Supply chain transparency efforts build awareness to modern slavery, but is it working?

LexisNexis Legal & Professional, Business Insight Solutions, 10 July 2017

Author: Mark Dunn

In October 2015, the UK Modern Slavery Act came into effect, including the Transparency in Supply Chains (TISC) clause requiring businesses to disclose the steps they are taking to tackle modern slavery. Businesses with a year-end of 31 March 2016 were the first ones required to publish their modern slavery and human trafficking statements. One year later, several reports have measured and scrutinised the quality of businesses' modern slavery statements. Briefings by CORE (June 2017) highlight both good and weak practices and a report by Ergon Associates (April 2017) provides analysis of the quality of 150 recent statements.

Reporting trends show mixed adoption of Modern Slavery statements

The TISC clause of the UK Modern Slavery Act requires commercial organisations operating in the UK, with an annual turnover of £36 million or more, to prepare an annual statement on the steps the company has taken, if any, to ensure slavery and human trafficking is not happening in its own business and supply chains.

Based on the Act's criteria, an estimated 12,000 businesses are required to publish modern slavery statements. The independent and freely accessible Modern Slavery Registry by the Business and Human Rights Resource Centre (BHRRC) currently includes 2,112 modern slavery statements:

  • 85 percent are from UK headquartered businesses
  • 15 percent (320) are from international companies based in 32 other countries that have UK operations.

In the recent analysis by Ergon of 150 statements submitted to the Registry in March 2017, 73 percent were UK headquartered companies, the other 17 percent were foreign companies. This breakdown is similar to Ergon's analysis one year ago of the first 239 statements published. The low percentage of statements by international companies in the Registry could indicate that many foreign businesses required to comply with the TISC clause are not reporting yet.

Risk of forced labour in supply chains not limited to fashion and food sectors

Both the BHRRC Registry and the Ergon report sample show that the Act has encouraged businesses in a broad range of industries. These companies may have also seen how media exposure to modern slavery in the fashion and food sectors have resulted in serious reputational and financial damage, leading them to start thinking about the issue as well. For example, a number of IT companies, law firms and healthcare equipment producers have published modern slavery statements.

Interestingly, 9 percent of the statements in both the 2016 and 2017 analysis by Ergon were submitted by businesses with a turnover of less than £36 million and hence are voluntary. These companies seem to have taken the opportunity to stand out to clients, investors and customers.

Overall improvements in transparency in supply chains

One of the findings of Ergon's report is that in terms of content, statements are generally longer and slightly more detailed than one year ago. Businesses disclose more information about their structure, operations and modern slavery policies.
Another major improvement found in the most recent statements assessed by Ergon versus prior year analysis show that the majority cover supply chains (moderately) well. Companies also appear to have increased training on modern slavery risks, with 35 percent of this current statements addressing training, up from 22 percent last year.

Still signs of non-compliance with Modern Slavery Act

The analysis by Ergon showed that one-fifth of the statements in their sample were non-compliant with the Modern Slavery Act due to not clearly being signed off by a director or equivalent. A quarter did not comply as they are not available directly from the company's homepage. The CORE briefings which looked at all 2,108 statements in the BHRRC Registry, state that only around 14 percent of all these statements comply with the legal requirements.

Misconception: 'Forced labour doesn't happen here'

Ergon found that some companies assume and report that they expect no risk of modern slavery because their suppliers are UK or EU-based. This is a sign that these companies do not understand the issue and are most likely not putting in effort to tackle it. Modern slavery happens in every country; for example, this month in the UK, a man is being sentenced for modern slavery in agriculture, and three other men have been sentenced for trafficking people and forcing them to work in factories and warehouses.

Questions about corporate commitment to supply chain

Ergon's report found several statements from unrelated companies that contain identical language, indicating that companies might be making use of a templates, or the same advisers. This could be an indicator for these statements being a tick box exercise rather than a commitment and plan for tackling modern slavery.

A key finding is that the majority of the statements (84 percent) do not or to a minimal extent address contractor relationships, whereas these business relationships with labour providers, outsourced service providers and other sub-contractors, are considered an at-risk area.

Only 17 percent of the businesses analysed disclose detailed priorities for action, e.g. particular risks, countries, tiers of suppliers, products or business areas.

Monitoring and auditing processes regarding modern slavery are also not well addressed, and if mentioned they just relate to general supply chain auditing programmes.

A key gap in statements are key performance indicators (KPIs): 81 percent do not mention any KPIs used to assess the effectiveness of the company's approach to ensuring that there is no modern slavery in its own business and supply chain.

What the Independent Anti-Slavery Commissioner has to say to businesses

In a letter written to CEOs in April, Kevin Hyland, the UK Independent Anti-Slavery Commissioner said:

"Despite some positive steps forward since the Modern Slavery Act and a number of good statements being published, I remain disappointed that analysis has shown the quality to be weak overall. Many fail to meet the minimum requirements of being placed on a company's home page or signed off by senior leadership. Even statements that do legally comply have a lot of room for improvement with many simply being reiterations of generic human rights policies. Of course, change takes time and I expect companies to be building on their statements year on year."

For more information about the UK Modern Slavery Act, the obligations it imposes on UK and international businesses and how you can meet them, watch the LexisNexis video.