From 1 January 2019, Australian companies with consolidated revenue of $100 million will be required to make an annual statement to government about their modern slavery risks. Unfortunately, slavery is not a thing of the past. Every day more than 45 million people are subjected to slavery and forced child labour, which sadly turns up in the supply chains of everyday consumables like laptops, smartphones, clothes and shoes. Most of the victims are in the Asia-Pacific region – an estimated 24.9 million victims – which is where many Australian businesses source materials and products.

But tackling slavery is a difficult task because it’s hidden within so many different types of business models, but its prevalence is also why defeating it is so important.

The ethical reasons to fight forced labour are obvious: forcing someone to work against their will is not an ethical thing to do. Reports of slavery can also damage a company’s reputation, and if verified they can place the company at risk of legal, financial, regulatory and production issues. But it’s difficult to find out if forced labour is part of a company’s supply chain, as the information is almost always hidden or not publicly available.

How we're helping to end slavery

Australian Ethical has always had a rigorous process to look at whether a company is acting ethically, in accordance with the Australian Ethical Charter – which includes companies screening supply chains for any links to forced or unfair labour conditions. Sadly, a large part of the challenge is that neither we nor the companies we work with can guarantee supply chains don’t include modern slavery. But we pride ourselves on how our research process goes a lot deeper than most investment managers. In addition, we’ll also engage with businesses about the steps they can take to try to ensure their supply chain is free from slavery, directing them to appropriate resources and monitoring and reporting tools.

A modern day Slavery Act for Australia

In April 2018, Australian Ethical submitted a response for the Federal Government’s Modern Day Slavery Act Inquiry. We called for legislation requiring that all companies should have to report on their human rights performance, to bring our country’s laws in line with the UN Guiding Principles on Business and Human Rights. We advocated that larger companies should have to take action to stop slavery in their supply chains. You can find our submission on page five via this link.

The Modern Slavery Act passed through both houses of parliament on 29 November 2018 and received Royal Assent on 10 December 2018. Unlike modern slavery legislation in other countries the reporting criteria are mandatory. For Australian corporations, the first reporting year is likely to be 1 July 2019 to 30 June 2020; entities with an international financial year may have to report earlier.

Some criticisms

The Labor party, as well as some human rights trafficking campaigners, have concerns that the Government’s current actions don’t go far enough. They claim that the policy is weak because it only targets companies that turn over $100 million a year, there are no penalties for non-compliance, and there’s no independent watchdog.

At Australian Ethical, we agree that it would be better for more companies to report, and for bigger companies to have greater obligations to avoid forced labour in their supply chains. However any legislation will at least be a start to solving the issue.

The overwhelming majority of the Inquiry submissions agree that supply chain transparency is the key, which we wholeheartedly agree with. There’s a reason why tracing the supply chain of a product is so difficult; it can drag up some pretty ugly truths.

How to work out if slavery is part of a supply chain

Looking at how companies manage their supply chains can be the hardest problem that our Ethics team at Australian Ethical has to tackle when deciding whether or not to invest in a particular product or company.

One of the reasons why it’s so hard to pinpoint where slavery is occurring in manufactured goods is because more often than not, a product is made with components sourced from multiple countries, and through long chains of suppliers. Linkages to factories that use forced labour might be found in something as small as a chip in a computer, or a zipper on a piece of clothing.

Slavery in services such as fruit picking and skilled or unskilled labour are also difficult to identify, as victims don’t want to come forward for fear of retribution, given that they may be threatened, blackmailed and literally locked away. High profile cases in Australia have been found in agricultural supply chains, where workers are underpaid, not paid at all, or mistreated. Human trafficking exacerbates the problem, as it brings the most vulnerable into situations where they don’t know the language, have large debts to pay off, don’t know their legal rights, and are culturally disoriented.

Applying our vision of a better future

At the broader systemic level, innovation flourishes and societies and economies prosper when individuals are free to choose their work and to enjoy the benefits of that work. At the level of individual industries and companies, the presence of forced labour in operations and supply chains is unsustainable. It risks disruption of production, prosecutions, financial penalties, regulatory action by local and foreign governments, and severe damage to brand and relationships with customers and other stakeholders.

Given what’s at stake, the Modern Slavery legislation is crucial to help to bring the power of all of government, business, civil society and individuals to eliminate forced labour. By requiring investigation, management and reporting on human rights risks, this legislation will:

• Encourage greater accountability of companies for respecting the freedom and dignity of workers in their operations and supply chains.

• Enable consumers, suppliers, investors and others to make more informed choices about the companies they do business with.

It’s our hope that once the Government gathers information annually from businesses, that the Government would establish a central repository database for collection of reported information and to facilitate access to and analysis of the information. This would encourage positive competition between forward thinking business to better respect individual freedom and dignity, and to better promote their positive impacts to consumers and business partners.

Disclosure is the key, in our view, to helping consumers make informed decisions – and despite some shortcomings, the Government’s Modern Slavery law will help the community find out more about how companies are dealing with the issue of modern slavery. Slavery is ingrained in our economies, and it’s disturbing how it has managed to infiltrate and proliferate in most areas of our globalised business community. It’s our hope that through greater corporate accountability, slavery can finally become a thing of the past.