The UK Government has published its response to a public consultation on the issue of transparency in supply chains. The response commits to three key changes to the existing reporting requirements of the UK Modern Slavery Act 2015 (the MSA), including extending the reporting obligation to certain public bodies, introducing mandatory reporting of specific information and establishing a central, public register of statements.
We look here at the existing MSA transparency obligations, the proposed changes and their likely impacts on business, and consider briefly the further changes the Government is exploring.
What does the MSA already require?
The key reporting requirement under section 54 MSA requires any commercial enterprise that:
- carries on part of its business in the UK (regardless of where it is incorporated);
- supplies goods or services; and
- has a global turnover of £36m or more,
to produce a “slavery and human trafficking statement”, each financial year. The statement – which must be approved by the company board, signed by a director, and published on the organisation’s homepage – must describe the steps taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains or in any part of its own business.
What are the Government’s key proposals?
Proposal 1 – Widening the Scope
The Government proposes extending the scope of s.54, so that the obligation to produce a statement also applies to public bodies with a budget of £36m or more.
Though primarily affecting larger public bodies, this would also have significant downstream effects on businesses involved in public procurement. As part of a reporting body’s supply chain, these businesses are likely to face enhanced and prolonged due diligence processes and be required to disclose more information about their own supply chains, at a time when the legal risks surrounding supply chains are increasingly climbing up boardroom agendas.
Proposal 2 – Compulsory Content
The Government intends to make the reporting topics which a statement “may” cover under s.54(5) MSA – such as due diligence processes or organisational structures – mandatory.
Many large reporting entities already cover the bulk of the areas suggested in the MSA in their statements. However, a 2018 report by the Business and Human Rights Resource Centre estimated that less than half of the FTSE 100 chose to report on the “effectiveness” of their anti-slavery and human trafficking systems, measured by reference to key performance indicators (as suggested under s.54(5)(e) MSA). If reporting on that aspect becomes mandatory, as proposed, this may well prompt greater emphasis within companies on management information in this area.
The government also plans to consider if other topics should be added to the mandatory list, such as remediation, disclosure of instances of modern slavery, whistleblowing mechanisms and collaboration with external partners.
Additional public disclosure requirements often bring with them increased scrutiny, and NGOs, investors, consumers and even potential litigants will no doubt be paying close attention to any additional statements from companies about the effectiveness of their efforts.
Proposal 3 – Publication
The Government will also require all statements to be published on a new centralised reporting service, by a single reporting deadline, each year.
This single register is likely to enhance the scrutiny – and public censure – faced by non-compliant reporting entities, operating on a “name-and-shame” principle. It may, however, benefit compliant entities. A single reporting date and register would simplify compliance, and an aggregated list of statements would allow reporting entities to share and compare best practice more efficiently.
What other changes is the Government exploring?
The Government has mooted the possibility of introducing civil penalties for non-compliance, in line with the development of the Single Enforcement Body for employment rights.
Currently, if a business fails to produce a statement for a particular financial year, the Secretary of State may seek an injunction, through the High Court, requiring compliance. If the organisation fails to comply with the injunction, it will be in contempt of a court order, which is punishable by an unlimited fine.
The introduction of civil penalties would dramatically increase the immediacy of the imperative to comply.
These proposed changes represent an important evolution of the UK approach and the mandatory reporting and central, public register elements reflect the requirements of Australia’s Federal Modern Slavery Act 2018.
The Government will now bring forward legislation to make these changes. All three proposals apply to England and Wales, but only the first two apply to Scotland. None apply to Northern Ireland.