08 December 2020

Managing modern slavery risks in the age of COVID-19 and beyond

Given COVID-19 restrictions are likely to remain in place going into next year we discuss some of the challenges and opportunities facing businesses in addressing modern slavery risks in their operations and supply chains during COVID-19.

The United Nations and the Walk Free Foundation estimate there are approximately 40 million victims of modern slavery around the world.

Modern slavery is one of the world’s most complex human rights issues we face today. Complex supply chains and a globalised workforce requires addressing modern slavery with strategic thinking. But what is modern slavery? It is situations where coercion, threats or deception are used to exploit victims and undermine or deprive them of their freedom to choose whether they work or not. Examples of modern slavery include the trafficking of persons, slavery, servitude, forced labour, debt bondage, deceptive recruiting, and the worst forms of child labour. While practices like substandard working conditions or underpayment of workers do not constitute modern slavery, these practices are also illegal and harmful.

The nature and extent of modern slavery means it is often hidden through the components that find their way into the supply chains and operations of businesses and the products we purchase as consumers. The United Nations and the Walk Free Foundation estimate there are approximately 40 million victims of modern slavery around the world. Modern slavery can occur in every industry and sector, but some are more suspectable due to the nature and location of the work, these include agriculture and fisheries, construction, healthcare services, IT services, manufacturing, and mining.

Too often there is an assumption that modern slavery is something that happens in far-off locations, but Australia is not immune. In 2008, the first criminal conviction for a slavery offence in Australia was upheld by the High Court in R v Tang [2008] HCA 39 on appeal from the Victorian Court of Appeal. Between 2015 and 2017 the Australian Government estimated that there were 1,567 modern slavery victims in Australia. In 2018 the Australian Parliament passed the Modern Slavery Act 2018 requiring entities to submit an annual modern slavery statement. Under the Act, statements must describe what an entity is doing to assess and address the modern slavery risks in its global and domestic operations and supply chains. The reporting requirement is part of Australia’s broader response to modern slavery domestically and overseas and implements Australia’s commitment to the UN Guiding Principles on Business and Human Rights.

Australia is not alone. Earlier this year New Zealand saw its first criminal conviction for both human trafficking and slavery in the High Court decision in R v Matamata [2020] NZHC 1829. In that case, the victims were lured from Samoa to New Zealand by the promise of better wages working in horticulture. Last year in the United Kingdom, Police uncovered more than 400 victims of slavery who were put to work in the West Midlands by an organised crime gang. The gang tricked vulnerable people from Poland to move to the United Kingdom with the promise of work and a better life.

The first reporting period for the majority of entities required to report has now ended. Businesses will be reflecting on what they have discovered and what measures will need to be put in place before completing their first modern slavery statements, as well as what activities they will undertake in the next reporting period. For many businesses, this is the first time they have had to assess modern slavery risks in their operations and supply chains. COVID-19 has undoubtedly added additional complications to this exercise by forcing millions of vulnerable workers out of work and requiring businesses to make quick and difficult decisions regarding retaining their workforce and supporting their supply chains through the pandemic. Given COVID-19 restrictions are likely to remain in place going into next year we discuss some of the challenges and opportunities facing businesses in addressing modern slavery risks in their operations and supply chains during COVID-19.

Challenges

Managing supply chains and maintaining good practices: as a result of COVID-19 some businesses have suffered supply chain shortages as suppliers have had to shut down or reduce production. This has led to businesses having to find new suppliers, often quickly and without conducting due diligence as comprehensively as in normal circumstances. Additionally, some businesses will have started to address modern slavery risks before COVID-19, including amending existing procurement policies, adapting supplier and tender due diligence requirements, and updating audit processes. While it may be tempting to circumvent these practices in circumstances where quick decisions are required or where undertaking supplier due diligence may be more challenging, in doing so, businesses will increase their long-term exposure to modern slavery risks.

