The risk of human trafficking and forced labour being associated with listed companies has now become material, for both the companies and their investors. The introduction of the Modern Slavery Act in the UK addresses the issue and explicitly requires directors to disclose the action they are taking to mitigate human trafficking and forced labour risks within the supply chains of their companies.
Modern slavery is one of the predominant human rights issues of our time. Human trafficking, though a largely hidden crime, is believed to affect 2.4m people at any given moment and an estimated 21m people are exploited through forced labour.
Some companies have begun to address these risks by identifying and acknowledging them in their corporate disclosure, collaborating with various stakeholders to deal with the issues in a holistic way, and supporting initiatives that seek to deal with root causes and address situations that arise.
However, many companies need to go further with regard to both action and disclosure to respond effectively to current legislation and manage the risks in this area. In this regard, investor relations professionals have a key role to play to ensure boards of directors understand their obligations and communicate effectively with investors.
What does good reporting and disclosure with regard to supply chain risks look like?
So far, the efforts of individual companies have varied greatly. A small number of companies have demonstrated clear attention to human rights issues in their supply chains as part of their overall business practices. These companies included information such as:
Conversely, poor reporting and disclosure about supply chain risk looks like this:
The disclosure requirements of the act are summarised in the box on the right of this page. Altogether, the Modern Slavery Act marks a significant step in the move towards transparency in business and its supply chains.
Companies must now be clear about what they are doing in relation to human trafficking in order both to comply with the law, and to hold onto their ‘social licence’ to operate.
This article is based on the recently-published Finance Against Trafficking report: Forced Labour, Human Trafficking & The FTSE 100; A review of company disclosure and recommendations for investor engagement. Finance Against Trafficking works to raise awareness, and to help companies address the risks of trafficking. www.financeagainsttrafficking.org
Explaining the disclosure requirements:
What is the Modern Slavery Act 2015?
The Act was passed into Law on 26 March 2015 and is designed to tackle modern slavery in the UK.
What does it mean for business?
Section 54 focuses on supply chain transparency and holds businesses accountable for their supply chains. Companies are required to report on what they are doing to ensure that their supply chains are free from human trafficking, forced labour, and other forms of human exploitation.
Which companies does it apply to?
It applies to ‘commercial organisations’ operating in the UK that are suppliers of goods or services and which have a turnover of more than £36 million. It therefore applies to approximately 12,000 UK firms including all of the FTSE 100 companies.
What do companies have to do?
Companies are required to produce a ‘slavery and human trafficking statement’ for each financial year; disclosing the steps that they have taken to ensure that their supply chains are slavery free, or a statement disclosing that no such steps have been taken. The statement may include but is not limited to:
The statement must be approved by the company’s board of directors, signed off by a director (or equivalent) and published on the company’s website with a link to this statement displayed in a prominent place.
Published: 22 January, 2016