Posted on: 08 February 2019
A UK House of Lords report is highly critical of the apathy shown by the private sector towards combating modern slavery in their supply chains.
Over 40 million people around the world are believed to work in conditions constituting modern slavery – with 16 million of these in forced labour in the private sector, which is estimated to generate $150 billion in illegal profits each year. Recent research has found that 71% of companies believe modern slavery is likely to be occurring in their supply chains.
The increasingly global nature of supply chains has made them difficult to police, and businesses are in a better position to scrutinize their own internal processes than are external regulators. Recognizing this, the UK Modern Slavery Act 2015 (MSA) sought to impose greater responsibility on private-sector entities for mitigating the risks of human trafficking in their supply chains. The MSA was heralded as ground-breaking legislation but, despite the hype, its impact to date has been limited, as noted by a House of Lords report published in January 2019.
The ‘Transparency in Supply Chains’ clause (TSC) of the Act requires companies falling within specified financial and geographic thresholds to publish an annual statement outlining the steps they have taken to mitigate the risk of human trafficking in their supply chains (known as the TSC Statement). The aim of the TSC Statement is to ‘prevent modern slavery in organisations and their supply chains’ by increasing the transparency and accountability of companies to shareholders and consumers, thereby driving best practice in the mitigation of the risk of human trafficking in supply chains.
However, the recent House of Lords report, part of its Independent Review of the Modern Slavery Act, found that the private sector’s compliance with its obligations under the Act ‘remains disappointing’. The response is lacking both in number (under two-thirds of companies that are obliged to publish a TSC Statement do so) and in quality (in terms of the proportion of published statements that comply with TSC guidance criteria).
The report is scathing of both the design and enforcement of the TSC, and sets out a number of recommendations seeking to ensure better compliance and to ramp up the quality of the annual statements produced by companies. Many of these echo those set out in our 2018 RESPECT publication, ‘Battling human trafficking: A scrutiny of private sector obligations under the modern slavery act’. The House of Lords report’s recommendations fall into the following categories:
- Establishing an internal government list and liaising with companies to check whether they fall within the scope.
- Improving the quality of statements by making the content criteria mandatory(currently they are merely advisory), deleting the provision permitting companies to declare they take no steps to address modern slavery in their supply chains (although in practice the resultant reputational damage mean that few, if any, companies have opted for this), stipulating that companies must consider their entire supply chains and detail steps they intend to take in the future, and publishing further guidance and a template TSC.
- Embedding modern-slavery reporting into the core business culture by incorporating TSC obligations into The Companies Act 2006 and annual reports, and imposing personal liability on a designated Board member for the TSC.
- Increasing transparency by establishing a public repository of statements.
- Monitoring and enforcing compliance by introducing sanctions for companies found to be in breach of their TSC obligations and tasking the Independent Anti-Slavery Commissioner with compliance monitoring.
- Extending the TSC obligations to the public sector, and ensuring public procurement processes prohibit contracting with companies that are in breach of their TSC obligations.
- Researching consumer attitudes towards modern slavery to leverage public concern as a more powerful compliance tool.
If enacted, these amendments to the TSC could have far-reaching implications for its impact, transforming it from a weak compliance instrument that has little effect on corporates’ management of their supply chains, to an effective catalyst for private-sector reform. The recommendations made in the House of Lords report that would give the TSC more teeth are discussed below.
Personal liability for board members for TSC compliance
The proposed imposition of personal liability on a designated board member is in line with current trends, which move beyond traditional conceptions of corporate liability and seek direct penalties for individuals. The recommended inclusion of a company’s breach of TSC obligations as grounds for disqualification under the Company Directors’ Disqualification Act 1986 is likely to make boards sit up and listen. This provision would shift the conversations about human trafficking in supply chains away from nebulous notions of corporate social responsibility and site the issue firmly in the boardroom – something that the MSA promised but never quite delivered. However, business lobbies are likely to resist this proposal, making the likelihood of its implementation low.
Under the MSA, the only redress mechanism available if a company breaches the TSC is an injunction sought by the Secretary of State in the High Court. In practice, this is unlikely to be a common occurrence, reflected by the lack of any enforcement to date. The UK government has recognized that relying on consumers, investors and NGOs to monitor compliance and apply pressure on business, is insufficient – effectively acknowledging that a hands-off approach to business compliance is not working. Consumer pressure is a fickle enforcement tool, particularly if awareness is low: research found that 40% of UK consumers did not know what modern slavery was. The introduction of sanctions for companies in breach of the provisions of the Act are therefore welcome, while the incorporation of a ‘name and shame’ blacklist as a driver of compliance should also be explored.
Achieving a balance between censure and corporate transparency
Research into consumer outreach should take into account the parameters within which companies operate, and the risks for transparency posed by unbridled censure. Companies fear that providing detailed information about the human trafficking risks they face in their supply chains, or about their past breaches, would lead to naming and shaming. This fear is well-founded: reports published by NGOs that are critical of companies have significant impacts on their reputation and profitability. In a number of industries, key players have received widespread criticism when child labour was found to form part of their supply chains. Although there should be support for reform of such practices, the approach must include a practical appreciation of the limitations on what companies can achieve. Public censure therefore should not have the effect of hampering reporting and transparency – civil society and the public should focus on the mitigating actions taken by companies, and on the efficacy of their internal processes. A failure to achieve this delicate balance will merely drive the private sector away from high-risk jurisdictions and markets, with significant negative impacts on the most vulnerable communities that business should be trying to support.
TSC obligations extended to public-sector procurement
The British prime minister heralded the extension of the TSC provisions to public-sector entities in December 2018 when she announced that the government would publish its first TSC by 2020. The proposed introduction of TSC considerations into public-sector procurement processes draws inspiration from the US Federal Acquisition Regulation. This move would significantly heighten the risks of non-compliance for companies bidding for UK government contracts.
In conclusion, the TSC has courted criticism since its inception, and current corporate practice has shed further doubts over its practical impact on private-sector management of human trafficking risks in their supply chains. The coming into force of the Act was nevertheless a turning point in legislative attitudes towards the role of the private sector when it comes to human-rights violations in their supply chains, and has inspired other jurisdictions to develop similar legislation, seen notably in the Australian Modern Slavery Act 2018.
The Home Affairs Select Committee is currently undertaking a wide-ranging inquiry into policy and implementation issues relating to modern slavery, which has a far broader scope than the House of Lords review. This is likely to identify further weaknesses in the current framework for combating modern slavery. However, the House of Lords’ legislative scrutiny of the TSC is a critical first step in that direction.
Although government would lose credibility if it blithely ignored the recommendations in the report that it commissioned, Brexit is dominating the processes of Parliament and politicians’ time, delaying legislative reform in this area. Poor compliance to date with the TSC obligations by the private sector suggests that significant improvement without legislative reform is unlikely. The Home Affairs Select Committee has demanded a response to its criticism of the Home Office’s implementation of the TSC, including the lack of monitoring and enforcement mechanisms in the legislation, by April 2019. The only fit response would include legislative reform.