, companies are not moving 'beyond a compliance-focused mindset'
A key message running through the report is that though companies have implemented 'foundational actions' to better manage modern slavery risk (in line with MSA requirements), most are not moving beyond a 'compliance-focused mindset' in that they are failing to provide sufficient detail to enable investors to understand how they are managing modern slavery risk.
This is reflected in the relatively low average score (44%) accorded to the MSA statements assessed across ACSI's 46 quality indicators.
In her foreword to the report, ACSI CEO Louise Davidson comments:
'the general picture is of wider stagnation, with only an incremental improvement in most companies’ average scores. While many companies are putting in place the foundations of modern slavery risk management approaches, too few are disclosing their activities and risk management actions in key areas such as supplier capacity building and stakeholder engagement'.
Lack of detailed information on key risks
The report found that 'the overall quality of disclosures on key risks remained poor' with many companies providing only 'high level information about general risk factors and potential risk areas' without specifically identifying and describing key risks in detail.
For example, the report found that:
- While over 56% of statements identified potential modern slavery risk areas or risk factors relating to companies’ operations (up from fewer than 40% in 2021), only 13% of statements assessed provided 'granular detail' about these risks.
- Similarly, ACSI found that while nearly all (96%) statements assessed identified potential modern slavery risk areas/risk factors relating to companies’ supply chains (up from 87% in 2021), only 28% of statements provided 'granular detail' about these risks. Further, relatively few statements (14%) were found to include information about companies' supply chains at Tier Two or below where, ACSI comments 'many severe modern slavery risks may occur'.
In addition, the report highlights that only 12% of statements assessed described companies’ risk of involvement in modern slavery using the UN Guiding Principles on Business and Human Rights (UNGPs) continuum of involvement.
Lack of detail around the actions being taken
Similarly, the report found that generally MSA reporting lacked detail around the actions being taken to address modern slavery risks. For example:
- While nearly all (96%) of statements assessed provided 'basic information' about policies in place to provide a framework for the management of modern slavery risk, 66% did not clearly identify how these policies were relevant to addressing modern slavery and even fewer (5%) explained how the policy/policies were communicated/enforced internally and/or with suppliers.
- Less than 10% of statements assessed explained how workers (or their representatives) were consulted as part of the risk assessment process
The report also suggests that 'ASX 200 companies' ability to identify and respond to incidents of modern slavery appears limited' in that:
- Very few statements (10%) disclosed the steps being taken to ensure modern slavery grievance mechanisms are trusted and accessible.
- Only 8% of companies indicated they had identified a modern slavery incident or allegation. On this point, ACSI also flags that little detail was provided about these incidents, including how they were resolved.
Four areas where ACSI considers companies can improve their reporting
The report identifies the following as four key areas where ACSI considers improvement is needed.
Providing a more complete description of company structures, operations and supply chains: The report calls on companies to provide more detailed information about company structures (including where there are multiple reporting entities) and more detail about supply chains at Tier Two and below.
reporting on briefings/engagement with the board/senior management on modern slavery as well as engagement with external stakeholders (including engagement with 'at risk' groups);
reporting on actions taken to ensure grievance mechanisms to hear/address modern slavery related complaints are 'fit for purpose' including explaining how any modern slavery complaints were addressed
- Increasing transparency, and increasing the 'sophistication of actions' being taken to assess the effectiveness of modern slavery risk management programs.
ACSI's report includes a table at Page 8 setting out more detail around these four improvement areas, as well as suggested measures for investors and for government to push companies to improve the quality of disclosure.
A strong case for MSA reform?
Reflecting on the report findings overall, Ms Davidson's view is that:
'there is little indication that the improvements many companies have made are translating to more effective modern slavery risk management'.
A separate report released by the Australian Human Rights Legal Centre (AHRLC) at the end of 2022 tracking the evolution of reporting under the Modern Slavery Act 2018 (Cth) (MSA) reaches a similar conclusion – ie that compliance with existing reporting requirements is overall poor and has not been effective in spurring (the vast majority of) companies to act to meaningfully address modern slavery.In light of this, both ACSI and the AHRLC consider there is a strong case for strengthening the MSA framework in a number of ways.
ACSI's recommendations to the MSA review
The government's statutory review of The Modern Slavery Act 2018 (Cth) (MSA) was completed on 31 March 2023 and the report is expected to be publicly released in coming months.
ACSI's submission to the review includes a number of recommendations aimed at strengthening the existing framework premised on expanding the MSA's focus from disclosure alone to improving modern slavery risk management practices. ACSI states:
'Disclosure is very important for investors to understand the risks in their investee companies. However, to ensure that modern slavery is being effectively mitigated in practice by Australian companies, the MSA should extend beyond reporting requirements and require concrete action to protect against modern slavery. The MSA was a positive starting point, but Australia should not rest on its current standards: progress should be ongoing'.
Key among ACSI's recommendations for reform are the following:
- The establishment of a new independent Anti-Slavery Commissioner
- The introduction of new due diligence requirement 'to ensure entities are improving their risk assessment and mitigation'
- Strengthening enforcement of MSA requirements, including through the introduction of penalties for non-compliance
[Note: Announcing the review, the government made clear that it considers there is 'significant work to do to improve compliance' with MSA requirements including a need to introduce penalties, which the government has committed to do.]
- Providing victims of modern slavery with access to remedies
- Additional detail in the mandatory reporting criteria 'to ensure entities are providing sufficient granularity in their modern slavery statements'.
Separately, the AHRLC also advocates a similar reorientation of the MSA to drive meaningful action on the issue.
A recent AHRLC report also suggests there is strong business support for reform, including the establishment of an Anti-Slavery Commissioner, the introduction of a new due diligence requirement and the introduction of financial penalties for non-compliance.
