Basics in place but no sign modern slavery being impacted in practice – ACSI research

Modern slavery risks are being reported at a basic level by Australian listed companies, but to effectively address modern slavery in practice, much more needs to be done, according to the latest research from the Australian Council of Superannuation Investors (ACSI).

Compliance without ambition: Taking stock of ASX200 reporting under Australia’s Modern Slavery Act, commissioned by ACSI and produced by Pillar Two, is the first detailed analysis of company reporting in the third annual cycle of the Modern Slavery Act.

The research methodology assigns scores to company statements against 46 quality indicators over six assessment areas. It goes beyond measuring strict compliance under the Act to also assess whether companies reported on areas of recommended (but not required) practice in the Government Guidance.

The results show while most ASX200 companies have incrementally improved their disclosure of modern slavery risks, there are clear signs of stagnation. Since the assessment of the first year’s reporting, the average score has risen only eight percentage points to 44%.
Just a small number of companies disclose more complex actions to manage slavery risks, with less than 10% working with suppliers to build risk management capacity, consulting with potentially affected groups or defining effectiveness to help track performance.

“Modern slavery has a terrible human toll. It also presents a serious investment risk, as failure to protect human rights can expose companies to significant reputational and financial risk, impacting long-term sustainability. This research tells us too few companies are developing the kind of robust responses required to address the reality of modern slavery,” said Louise Davidson, ACSI CEO.

“This may be due to a lack of resources, a compliance mindset or a concern about standing out from the pack but with the risk of stagnation apparent, responses against the Modern Slavery Act need to improve.”

Concerningly, only 8% of companies identified a modern slavery incident or allegation. Investors support the ongoing identification and remediation of instances of modern slavery, and reporting of the company’s approach.

“We do not believe that an 8% identification rate accurately reflects the extent of the modern slavery challenge. This raises the concern that companies are failing to find instances of slavery in their supply chains,” Ms Davidson said.

Key findings:

• 34% of companies improved by 50% compared to their 2021 assessment. Many of these were from a low base, but the improvement is nonetheless welcome.
• The average score across the ASX200 is just 44%, eight percentage points higher than 2021.
• Only 19 company statements scored 30 points or more out of the available 46.5.
• Few companies made meaningful disclosures of more complex actions such as supplier capacity building (6%) or training for boards/senior leadership (3%).
• Just 8% of company statements reported identifying a modern slavery incident or allegation.

“Lifting the market as a whole will take time, but meaningful identification of modern slavery issues is crucial for investors to manage this investment risk and deliver value over the long-term,” Ms Davidson said.

A review of the Modern Slavery Act was finalised on 31 March, with the Federal Government response due shortly.

“These research results show there is significant room for improvement in company reporting under the Modern Slavery Act. Our recent submission to the review identified key ways by which it could be strengthened, with a view to improving reporting in future years,” Ms Davidson said.

In its submission to the review, ACSI called for the Modern Slavery Act to be further strengthened to include:

• an independent Anti-Slavery Commissioner, with an important role in monitoring the impacts and functioning of the Modern Slavery Act
• a due diligence requirement, to ensure entities are improving their risk assessment and mitigation
• more robust enforcement of noncompliance, through penalties and other incentive measures
• additional detail in the mandatory reporting criteria to ensure entities are providing sufficient granularity in their modern slavery statements; and
• access to remedies for victims of modern slavery.

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