Does Modern Slavery impact Small Medium Companies?

In February 2017, Australia commenced an inquiry looking to implementing a Modern Slavery Act. Recent forums indicate the Australian Modern Slavery Act would likely contain similar requirements to  the UK Modern Slavery Act.

Although the UK Modern Slavery Act only requires companies with an annual turnover of £36M or more to publish an annual Slavery and Human Trafficking Statement, these statements must set out the steps the organisation has taken to ensure that slavery and human trafficking is not taking place in their business or in any of their supply chains.  As the larger companies are required by law to report and remediate against modern slavery within their supply chain, SMEs which supply to these companies are invariably also caught up with these requirements.

A 2016 survey by the Chartered Institute of Procurement and Supply Chain found that majority (61%) UK SMEs were unaware of the Modern Slavery Act’s impact on their business.  With 67% of SMEs never having taken any steps to tackle the issue, 75% of SMEs would not know what to do if modern slavery was found in their supply chains.

What should smaller business do?

Actions of smaller business will depend on the complexity of their sector and supply chains. A good step will be for SMEs to conduct their own supply chain reviews and identify areas that are at most risk, and implement mitigation and monitoring measures. High risk sectors such as agriculture, fast moving consumer goods, construction and electronics manufacturing will require more auditing and monitoring.

Other practical measures may include:

  1. Map your supply chains to understand where there is highest risk and exposure to modern slavery.
  2. Prioritise and implement remedial measures required to manage and monitor modern slavery risk in your supply chain and business practices.
  3. Complete site inspections and develop due diligence processes for your supply chain
  4. Provide training to employees and local suppliers on modern slavery risks and compliance
  5. Review recruitment practices to ensure legal compliance to prevent labour exploitation
  6. Review supplier contracts and include obligations to comply with the Modern Slavery Act
  7. Publish a statement outlining the steps you are taking to tackle modern slavery.
  8. Consider development and communication of a modern slavery policy

The risk of not being prepared will result in greater scrutiny of your operations by larger companies, which could impact your business economically and operationally and result in reputational damage. Reviewing your operations for the risk of modern slavery could assist in placing your organisation in a preferred supplier position to larger companies.

Should you require assistance or more information in understanding how a Modern Slavery Act will impact your business and to prepare your business to meet future client requirements, please contact cheng.phang@zoic.com.au

When Did Addressing Modern Slavery Become a Business-critical Issue?

If your annual turnover is > £ 36M in the UK compliance with the UK Modern Slavery Act is required.  In fact, since the enactment of the UK Modern Slavery Act in 2015, modern slavery is perceived as being more widespread.  So consider this:

  • 86% of companies recognise the abhorrent nature of modern slavery and do not want their company to be associated in anyway with these illegal practices.
  • 77% of companies reported the likelihood of modern slavery occurring in their supply chain, with 97% of companies citing reputational risk as the biggest driver for action on modern slavery.
  • 85% of companies are experiencing a greater level of interest on responsible sourcing issues.
  • 25% of companies see investors as a strong driver for addressing modern slavery.
  • 58% of companies have increased communication of expectations on actions to address modern slavery to their suppliers
  • 77% of companies have increased communication with third-party audit firms.
  • 50% of companies are collaborating more with peers, non-governmental agencies, and multi-stakeholder initiatives and are seeking more external advice and expertise.

In a time poor world, companies face numerous barriers and challenges in addressing modern slavery, the least of which being insufficient resources to conduct due diligence and support supply chain improvements.   Senior leadership engagement is crucial in educating and driving effective responses, as is collaboration and partnerships that provide advice and support.

 

Modern Slavery in Your Organisation and Supply Chain

There are 4300 identified cases of modern slavery in Australia.

Before you say to yourself we don’t have slavery in Australia you should be aware that modern slavery is  defined as:

  • Forced labour –work or services which people are forced to do against their will under the threat of punishment.
  • Debt bondage or bonded labour – when people borrow money they cannot repay requiring work to pay off the debt losing control over conditions of their employment and debt.
  • Human trafficking–transporting, recruiting or harbouring people for the purpose of exploitation, using violence, threats or coercion.
  • Descent-based slavery –people born into slavery because their ancestors were captured and enslaved;.
  • Child slavery – child slavery occurs when a child’s labour is exploited for someone else’s gain including child trafficking, child soldiers, child marriage and child domestic slavery.
  • Forced and early marriage – when someone is married against their will and cannot leave the marriage. Most child marriages can be considered slavery.

Until now, governments have focused resources on reducing the demand for the use of modern slavery, which is hoped would decrease both the price and demand for modern slaves.  However, there has been a change in how to combat Modern Slavery and the Australian legislators are considering enactment of anti-modern slavery legislation along the lines of the UK Modern Slavery Act, 2015.

Where this could affect your business and being ready to consider whether you have human rights in your business should be addressed in two areas

  1. Internal to the company – identification of risks, development of management system, training and tracking
  2. External to the company – management of human rights risks within the supply chain.

