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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

Expanding the conversation – what updating your modern slavery policies and processes can mean for ESG

In a world where corporate responsibility is becoming an essential component of doing business, one conversation might necessarily lead to another. In this blog, we consider how examining your modern slavery protections can lead to a deepening of your understanding for all things environmental, social and governance.

Many Australian companies are keen to update and evolve their modern slavery policies and processes in the wake of the Modern Slavery Act Review which was tabled in parliament in May this year. The recommendations in the Review pave the way for increased regulatory oversight and enforcement against those not making a meaningful contribution to the global efforts to eradicate slavery.

The Review suggests the addition of penalties for non-compliance with reporting obligations under the Modern Slavery Act, giving teeth to the requirements to comply with Australia's laws in ways that currently have not existed in practice. While reputational harm is damaging, this is currently the only way companies are punished by their lack of compliance with the legislation. The Review also seeks to increase the range of companies which would be captured by the legislation, lowering the reporting threshold from AU$ 100 million consolidated revenue to AU$ 50 million.

Clifford Chance has previously commented on the strength of Australia's modern slavery laws and the need for reform. That publication also referred to updates to customs legislation, which proposed to prohibit the importation of goods that are produced wholly or partly by forced labour. The previous Customs Bill has been reintroduced into parliament and is currently before the Senate.
In response to a likely expansion of requirements under modern slavery legislation, we expect companies will be talking to operators in their supply chains about tightening up the processes in place to ensure compliance with the existing framework and potentially considering additional measures to make the transition smoother.

One of the key recommendations in the Review is to require reporting entities to have a due diligence system in place, which goes beyond the current requirement to merely be able to describe their due diligence processes. With requirements to report modern slavery incidents or risks also being recommended by the Review, the checks and balances will need to be airtight.

Companies must also be alert to the availability of thematic sanctions surrounding human rights abuses. The Australian Government introduced the new sanctions regime, known commonly as Magnitsky-style sanctions, in late 2021 and the first of those listings was introduced in March 2022. Magnitsky sanctions followed a worldwide outcry over the mistreatment and ultimate death in custody of a lawyer who uncovered widespread corruption by Russian tax and law enforcement officials. The Australian Government continues to review and consider additions to this arm of their toolkit, which allows Australia to take a clear position in relation to perpetrators of serious human rights violations. Any sanctions on domestic or overseas individuals and companies within a supply chain can have serious implications on business, almost certainly putting to a halt those dealings.

It is not as though you needed another upside to taking on the task of evolving your modern slavery readiness, but there is a further step which companies can undertake to level up their corporate responsibility. While you're on a deep dive into those you do business with, talking about stamping out modern slavery, why not bring up the various other ways a company can advance their ESG efforts. It is not too far a leap to be questioning how your supply chain are addressing their sustainability efforts and what alternative energy options they are considering as we enter the new wave of clean energy transition. With the Australian government in full planning mode for 2050 Net Zero putting in place broader ESG information gathering and reporting as part of your supply chain contracts could be accomplished with minimal additional effort now.

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