On 22 September 2020, the UK government published a response to its Transparency in Supply Chains consultation. Section 54 of the Modern Slavery Act 2015 requires commercial organisations supplying goods or services in the UK with an annual turnover of £36m or more to produce an annual slavery and human trafficking statement. The consultation sought industry views on changes to the current reporting requirements. The government's response includes a number of proposed amendments and extensions of the existing requirements.
What are the key proposals?
- The existing voluntary areas of reporting would become mandatory.
- Statements would be required to state the specific entities they cover (currently this is just best practice guidance).
- Reporting organisations would be required to publish their statement on a government-run reporting service, as well as on their own websites.
- Reporting organisations would have a single reporting deadline.
- Certain public bodies would now be subject to the requirement to publish statements.
- There are likely to be specific penalties for non-compliance.
In addition to the mandatory requirement to state what steps the organisation has taken in the last financial year to ensure slavery and human trafficking is not taking place in its business or supply chain, the Modern Slavery Act currently refers to six topics on which organisations "may" include further detail::
(a) the organisation's structure, its business and its supply chains;
(b) its policies in relation to slavery and human trafficking;
(c) its due diligence processes in relation to slavery and human trafficking in its business and supply chains;
(d) the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk;
(e) its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate;
(f) the training about slavery and human trafficking available to its staff.
In its consultation response, the government has stated that it will "mandate the areas that statements must cover", and that if organisations have taken no steps within an area, they must state this clearly.
This change could have a significant impact on organisations' approach to preparing statements. Organisations that consider themselves low risk may currently consider modern slavery risks and actions only when it comes to drafting their statement. The need to explicitly justify inaction will push many to give greater consideration, at an earlier stage, to the action they should be taking. This is likely to require an increase in resource and senior level engagement on modern slavery issues.
The specific required content for reporting on these areas is yet to be confirmed. The government has stated it will be updating the existing guidance in advance of the legislative changes.
Organisations will be required to publish their statement on a government website, as well as their own website.
While compliance with this requirement in itself should be straightforward, when taken together with the changes to the mandatory areas to be covered in the statement, mentioned above, the impact could be significant because it will make it easier to identify:
- Those organisations which are not meeting their legal requirements.
- Those which are not meeting public expectations (potentially a higher standard than the legal requirement).
- Those which are not keeping pace with their sector competitors.
This greater transparency may drive greater commitment of resource and focus by organisations, concerned as much by the reputational risk as the legal risk.
Single reporting deadline
Current guidance recommends that organisations publish their statement as soon as possible after their financial year end and, in any event, within six months (though this has been extended where Covid-19 has caused delay).
Under the proposed changes, organisations will have a single reporting deadline, with all organisations reporting on the same 12-month period (April to March) and publishing their statements by 30 September.
Under current legislation, organisations are able to produce a group statement when more than one entity in the group meets the reporting threshold. There is no requirement for organisations to identify the entities covered by that group statement (although guidance suggests this is best practice).
Under the proposed changes, it would be mandatory for a group statement to identify each entity that it covers. This is intended to promote further transparency and enable greater scrutiny, by making it easier to determine whether organisations are complying with their obligations. Organisations that are part of a larger group may need to undertake further analysis to ensure they identify all the entities in the group with an obligation to make a statement (if they are not already doing so). The government's proposal notes that this requirement will be clarified, so the details of this new obligation remain to be seen.
Public sector application
The section 54 obligation does not currently apply to public bodies, although the government itself has opted to voluntarily publish its own statement. The government proposal is to change this, extending the application of section 54 to public bodies that meet an equivalent threshold to private organisations; having a budget of £36 million or more.
Organisations that supply goods or services to public bodies should expect requests for more information concerning modern slavery compliance, as well as contractual commitments to take actions to monitor and mitigate modern slavery risks in their business and supply chains. We have already seen this in some areas, such as the LSAS scheme, and more recent self-assessment obligations, that have been imposed as a requirement on certain NHS Supply Chain framework agreements.
Implications for organisations
The changes to the section 54 reporting obligation are targeted to encourage greater transparency and drive greater action by organisations to ensure slavery and human trafficking is not occurring in their businesses or supply chains. The consequence for many organisations, and particularly those who have taken a light touch approach to compliance with the statement obligation, is likely to be an increase in the legal and reputational risk, and a consequent need to commit more time and money to mitigate that risk.
Unfortunately there is no indication of when these changes will be made, with the consultation response stating that amendments to the Modern Slavery Act will be introduced "when parliamentary time allows".