Most companies find that implementing human rights risk management processes within the supply chain daunting due to the complexity of the supply chain. For example large companies have around 3,500 suppliers and to implement risk management processes need careful planning.

The prioritisation process (or human rights risk assessment process) will go a long way in helping to identify

  • key areas of risks, and
  • identify high risk suppliers.

At the end of the day, the development of a human rights management framework should be able to demonstrate conformance to the following 8 questions:

  1. What does the company say publicly about its commitment to respect human rights?
  2. How does the company demonstrate its human rights commitment?
  3. Does the company have any specific policies that address respecting human rights and, if so, what are they?
  4. What is the company’s approach to engagement with stakeholders on human rights?
  5. How does the company identify changes in the nature human rights over time?
  6. How does the company integrate its findings about each salient human rights issue into its decision-making processes and actions?
  7. How does the company know if its efforts to address each human rights issue are effective?
  8. How does the company enable effective remedy if people are harmed by its actions in relation to human rights?

Would you like to know more?  Contact Oy-Cheng Phang at Zoic Environmental

Sustainable Supply Chain

In April, 2017, the International Standards Organization (ISO) released a new standard focused on sustainable procurement.  Here are the three things you need to know.

  1. The purpose of ISO 20400 is to assist organisations with the development and implementation of a responsible sourcing strategy.
  2. ISO 20400 does not contain requirements for suppliers and is not a tool to assess the sustainability performance of suppliers. Rather, it describes how organisations can integrate sustainability into the procurement process.
  3. ISO 20400 uses a holistic definition of sustainability, rather than solely focusing on environmental attributes

So what can small to medium-sized companies do?

Easy strategies include encouraging your suppliers to join training programmes, negotiating with service providers for standardised fees and services for suppliers interested in implementing sustainability management programs. Some suppliers have fully matured sustainability programs, which are well advanced, and inviting these suppliers to share their knowledge would both help to encourage other suppliers to initiate programs, as well as learn.

At the end of the day it pays to encourage your supply chain in sustainable thinking, as opposed to terminating contract due to non-conformance to corporate requirements.

Companies will also need to consider developing a due diligence process to evaluate their supply chain. Often, supplier sustainability performance is conducted through a self-evaluation questionnaire.  Due to constraints on resources, many smaller companies do not develop or implement a due diligence process.  However, for industries involved in fast moving consumer goods, construction, agricultural products, clothing and textile, the need to ensure that a due diligence process is caused primarily due to the risk involved in human rights. If a big company like Nestle can be tainted by cases of bonded and slave labour in their supply chain, the impact of such allegations and findings could be devastating to small and medium sized companies.

The adoption of ISO 20400 is a tangible sign that companies prioritise sustainable procurement, by ensuring a sustainable supply chain.  All critical messages to customers, stakeholders and the wider public.

For further information, contact cheng.phang@zoic.com.au.

Third party Verification System for Impact Investments

As with any financial analysis, understanding the impact risk of an investment is as important as understanding its potential for impact return. Impact risks can take various forms. For example, there may be a lack of evidence that an intervention will lead to the desired outcome. Even if the intervention is successful, the investment could cause displacement, leading to reduced or no net benefit.

Or, the investment may create positive change for its target beneficiary but a negative change for other stakeholders, which reduces or undermines its impact.

In this respect, impact risk is directly linked to reputational risk.

For the asset owner providing concessionary capital, choosing between an impact investment product and another tool to create social outcomes, the impact risk is greater still: the product needs to demonstrate that the investor’s financial return will generate equivalent or superior outcomes relative to an alternative approach.

A way to mitigate this risk is to provide products with verified evidence of the impact. A product with ‘impact evidence’ has defined an impact strategy together with its stakeholders and worked collaboratively, using a credible methodology, to track progress against the expectations set.

Impact evidence is most robust when the product’s method of intervention is well-understood and is supported by a scientific study (such as randomised control trial) that demonstrates the causal link between the investment’s outputs and the asset owner’s target social outcomes. Since this level of evidence is typically far too costly for earlier-stage impact investments, a credible methodology will combine primary research (such as customer surveys, stakeholder feedback forums and qualitative interviews/case studies) with reasonable efforts to analyse additionality (that the positive change would not have occurred anyway).

Products with strong impact evidence also demonstrate an understanding of their costs to deliver the target outcomes, which can be benchmarked against other comparable approaches. This cost-effectiveness analysis is particularly important for the impact-first investor, who wants their financial return to address a social issue as efficiently as possible.

Finally, a product with strong impact evidence focuses not just on its target outcomes but also on its wider stakeholder impacts, to spot and manage any negative unintended consequences or externalities and, ideally, turn these into value creation opportunities. In this respect, lower-risk impact investment products overlap with those other responsible and sustainable investment products that deeply integrate Environmental, Social and Governance factors (ESG) into their investment management.

Zoic Environmental is a specialised environmental and sustainability consultancy, experienced in due-diligence and compliance assessments of corporations and their supply chains. For more information, go to www.zoic.com.au.