Amid increased calls from stakeholders and investors for transparency around organisations’ social agenda and performance, governments around the world are increasingly mandating and enhancing requirements around human rights-linked disclosures and supply chain due diligence.
Modern slavery reporting in the UK
In the UK, the primary piece of legislation relating to human rights disclosures is the UK Modern Slavery Act (UK MSA), introduced in 2015. Commercial organisations carrying out business in the UK, with an annual turnover of £36 million or more must comply with the UK MSA. In-scope companies must produce an annual Modern Slavery Statement outlining the steps they have taken to identify, assess, address, and prevent modern slavery and human trafficking in their operations and supply chains.
Currently, the UK MSA mandates four minimum requirements for in-scope organisations:
- Updating their Modern Slavery Statement every year;
- Publishing the Statement on the organisation’s UK website;
- Board approval for the Statement; and
- Statement sign-off by a director or equivalent.
Companies are falling short on the basics
Evidence suggests that many organisations are failing to meet even these minimum legal requirements. Over one in ten (12%) companies failed to produce a Statement, according to a recent report from the Financial Reporting Council (FRC) in collaboration with the UK Anti-Slavery Commissioner and Lancaster University. The same report found that 5% of Statements didn’t contain information on final sign-off and 13% of companies failed to publish their Statement on their website’s homepage.
Companies are also incorrectly identifying the reporting entities that should be covered in a Modern Slavery Statement. A foreign parent is not exempt if it is doing business in the UK, through a UK subsidiary, if the subsidiary is not operating ‘independently’. Even when companies have identified and listed the correct reporting entities in their Modern Slavery Statement, they often fail to report how those entities are identifying, assessing, addressing, and preventing modern slavery.
Time to step up: mandatory criteria and fines for non-compliance are on the way
It’s time for companies to reassess the robustness of their approach to modern slavery reporting. It pays for companies to aim beyond technical compliance and work towards good practice. Why? Because the current legislation has several shortfalls, which are likely to be addressed as legislation tightens up.
In May 2022, the UK government presented a Modern Slavery Bill that aims to increase organisations’ accountability for tackling modern slavery in their supply chains. The bill proposes to mandate six areas of reporting in Modern Slavery Statements, to introduce a requirement to publish Modern Slavery Statements on a government-run registry and to implement fines for non-compliance. The bill is expected to amend or replace the existing UK MSA. In addition, outside the UK there is growing momentum for mandatory human rights due diligence, such as with the EU Directive on Corporate Sustainability Due Diligence (CSDD).
Aiming beyond the bare minimum today means companies will be ready when stronger legislation emerges. It also enhances companies’ ability to identify and address modern slavery risk in their business and supply chain.
Five aspects for companies to focus on:
1) Go beyond the minimum: cover the six recommended reporting areas
The UK MSA does not mandate what needs to be included in Modern Slavery Statements, only that they should be published annually. As a result, Modern Slavery Statements often lack structure, making it hard for stakeholders to gauge the full story.
So, what should companies include in their Modern Slavery Statements?
It is good practice to structure Statements around the six recommended reporting areas:
- Organisation structure and supply chains
- Policies relating to slavery and human trafficking
- Due diligence controls, including grievance mechanisms
- Risk assessment and management
- Key performance indicators that measure the effectiveness of the approach
- Training on modern slavery and human trafficking
2) Show your commitment to transparency: assess your programme maturity
We have observed, from a variety of organisations, a reluctance to provide real transparency around the maturity of modern slavery programmes or any identified incidents, for fear of reputational damage. This is at odds with the purpose of a Modern Slavery Statement: to detail the organisation’s commitment to identifying and preventing modern slavery across the organisation and its value chain, to highlight risk mitigation and remediation processes, and to enable year-on-year progress.
Organisations should assess their modern slavery programme’s maturity, determine where improvements are required and report transparently against the recommended reporting areas, establishing a performance baseline from which to demonstrate progress year-on-year.
3) Demonstrate continuous progress: forward-looking commitments and key performance indicators (KPIs)
Despite being one of the fundamental purposes of the UK MSA, many Statements contain limited information on long-term strategic improvement plans. Organisations can demonstrate progress year-on-year through forward-looking commitments, a key criterion used by rating agencies to assess modern slavery performance. Having forward-looking targets is also critical for shareholders and potential investors in assessing companies’ approach to modern slavery risk.
Another way to demonstrate progress over time is through the use of consistent and relevant KPIs to monitor the implementation of modern slavery due diligence practices and their effectiveness. In this manner, organisations can disclose results against KPIs, compare KPIs year-on-year, and describe how the results influence decisions.
4) Consider risk to people: don’t just focus on reputation
It’s been over ten years since the United Nations Guiding Principles on Business and Human Rights (UNGPs) were published, and some civil society groups believe not enough has changed. Our analysis of Modern Slavery Statements tends to support this, particularly given most companies are still looking at modern slavery from a reputational or financial materiality perspective.
Good practice human rights due diligence prioritises addressing the most severe human rights impacts on people first. With this said, the most severe human rights impacts, such as instances of modern slavery, strongly converge with risk to the business. To ensure an effective modern slavery programme, companies should use the lens of risk to people to guide their due diligence efforts.
5) Seek to remedy incidents: don’t just end a relationship
Although terminating a relationship with a supplier or customer who is associated with a modern slavery incident might seem like the right option, organisations should first seek to use their leverage to engage with the supplier or customer to improve or remedy the incident. Where a company has limited leverage, they should take the necessary steps to build leverage over suppliers or customers who can most effectively mitigate the identified risk.
If you want to know more about best practice in drafting a Modern Slavery Statement or developing modern slavery and human rights risk management frameworks, please get in touch with us:
- Amelie de Borchgrave, Director (KPMG Business Integrity & UK Modern Slavery Lead), (amelie.deborchgrave@kpmg.co.uk)
- Charlotte Adkins, Manager (Forensic, ESG), (charlotte.adkins@kpmg.co.uk)