Ergon report makes a statement on Modern Slavery Act compliance

LexisNexis Legal & Professional, Business Insight Solutions, May 2016

The Modern Slavery Act 2015 aims to bring accountability to businesses for forced labour in their supply chains and large organisations with a presence in the UK are required to produce an annual 'slavery and human trafficking statement' detailing the action they have taken.  A recent report from Ergon Associates shows that although businesses are submitting statements ahead of the required deadline, the majority are lacking in key information and meaningful action.
Ergon Associates has released a second report analysing statements produced by commercial organisations in compliance with Section 54 of the UK Modern Slavery Act 2015: Transparency in Supply Chains.  The recent release builds on the results discussed in the first report – presented in March 2016 – to build a more complete picture of statements issued ahead of the statutory requirement for companies with financial year-ends of 31st March 2016 or later.
The results show that statements continue to focus overwhelmingly on compliance with legislation, rather than any concrete action that is being taken to tackle the issue of forced labour.  Aside from relatively few "notable" exceptions, the vast majority of the 239 organisations analysed in the most recent report do not provide more than "general commitments and broad indications of processes".  

Requirements of the Modern Slavery Act

Section 54 of the Modern Slavery Act 2015 - Transparency in Supply Chains – requires any organisation carrying out all or part of its business in the UK, with an annual turnover of more than £36million, to report on efforts to eliminate forced labour by producing an annual 'slavery and human trafficking statement'.  
The legislation gives guidance on what 'may' be covered in a statement, however, specific information is not mandatory.  The guidance lists examples such as the organisation's structure; its business and its supply chains; its policies in relation to slavery and human trafficking and its due diligence processes and the training available to its staff.  

What are companies including?

There is little demonstration of action in the statements analysed by Ergon.  Despite expectations from the government and civil society, statements were largely inconsistent, lacked detailed descriptions of company risk processes and avoided key areas of consideration. 
Among business relationships, supply chains are covered in most detail but contractor relationships remain a key gap, especially as agency workers and outsourced services may pose significant risks.  The least well-described issue relates to key performance indicators used to assess effectiveness.
Companies based overseas with subsidiaries operating in the UK are required to comply with the legislation, and despite the lack of detail it does appear that this is beginning to take effect.  While the bulk of the companies were based in the UK (69%), followed by North America (14%) and Europe (9%) almost one in ten of the statements were from companies based outside Europe or North America.  Seven companies were from Japan, four from India, three from Singapore and one each from China, Jordan, Mexico, South Africa, Saudi Arabia, South Korea, and Bermuda.

Standard wording; substandard statements

Specific information about the companies, such as the organisational structure, varies in the statements, but Ergon observed that a large number of the longer statements contain nearly identical wording in some paragraphs.  Some even had identical KPIs and training actions.  While the similar statements are mostly from UK based companies they do come from a variety of sectors, suggesting they may be using the same advisers or templates.  This, and the current basic level of detail and clear omissions of processes, risks and actions may start to draw critical comment towards companies that are required to publish statements.

Organisations need to significantly expand the scope of their due diligence by going beyond tier one members of the supply chain to cover third-party providers, subcontractors, and anywhere else in the supply chain increased risk is identified.  This is particularly true where country, economic, political or industry factors increase the potential for forced labor and human trafficking, such as regions in South or Central America, hot zones of political unrest in the Balkans or the Middle East, or industries ranging from agriculture to extractives.  A key next step for reporting companies should be including, in detail, the protocols for on-boarding third parties in high risk areas.  Rather than simply stating the percentage of third parties "potentially in the high risk category", the statement should include specifics about background checks and due diligence.

Moving forward with the Modern Slavery Act

The purpose of the legislation is to bring accountability to large businesses and require transparency in the way they actively eradicate slavery and human trafficking from supply chains and operations, and not to impose an unnecessary tick box exercise on compliance departments.  
Early reports are disappointing: they are short, standardised, and fail to provide details concerning all supply chain areas.  Risk processes are barely mentioned, suggesting organisations are not properly invested in enhanced due diligence to improve slavery and human trafficking detection.
The first 230 statements show that organisations must pay far more attention to risk assessment, investigation outcomes and actionable due diligence processes if they are to avoid impending criticism.  For more information about the modern Slavery Act, the obligations it imposes on UK businesses and how you can meet them, watch the LexisNexis video by clicking here.

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