Knowing the Chains: Corporate Reporting under the Modern Slavery Act

By Katarina Schwarz, PhD candidate, Queens University Belfast

The products that we buy and use today have almost always passed through many hands before they reach us. A complex sequence processes are involved in the production and distribution of goods, increasingly pulling materials across many different borders in order to create the goods we enjoy. Just how complicated these supply chains have become can make the origins of products murky, if not impossible to determine. Increasingly, however, lights are being shone on the links of this chain to highlight the abuses which can occur throughout the process.

The risk that these abuses will include modern slavery at some point along the chain is high. The Global Slavery Index estimates that there are 45.8 million people are enslaved in the world today, the majority of whom are exploited for their labour. This unfree labour infuses our lives and the products we buy, but in most cases remains invisible.

In the Modern Slavery Act 2015, the UK government created an obligation designed to push companies to open the curtains on their supply chains, and in particular on the existence or risk of trafficking and modern slavery. Section 54 of the Act requires organisations with a total global annual turnover of £36 million (or more) carrying out business in the UK to produce an annual statement detailing the steps they have taken (or the lack thereof) to identify and combat modern slavery and trafficking in their business and supply chains.

The expectation was that the requirements would give consumers a tool for holding companies accountable for labour abuses, and that companies would have an increased incentive to take steps to deal with modern slavery in their supply chains. The provisions were supposed to ‘level the playing field’ between companies who were working hard to prevent exploitation, and those that were profiting from it. And human exploitation is undoubtedly a profitable enterprise.

For statements to work at achieving these purposes, however, they would have to change the attitudes of either the people buying the product (consumers) or the people running and managing the companies. So have companies increased their attention on transparency in their supply chains, and dealing with abuses, are they complying with the requirements of the Act, and are they doing so in a way which will contribute to long-term change?

The 31st of March 2016 marked the end of the first financial year for which companies were required to publish these statements. Although it is still early days in terms of Act, some indication as to the way that things are progressing is already becoming clear, and responses thus far leave much to be desired.

Of the first 75 statements released under the Act, only 22 met the minimum legal requirements of the Act – being signed by a company director and made available on the company website’s homepage. Only 9 met the legal requirements and reported on all six of the criteria suggested by the Act.

In an analysis of over 230 statements, Ergon found that a quarter of statements were under 250 words long, 59% were under 500 words, and 90% were shorter than this commentary. It is therefore unsurprising that the degree of detail provided in these statements leaves much to be desired. The glaring failure in addressing risk assessment found by Ergon (with 35% of companies saying nothing on the matter, and only 19% addressing risks in detail or moderately well) is particularly concerning.

modern-slavery-act
Table analysis by Ergon in Reporting on Modern Slavery: The Current State of Disclosure (May 2016)

While we can hope that the momentum for changes to be made is building, and that there will be continuous improvement both in the measures undertaken and the reporting of them by companies, this should not be taken as a given. Five years into California’s state law creating similar measures, compliance with the requirements remains low and companies demonstrate a continued resistance to meaningful change. KnowTheChain in a study of statements from 2013-2015 found that only 31% of companies fitting within the requirements had statements available in compliance with the law. Again, the detail provided in the statements that were published accomplished very little in the way of transparency.

That companies have total freedom as to how they report on steps they have taken to address modern slavery allows them to stick to a ‘bare minimum’ approach in what they publicise. The Ethical Trading Initiative (ETI) identifies this as an attempt to manage risk, noting that the general trend towards under-reporting turns what was envisaged as an accountability mechanism into ‘wafer-thin PR exercises’ in most cases.

While a gradual, policy driven approach within supply chains may be necessary to protect workers, who are often left vulnerable and more at risk when known brands and retailers pull out of relationships with their suppliers, companies must be pushed if we hope to see meaningful and lasting change. Awareness itself is not enough – a 2015 study revealed that 71% of UK companies believe there is a likelihood of modern slavery occurring at some point within their supply chains, and yet the strategies to minimise such are scarce.

The Home Secretary Guidance issued under the Act recognises that far too many organisations ignore abuses or are “knowingly responsible for policies and practices that result in workers being subjected to modern slavery in their operations”, and yet it leaves the discretion for action with those companies that have profited from the exploitation for years. The Act imposes no penalty on non-compliant companies beyond the ability of the Secretary of State to bring proceedings in the High Court for an injunction compelling performance. If the ‘transparency machine’, NGOs and private consumers do not begin to pick up on the massive failures in these areas in a big way, there is very little incentive on companies to change their approaches.

Theresa May (then Home Secretary) in the Foreword to the Home Secretary Guidance said that it is “not acceptable for any organisation to say, in the twenty-first century, that they did not know. It is not acceptable for organisations to ignore the issue because it is difficult or complex. And, it is certainly not acceptable for an organisation to put profit above the welfare and well-being of its employees and those working on its behalf.” And yet, the current regime allows just that.

While an approach that protects workers and ensures that they are not forced to find new work at great risk to their lives and safety is important, increasing the pressure upon companies to change their ways is also vital. You can be sure that policies would change if companies and their agents were held liable under the Act for aiding and abetting the criminal offences which they allow to take place, and fund, through their supply chains.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s