Modern slavery statements - a faster race to the top?

​Overview of the recommendations for changes to s.54 Modern Slavery Act 2015 in the second interim report from the Independent Review of that act.

The scourge of modern slavery continues. A recent interim independent report is likely to accelerate the need to produce better and fuller modern slavery statements: a race to the top.

This scourge is well described below:

“It is a confronting reality that even in the present day, men, women and children all over the world remain victims of modern slavery. They are bought and sold in public markets, forced to marry against their will and provide labour under the guise of ‘marriage’, forced to work inside clandestine factories on the promise of a salary that is often withheld, or on fishing boats where men and boys toil under threats of violence. They are forced to work on construction sites, in stores, on farms, or in homes as maids. Labour extracted through force, coercion, or threats produces some of the food we eat, the clothes we wear, and the footballs we kick. The minerals that men, women, and children have been made to extract from mines find their way into cosmetics, electronics, and cars, among many other products.

This is modern slavery. It is widespread and pervasive…”1

(The Walk Free Foundation)

Why is more scrutiny of modern slavery statements likely?

Large commercial organisations that supply goods or services, carry on business in the UK and (together with their subsidiaries) meet the annual turnover threshold of £36m or more have had to publish an annual slavery and human trafficking statement since 2016. But, continued non-compliance with the legislation (s.54 Modern Slavery Act 2015) has led to the Government:

  • commissioning a further independent review of the Modern Slavery Act to consider whether the law should be strengthened to ensure companies take action to address forced labour in their supply chains, with specific reference to s. 54, and
  • writing to businesses informing them that continued non-compliance with the Modern Slavery Act will not be tolerated and that it intends to audit all modern slavery statements from 31 March 2019 and publish a list of non-compliant organisations.

The Second Interim Report from the independent review, which focuses on s.54 and was published in January 2019, goes even further. It notes that the impact of s 54 has been limited to date, and that the reasons for poor quality slavery and human trafficking statements and lack of compliance stem from the lack of enforcement and penalties, as well as confusion surrounding reporting obligations of the Modern Slavery Act. It concludes that the current approach is not enough, and the Government now needs to take tougher action. It makes various recommendations, many of which would result in much stricter obligations and greater sanctions for breach of those obligations.

Our view

We don’t necessarily expect all these recommendations to be implemented in full. But, even a few will ‘raise the bar’ and lead to modern slavery statements that generally are at least longer and deeper, and hopefully better over time. We continue, however, to prefer more express recognition that modern slavery statements should be proportionate to the type of business and the risks of modern slavery in that business and its supply chains. We see real challenges in reporting that covers a supply chain end to end. But, in any case we don’t diminish the importance of steps designed to eradicate modern slavery. As The Walk Free Foundation have identified: “An estimated 40.3m men, women, and children were victims of modern slavery on any given day in 2016. Of these, 24.9m people were in forced labour and 15.4m people were living in a forced marriage. Women and girls are vastly over-represented, making up 71% of victims.”1

So, even a few of these recommendations together with increased scrutiny could help.

The broader context remains:

  • the continuing focus on socially responsible conduct by companies, funds and financial institutions
  • the growing amount of non-financial reporting required by large and medium-sized companies, even if not part of a group with a publicly listed holding company, and
  • the emphasis on non-financial, long term and reputation risks underlying the proposed revisions of the Stewardship Code, supporting investor engagement policies in accordance with the Shareholder Rights Directive II together with increasing investor regard to environmental, social and governance criteria.

What are the key recommendations?

The recommendations in the Second Interim Report in relation to s.54 include:

  • clarifying companies in scope - the Government should prepare a list of companies that it considers in scope and then check that those companies agree (but responsibility for determining whether a company needs to prepare a statement would remain with the company).
  • improving the quality of statements:
    • change the wording of the section so that companies would have to report on the steps they had taken and remove the current ability to state that no steps have been taken
    • tighten the rules so that companies would have to report on all six areas in s.54 - there is currently no obligation to do so, they are only expected to report on them
    • reporting should include not only how businesses have carried out due diligence but also the steps that they intend to take in the future, and
    • amend the legislation to make it clear that companies must cover the entirety of their supply chains and cannot just stop at the first tier.
  • embedding modern slavery reporting into business culture:
    • there should be a new requirement for companies to refer to the modern slavery statement in their annual reports
    • organisations should have a named, designated board member who is personally accountable for preparing the statement, and
    • there should be a new offence under the Company Directors’ Disqualification Act 1986 for failure to fulfil the new reporting requirements or to act when the company finds instances of slavery.
  • increasing transparency - there should be a central Government database where companies have to publish their statements.
  • monitoring and enforcement:
    • the Independent Anti-Slavery Commissioner should monitor compliance and report annually
    • new sanctions for non-compliance (such as warnings, fines, court summons, directors’ disqualification) should be introduced gradually to give companies time to adapt, and
    • the Government should bring forward proposals to set up or assign an enforcement body to impose sanctions on non-compliant companies. Fines levied for non-compliance could be used to fund the enforcement body.
  • Government and public sector - s.54 should be extended to include the public sector and the Government’s public procurement process should be amended so that non-compliant companies are not eligible for public contracts.

What are the next steps?

The independent review aims to produce its final report by 31 March 2019 and the report will then be laid in Parliament.

In conclusion?

It’s still a race to the top. But, it’s about to get faster to keep up.

1 International Labour Office (ILO) & Walk Free Foundation 2017, Methodology of the global estimates of modern slavery: Forced labour and forced marriage

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.