Protecting vulnerable workers: businesses need to be aware that suppliers face the difficult challenge of how best to protect their workers from catching COVID-19. This is particularly difficult for those workers in factories where space can be limited, and the work cannot be carried out remotely. For those workers producing essential goods, such as facemasks and hand-sanitiser, they face increased risk of exploitation as there is increased pressure to work long hours to meet the global demand or to maintain productivity levels despite a reduced workforce. Further, in circumstances where budgets are tight and businesses are considering implementing cost-cutting measures, to the extent that they involve placing additional pressure on suppliers to reduce their prices, businesses should consider the impact of these decisions on the workers in their supply chain. As COVID-19 restrictions ease and businesses start to recover, attention should be given to how practices such as short production timeframes and short-term contracts can create or contribute to modern slavery.

Opportunities

Getting to know your suppliers better: COVID-19 provides an opportunity for businesses to engage more fully with their suppliers as they try to better understand their supply chains and the risks associated with that supply chain. This engagement is an opportunity for businesses to gain a better understanding of their suppliers’ operations and supply chains, including the modern slavery risks. Engaging with suppliers during COVID-19 also provides businesses with a chance to revisit and reassess the risks within their supply chain, supporting more focused due diligence on suppliers, goods or jurisdictions of greater risk. In some circumstances, businesses may wish to revisit their initial modern slavery risks assessments and conduct hot-spot analysis because of factors that increase the vulnerability of workers during COVID-19.

Often the same supplier will be part of the supply chain for multiple businesses. To the extent that businesses are sending a range of questionnaires to the same supplier as part of their supplier engagement, we have seen suppliers struggle to respond. However, during the COVID-19 lockdown industry groups have been working collaboratively to develop industry specific questionnaires. For example, the Financial Services Council of Australia has developed a due diligence questionnaire designed to provide asset owners comfort that fund managers are investing their funds in line with modern slavery reporting requirements. We expect more questionnaires will become standardised which will ease the burden on suppliers.

Embracing technology and innovation: COVID-19 has required businesses to adapt quickly with new and innovative approaches. With travel restrictions in place it will be harder for business to conduct unannounced audits on their suppliers in person. However, businesses can embrace technology to help manage their modern slavery risks. Technology can reduce the cost of supply chain due diligence when conducted virtually. Some businesses have established remote auditing programmes, which can be sustained and developed post-COVID-19 and allow for more suppliers to be audited than otherwise possible under an in-person audit programme. Technology can also help businesses to gain a better insight from the perspective of the suppliers’ workers. Businesses can ascertain the working conditions of supply chain workers through an anonymous hotline, direct virtual meetings with supply chain workers, or through online discussion boards where supply chain workers can report concerns. The challenges of COVID-19 present an opportunity to try a different strategy that may support long-term efficiencies.

Looking beyond COVID-19

In the short-term, post-COVID will be a time for businesses to build on the progress made during the first reporting period and address any new risks that were identified as a result of COVID-19. One such risk is the concentration of supply chains. COVID-19 unmasked the risk to businesses of having their supply chains concentrated in a limited number of jurisdictions. We expect to see businesses consider diversifying and relocating aspects of their supply chains.

In the long-term, post-COVID-19 we expect to see a greater focus by consumers and investors on environmental, social and corporate governance issues. There is a general push towards more sustainable supply chains, which will require businesses to address issues of modern slavery. As such, the legal landscape for businesses with regards to human rights is changing with multinational companies having to navigate increasingly complex human rights obligations. The number of jurisdictions that require businesses to either identify modern slavery risks in their supply chains, take steps to mitigate such risks, or make public disclosures is increasing, and includes Australia, United Kingdom, Germany, France, and California. We expect to see more jurisdictions adopt similar obligations as countries implement the United Nations Global Compact. Where businesses are caught by modern slavery obligations in one jurisdiction, there will be a growing expectation that modern slavery will be addressed in all the jurisdictions those businesses operate in. Further, we are already seeing a ripple effect where businesses who are not caught by modern slavery obligations are being asked by their partners that are caught, to address modern slavery. In those circumstances, investors, consumers, and civil society expect businesses to be doing something or at least thinking about how to address modern slavery. This is a trend we expect to only increase.

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