Jayne Hussey - partner at national law firm, Mills & Reeve - explores what impact the Modern slavery Act will have on the manufacturing supply chain.
Today’s globalised supply chains allow companies to procure lower priced goods from developing countries. But the length and complexity of these networks has increased the potential for goods to be unknowingly manufactured using slavery, forced and trafficked labour.
In response to this, the Modern Slavery Act (MSA) came into force in spring 2015, to recognise the role that businesses have to play in helping to tackle the use of slave labour.
So what does this new regulation entail, and what steps should businesses be taking to make sure that they abide by it?
The MSA requires businesses with an annual turnover of £36m or above to publish an annual statement of the slavery and human trafficking risks in both their own business and their supply chain.
This annual statement is also required to set out the measures the business has in place to mitigate these risks. The reporting requirements came into force in October 2015 and there are transitional provisions for companies whose year-end is March 30, 2016 or before.
Depending on the relationship with other companies within the business’ group – including overseas parent companies or subsidiary companies, the turnover of these group companies may be relevant in determining whether the £36m turnover threshold is triggered.
But even if a business does not satisfy the turnover threshold, in reality the obligations imposed by the MSA will be passed down the manufacturing supply chain.
Only as good as your reputation
Many multinational businesses are taking the reputational risk that comes from modern slavery found in their supply chains extremely seriously.
A report on the subject by The Walk Free Foundation states that; “Reputational damage triggered by corporate social responsibility breaches have been ranked as one of the top ten business risks for multi-national firms”.
Indeed, many businesses at the top of the manufacturing supply chain are implementing comprehensive measures, and are expecting suppliers at all levels in their supply chain to do the same.
It is likely that in order to continue to be an approved supplier, a manufacturer will need to confirm that it has policies and procedures in place to ensure that it complies with the MSA.
Similarly, it is expected that government and public body invitations to tender will impose increasingly rigorous requirements with respect to labour standards and compliance with the MSA.
A global challenge
The level of modern slavery that exists is staggering. The most recent Global Slavery Index estimated that 36 million people in the world are subject to modern slavery.
The International Labour Organisation has estimated that the profit generated by forced labour is in the region of $150bn a year.
This is a serious and significant issue; supply chains can dictate a business’ reputation and very survival, and the problems are widespread and often hidden in complex networks.
Businesses that have implemented an effective policy and framework for tackling modern slavery in their supply chain have been those with board level endorsement of the overall strategy.
There are a number of urgent steps that they need to take:
- Prepare a policy – one which sets out minimum expectations with respect to the labour standards that must be achieved throughout the supply chain.
- Communicate the policy – it needs to be clearly understood throughout the business and suppliers.
- Adjust purchasing terms to include appropriate compliance obligations, including compliance with the MSA policy.
- Map the supply chain to identify high and medium risk suppliers. It may be appropriate to do this by geographical location, sector, type of labour used, labour cycle risks and spend levels.
- Risk assess suppliers – the starting point for this type of risk assessment would be those suppliers identified as high and medium risk through Step 4.
- Identify those suppliers where it is necessary to conduct a more detailed risk assessment, for example, through due diligence, audits and factory inspections.
- Ensure risk assessments are also conducted on potential new suppliers.
- To the extent that weaknesses or deficiencies are identified with any suppliers, work in collaboration wherever possible to identify a corrective action plan for them to achieve. If a supplier fails to implement the plan, it may be necessary to consider de-listing them.
For business leaders, tackling modern slavery in their supply chain is not a one-off, but requires a continuous concerted effort.
However, it is no longer an option not to have a rigorous process in place to protect vulnerable people and safeguard your organisation.