A recent report concluded that modern slavery considerations are still not a mainstream concern for many companies.
By Clare Nida
In April 2022, the Financial Reporting Council, the Independent Anti-Slavery Commissioner, and Lancaster University published a report on Modern Slavery Reporting Practices in the UK (FRC Report), which concluded that reporting on modern slavery in both modern slavery statements and annual reports lacks the information needed for shareholders and wider stakeholders to make informed decisions as to the adequacy of companies’ anti-modern slavery practices.
Section 54 of the Modern Slavery Act 2015
Under Section 54 (s.54) of the UK Modern Slavery Act 2015, businesses supplying goods and services with a turnover of £36 million or more are required to publish an annual statement setting out the steps they have taken to identify and address the risk of slavery in their operations and supply chains. The accompanying statutory guidance recommends that organisations cover the following six reporting categories: policies, structures, due diligence, risk assessment, training, and effectiveness.
Additional information about the Modern Slavery Act’s transparency reporting provisions is available in this prior Latham Client Alert.
Modern Slavery Reporting Practices in the UK
The FRC Report aimed to explore not only how businesses are reporting on modern slavery, but also the extent to which they are measuring the impact of their initiatives and interventions. It used a sample of 100 companies listed on the London Stock Exchange’s main market, all of which fall within the requirements to publish a modern slavery statement.
The FRC Report highlighted a number of failings in companies’ modern slavery statements and concluded that, overall, the statements remain “largely descriptive and superficial, with little attempt to critique performance and highlight areas of concern”.
The FRC Report’s key findings include the following:
- 12% of companies did not publish a statement at all, failing to comply with s.54.
- Only a third of modern slavery statements were considered “clear and easy to read”.
- Less than 50% of companies provided a clear and comprehensive discussion of modern slavery concerns in the context of their organisational structure, operation, and supply chains.
- Only 46% described their policies on slavery and human trafficking in “an informative manner”, with a majority of companies failing to provide specific information on how policies operated in practice, or how their effectiveness was measured.
- 87% of companies included a link to their modern slavery statement that is visible on their homepage, while 72% provided a link to their modern slavery statement on the UK government’s online registry, which currently remains voluntary. However, the majority link to their 2020 or 2019 statements rather than their most recent statements.
- 61% reported having modern slavery provisions in their supply chain contracts and 33% stated that they require first-tier suppliers to cascade their human rights and modern slavery standards down the supplier’s own supply chains.
- 39% of companies reported one or more key performance indicators (KPIs) relating to modern slavery risks, coupled with the rationale for using the KPIs. However, only 3% disclosed that they have reviewed existing KPIs to determine whether they make their business and supply chain vulnerable to modern slavery.
What Is Next?
The FRC Report interprets these findings as showing that modern slavery considerations are still not a mainstream concern for many company boards. A number of changes to the Modern Slavery Act have already been proposed to strengthen s.54 and increase transparency in supply chains.
In September 2020, the UK government announced a response to a public consultation on transparency in supply chains, which set out new measures to hold businesses and public bodies accountable for tackling modern slavery. These included:
- Mandating the key topics that modern slavery statements must cover, including at least the current six voluntary aspects.
- Compulsory publication of modern slavery statements on the government registry, which was launched in March 2021.
- Requiring modern slavery statements from public bodies that have a budget of £36 million or more, including local authorities in England and Wales.
- Having a single reporting period from 1 April to 31 March (rather than aligning with the organisation’s financial year). Organisations will have six months to prepare their statements with a single reporting deadline of 30 September.
- Requiring organisations to show that they have complied with the requirements by stating the date of board approval and director sign off.
- Requiring group statements to name the entities covered.
In June 2021, the Modern Slavery (Amendment) Bill was introduced into the House of Lords, proposing a criminal offence for the supply of a false modern slavery statement. Under the proposal, it would be a defence to prove that the person responsible for the statement took all reasonable steps to ensure the statement was correct, and informed the Independent Anti-Slavery Commissioner as soon as practicable after becoming aware that the statement contained false information. The offence would be punishable with imprisonment and/or a fine of 4% of the organisation’s global turnover, subject to a cap of £20 million.
This bill is still at first reading stage, and as a private members’ bill, its likelihood of being passed into legislation is uncertain. However, its introduction demonstrates an increased focus on business and human rights that is reflected globally. Notable recent examples include the German parliament passing the Supply Chain Due Diligence Act in June 2021, the European Commission’s proposal for a Corporate Sustainability Due Diligence Directive, published in February 2022, and the US Uyghur Forced Labor Prevention Act, passed in December 2021 and coming into effect in June 2022.
To stay ahead of the evolving landscape, organisations should consider taking the following steps:
- Review the legal requirements for publishing a modern slavery statement.
- Review the contents of their modern slavery statements in the six reporting areas and consider monitoring relevant KPIs.
- Upload the latest statement to the government registry.
- Ensure that annual updates to statements and policies are made.
Latham & Watkins will continue to monitor developments as the standards regarding modern slavery statements continue to evolve in the UK and globally.