Where are we on modern slavery in Australia? Not as far as we should be.
Investors should care about this topic, not just because of the reporting requirements, but because of the potential investment impacts, including brand risk, the implied social licenses under which exist, earnings sustainability risks and many other operational factors… It is time to step away from a ‘compliance’ mindset around modern slavery and tackle the issues with decisive action.
Australia’s Modern Slavery Act went through a statutory review in 2023 and we are currently awaiting a decision from the Government on which of the 30 recommendations will be implemented. This is a good opportunity to take stock of the regulatory landscape, whether it is working and how it might be improved.
There has been increased calls for disclosure on ESG issues in recent years, and the Modern Slavery Act has resulted in mandatory reporting for many entities. But in relation to risk of modern slavery in operations and supply chains, has increased reporting led to any improvements on the actual issues?
The underlying goal of the Modern Slavery Act (the Act) was to combat slavery. I think Professor John McMillan, who led the statutory review of the Act, hit the nail on the head when he pointed out that there is no hard evidence that the Act has caused any meaningful change for people in modern slavery conditions. McMillan also concluded that, “while the quality of modern slavery statements has improved, the change is not significant enough and has been a race to the middle”. This is quite a damning indictment of the Act, but it is always good to ask whether we are really progressing in reducing the number of people living under modern slavery conditions.
In 2015, almost a decade ago, UN data on the estimated numbers of people living under modern slavery conditions totalled some 40 million individuals, the majority of whom were women. On the latest estimates in 2023, the number has been revised up to approximately 50 million.
You could make the case that mandatory reporting has increased awareness of the issues, and that what is reported needs to be measured and managed. However, in my view, that only holds true if reporting entities go over and beyond the basic requirements of just identifying the risk, and actually take action on the risks that they have identified.
A more cynical view is that a lot of time and money has been spent on reporting, benefitting certain professions, and ticking compliance and governance boxes, but only a small number of companies have identified and reported actual cases of modern slavery to date. For instance, Woolworths has been one of very few companies to disclose that they identified cases in Malaysia, and they acted decisively to remediate these cases.
Don’t get me wrong. Transparency and awareness are important steps. But if we have now increased awareness with the Act, the question is where do we go from here? Perhaps we need to address the issue differently? A rolling cycle of annual reporting with little incremental change will have the effect of watering down the intentions of the Act over time, the underlying purpose of which is to tangibly combat modern slavery.
In addition to transparency legislation, such as the modern slavery acts of Australia and the UK, other regulatory alternatives include mandatory human rights due diligence, which has been called for in the EU, and import bans on products tainted by modern slavery, for instance what the US has done in relation to certain products. While such regulatory options were out of scope for the review of Australia’s Act, the conversation is warranted. Sadly, until there are real consequences, modern slavery will remain in supply chains.
Investors should care about this topic, not just because of the reporting requirements, but because of the potential investment impacts, including brand risk, the implied social licenses under which exist, earnings sustainability risks and many other operational factors. If earnings are depending on a supply chain subject to weak regulation, exploitation of people or even illegal activities, we do not believe current earnings can be sustainable, particularly not in an environment where the UN SDGs target the elimination of forced labour in 6 years. It is important to remember that practices that we call modern slavery are not necessarily considered illegal in the countries in which they occur.
So, what can investors do? My starting point is that every company has some element of modern slavery and other human rights risks which are difficult to diversify away from a portfolio. However, investors can still play a vital role through effective engagement, centred on encouraging companies to adopt global best practice on labour rights risk management. This is the centrepiece of the work we have done in RIAA’s Human Rights Working Group, including developing investor toolkits that assist with the effective engagement of various human rights issues and modern slavery.
One of the key recommendations from the statutory review of the Modern Slavery Act was the introduction of an independent Anti-Slavery Commissioner. We and many other investors supported this idea, and through the work of the RIAA Human Rights Working Group, investors collaboratively contributed to the statutory review with a submission. We believe a Modern Slavery or Human Rights Commissioner, coupled with adequate funding, can make a real difference in helping to highlight issues and occurrences of abuses, track and report them independently of company and investor self-reporting, and support Australian governments and companies in taking concerted action to thwart and stop modern slavery abuses.
It is time to step away from a ‘compliance’ mindset around modern slavery and tackle the issues with decisive action. This is not just about modern slavery; sometimes there is a fine line between what’s technically ‘modern slavery’ and other types of labour exploitation. Brand risks and earnings do not necessarily differentiate between the two, and supply chains and intermediaries have clever and sophisticated means by which they can lull companies into apathy on such issues – let’s become a leader in the world as a country that errs on the side of caution and is clear about what all of this has been about, to reduce the number of people living in modern slavery conditions.
At the RIAA Conference Australia on the 1 & 2 May 2024, I will be joining Dr James Cockayne, NSW Anti-slavery Commissioner, Vanessa Zimmerman, CEO of Pillar Two and Kuldeep Yadav, Head of ESG & Climate Research, Australia and New Zealand at MSCI, as we explore ‘Modern slavery risk and reporting: where to from here?’ This session will discuss the next steps in combatting modern slavery risks and delve into anticipated policy changes, both in Australia and worldwide, with a spotlight on the introduction of Australia’s new Anti-slavery Commissioner. We will also provide valuable insights into how investors and companies can proactively identify and navigate the complex terrain of modern slavery risks.
Måns Carlsson, Head of ESG, Ausbil Investment Management and Chair of RIAA’s Human Rights Working Group
Måns leads Ausbil’s ESG team who take an active approach to engaging Australia’s listed companies on environment, social and governance issues. Måns also leads Ausbil’s integration of proprietary ESG scoring, research and ratings within Ausbil’s top-down bottom-up valuation approach. Måns has been with Ausbil since 2015. Prior to Ausbil, Måns held senior ESG positions at AMP Capital, and worked at Carnegie Investment Bank, Macquarie Bank and Accenture. Måns is well known for his advocacy, research and leadership on key ESG issues, including modern slavery, climate change, human rights, governance and stewardship, and many other ESG issues. In 2022, Måns was awarded an Order of Australia Medal (OAM) for contribution to the responsible investment industry. He has also received a letter of commendation from Anti-Slavery Australia in 2019. Måns also holds a number of leadership positions in the industry, including: Director of RIAA (Responsible Investment Association Australasia); Chair of RIAA’s Human Rights Working Group; and is on the steering committee of IAST-APAC (Investors Against Slavery and Trafficking – Asia Pacific). Måns holds Bachelor of Science (Major in Business Administration) and Master of Finance degrees from Gothenburg School of Economics, an MBA from Griffith University, and is graduate of the Australian Institute of Company Directors (AICD).
Disclaimer: The views and opinions expressed in this article are solely those of the author(s) and do not necessarily reflect the view or position of the Responsible Investment Association Australasia (RIAA). This article is intended as general information and should not be considered investment advice. It is recommended to seek appropriate professional advice before making any investment decisions.