What does it take to report well in your second Modern Slavery Statement?
Early last financial year, I had a call from a business seeking to manage their modern slavery risk. They knew that they were a reporting entity under the Modern Slavery Act 2018 (Cth) with an annual consolidated revenue of more than $100m. They were thoroughly convinced that I could solve modern slavery risk for them in a week. It reminded me of a moment during the federal government’s consultation phase prior to the introduction of the legislation. At a roundtable it was claimed that the average annual cost of the introduction of the modern slavery reporting requirement to business would be $11,500. Let’s just say the entire room of business representatives, civil society and other stakeholders did not agree.
Neither the business that wanted modern slavery risk solved in a week, nor the research that underestimated the cost of implementation, took into account the fundamental issue. Managing risk to people is a constant and evolving task. It requires a business to apply the same model of continuous improvement that it might to any other risk – plan, do, check, act. However, when it comes to modern slavery the risk to the business is not the primary driver for consideration; rather the focus should be on addressing the potential harm to affected stakeholders. Keeping sight of this evolution will help businesses plan their ongoing response and enhance their ability to meet one of the mandatory reporting criteria, namely “the effectiveness of your actions”.
Across FY21 we saw a bifurcation of modern slavery responses. At one end, following the initial flush of commitments and controls, some entities found themselves in stasis across the second reporting period. At the other, entities committed to maturing their responses to modern slavery risk, demonstrably and methodically took action across the reporting period.
Stuck in technical compliance with limited risk management
For many businesses that got stuck after year one this was not a deliberate choice. Much available guidance on modern slavery is thin – make a commitment, ask your suppliers if they’re managing the risk, put in some contractual clauses and you’re done. Technically, you’ve got a policy and a control that rests on defining which entity is responsible for managing modern slavery risk. If you report on that in your statement, you’ve complied with the legislation.
These types of responses are relatively common and are driving unhelpful mechanisms such as requirements for suppliers to sign statutory declarations that their operations and supply chains are free of modern slavery. Few businesses can confidently make that promise.
Other businesses went hard on gathering data, particularly about their supply chain. This was a sound decision – you need information to assess in order to act on risk. However, it created a flurry of Supplier Assessment Questionnaires (SAQs) of varying quality, length and often with indeterminate purpose. Sometimes there was little rationale as to which suppliers received a SAQ or sometimes that choice was based on expediency rather than any initial assessment of inherent risk. Those businesses are now sitting on a mountain of supplier data, but generally without the inhouse capability to meaningfully make sense of it using subject matter expertise or smartly deployed data analytics.
Others managed to get to a point of assessing supplier risk, albeit with varying degrees of defensibility, and now are faced with a list of “high-risk suppliers” with no pathway for managing that risk.
For those who did get stuck at one of these early points – all is not lost! When board directors sign off on modern slavery statements it is critical that they interrogate the executive’s plan to effectively manage the risk of modern slavery. Yes, a reporting entity can comply with the legislation by just submitting a statement, but managing social risk, including human rights like modern slavery, should be central to your Environmental Social Governance (ESG) strategy.
Businesses committed to maturing
Some of my favourite conversations these days are with professionals across procurement, risk, legal and corporate affairs who hold responsibility for managing modern slavery responses. While the introduction of the legislation may have prompted them to turn their minds for the very first time to human rights, for some it has been the start of understanding the profound difference they can make in their everyday roles in preventing harm to people. Time and again, I’ve seen how important these individuals are in building constituencies in their organisations. They understand how the business works, the needs that must be balanced but also want to ensure that there is a sustained response to modern slavery risk beyond an initial program of work. Once support is built, it is generally a tipping point for embedding a ‘business as usual’ commitment to maturing.
Businesses evidencing a commitment to maturing are characterised by:
- Strong and established governance and accountabilities
- Clear plans for enhancing maturity over time including a strategic link to other social risk or human rights responses
- An emerging articulation of risk appetite
- Committed resources and use of subject matter experts; and
- An openness to ongoing review of existing controls
Here, it is important to distinguish businesses committed to maturing from businesses that are already mature with optimised or sophisticated responses. For those entities with significant sustainable procurement programs or embedded responses to social risk across their operations, the modern slavery reporting requirement may have provided additional impetus to improve, but the focus tends to have shifted to the effectiveness and impact of those programs.
How do I report well in my second statement?
The answer is in the action. If you did get stuck in year two, don’t get distracted by the task of producing your second statement. Submit an honest account of where you got up to and instead focus now on year three. Build a commitment to maturing your modern slavery risk management which will offer you a foundation for subsequent years.
If you did manage to turn the dial in your second year, transparently report on it and show how you did it. It is immensely encouraging for your own people as well as your stakeholders who want to see progress.
This is exactly the approach we’ve taken. KPMG Australia has released its second Modern Slavery Statement. In my role advising KPMG on its response, I am genuinely proud that the organisation’s dedication and momentum was not only sustained in its second year of reporting, but that it also grew and matured. This may seem like a given. After all, KPMG made a human rights policy commitment to work to ensure that there is no modern slavery in our operations and supply chain. However, in reality it requires risk, legal, compliance, procurement, corporate affairs and other functions to embrace a new set of accountabilities and to drive shifts in both expectations and culture. KPMG is no longer reliant on implementation by the dedicated human rights and social impact expertise of the KPMG Banarra team. Instead people across KPMG – trained, supported and with frameworks in place to enable operationalisation of commitments – are executing our planned risk-based response.
This has not been easy. But building a deep and broad understanding that modern slavery risk management is about more than our year one commitments and controls has unquestionably set the direction of our response and ambition into the future. It’s an excellent foundation for reporting well.
Tags Modern slavery