Transparency in supply chains – modern slavery: holding business and public bodies to account

UK Government announces new tough measures to tackle modern slavery in supply chains

On 22 September 2020, the UK Government published its response to the 2019 “Transparency in supply chains consultation”¹ (the Government Response) and set out new measures to hold businesses and public bodies to account for tackling modern slavery. The Government Response reflects a growing trend to reinforce transparency on steps taken to identify and mitigate modern slavery in supply chains. There are already public disclosure requirements entrenched in laws in the UK, Australia and California.  Public disclosure requirements have also been proposed in Canada² and Hong Kong³.

These latest measures foreshadow heightened regulatory expectations and reflect increasing stakeholder scrutiny on how organisations identify, mitigate and report on modern slavery in their businesses and in their supply chains.  Companies with UK operations – particularly those engaged in contracts for public suppliers, works and services (Public Contracts) – should take particular note and ensure that their human rights risk programmes are reviewed and updated accordingly.

Key takeaways

1. Companies bidding for Public Contracts could face more scrutiny on how they manage modern slavery risks. The new measures will require public bodies that have a budget of £36 million or more to report on steps taken to prevent modern slavery in their supply chains. This could lead to enhanced scrutiny of how companies bidding for Public Contracts identify and mitigate modern slavery risks in their respective businesses and supply chains.
2. Companies will have to comply with new mandatory requirements in preparing their modern slavery statements. The Government has committed to mandating the key topics that modern slavery statements must cover, from due diligence to risk assessment, to encourage organisations to be more transparent about the work they are doing to ensure responsible practices. This would bring the MSA in line with the mandatory reporting requirements already set out in Australian law. The Government has also committed to publishing updated guidance for businesses and public bodies in 2020, including best practice approaches to reporting against the future mandatory requirements.
3. All organisations with a budget of £36 million or more will be required to publish their modern slavery statement on a new digital government reporting portal. This reporting service is expected to be launched in early 2021, and will make it easier for stakeholders such as consumers, investors and civil society to hold organisations to account for the steps they have taken to root out modern slavery.
4. The Government has foreshadowed the introduction of civil penalties for non-compliance with the Modern Slavery Act 2015. The Government has committed to taking forward different options for civil penalties for non-compliance with the MSA (e.g. capped fines, fines as a proportion of an organisation’s size or turnover). According to the Consultation, a civil penalty regime would not come into force for at least a year after any changes to the reporting requirements are made. The overall consensus is clear, however: there is wide support for the introduction of a civil penalty regime to promote compliance with the MSA.

Background

The Modern Slavery Act 2015 (MSA) introduced a requirement for certain commercial organisations to publish an annual statement setting out the steps they are taking to prevent modern slavery in their operations and supply chains (a modern slavery statement).  In July 2018, the Government commissioned an Independent Review of the MSA.  The final review report was published on 22 May 2019 and made numerous recommendations, including clarifying the scope of organisations required to report, increasing compliance and further embedding transparency requirements into business culture.⁴  Subsequently, the Government conducted a public consultation on transparency in supply chains from July 2019 to September 2019 (the Consultation) to provide an opportunity for stakeholders such as private companies, public bodies, NGOs and trade associations to input into the Government’s approach to improve outcomes for vulnerable workers in supply chains both in the UK and overseas.⁵  The Government Response sets out the Government’s next steps in response to the Consultation.

Extension of MSA requirements to public bodies and the implications for companies bidding for Public Contracts

On 26 March 2020, the UK Government became the first country to publish a statement outlining how the Government will tackle modern slavery across its supply chain.⁶  This paved the way for an expansion of the organisations within the scope of the MSA beyond the private sector to certain public bodies.  Respondents to the Consultation were overwhelmingly supportive of extending the requirement to publish a modern slavery statement to large public bodies (98%).  Accordingly, the Government has announced that it will extend the modern slavery statement reporting requirement to public bodies, including local authorities in England and Wales, with a budget of £36 million or more.

The extension of scope in modern slavery reporting requirements to the public sector could have an impact on certain private companies, particularly those that are involved in Public Contracts.  Going forwards, large public bodies are likely to incorporate more rigorous modern slavery due diligence into tendering processes for Public Contracts.  Private companies bidding for such contracts can prepare for upcoming change by more clearly outlining the steps they have taken to identify and mitigate modern slavery risks both in their businesses and in their supply chains.

Introducing mandatory requirements and increased transparency in modern slavery statements

The Consultation sets out proposals to strengthen the impact of modern slavery reporting by mandating specific topics for organisations to report against.  The majority of respondents to the Consultation agreed that this would encourage effective action against modern slavery (78%).  Accordingly, the Government has committed to strengthen existing voluntary guidance by mandating the key topics that modern slavery statements must cover in future.  This will include the existing voluntary areas, such as due diligence and risk assessment.  In addition, the Government has committed to publishing updated guidance for businesses and public sector organisations in 2020, including best practice approaches to reporting against the future required areas.

In addition, the Government announced that it will launch a new digital government reporting service in early 2021.  All organisations with a budget of £36 million or more in all sectors will be required to publish their modern slavery statements on this platform. This will enhance transparency and make it easier for stakeholders such as consumers, investors and civil society to hold organisations to account for the steps they have taken to root out modern slavery. The implications for companies are that they will be subject to increased scrutiny in respect of their modern slavery programmes going forwards.

A new enforcement landscape – a civil penalty regime

Respondents to the Consultation were clear that there is a need for greater enforcement of the current requirements under the MSA.  Different views were advanced to promote increased compliance and more rigorous enforcement.  For example, some respondents were supportive of a capped variable civil penalty for failing to publish a fully compliance modern slavery statement whereas others believed that fines should be calculated according to an organisation’s size or turnover.  The Government has committed to taking forward the options for civil penalties, although we note that the Consultation stated that a civil penalty regime would not come into force for at least a year after any changes to the reporting requirements are made. The consensus is clear, however: there is wide support for the introduction of a civil penalty regime to promote compliance with the MSA.

The Government has also committed to establishing a single enforcement body for employment rights to better protect vulnerable workers and ensure a level playing field for the majority of employers complying with the law.

What next?

In our previous Legal Update, we reported on the EU’s proposal to introduce a mandatory human rights due diligence law by 2021.  While the UK will not be a party to that proposed new law, the Government Response shows that the UK is committed to tackling human rights abuse in supply chains, reflects increasing demands from key stakeholders and reinforces a wider trend towards more robust modern slavery disclosure requirements.  In particular, the Government has committed to publishing updated guidance for businesses and public sector organisations in 2020 and to introduce a bill for measures requiring legislative change when parliamentary time allows.  We will continue to monitor updates following this latest announcement.

Mayer Brown specialists are available to assist companies in this complex and ever evolving legal landscape.