Modern Slavery Risks and Compliance: What Boards and Executives Need to Know
Modern Slavery is the umbrella term spanning illegal acts that remove people’s freedom The United Nations defines modern slavery as “an umbrella term covering practices such as forced labour, debt bondage, forced marriage, and human trafficking. Essentially, it refers to situations of exploitation that a person cannot refuse or leave because of threats, violence, coercion, deception, and/or abuse of power.” Despite being illegal globally, modern slavery persists in all regions of the world, including Australia. Globally, modern slavery is increasing not reducing Modern slavery is a gross violation of human rights. Global authority, Walk Free Foundation based in Australia, calculates that 50 million people worldwide are trapped in modern slavery, with an estimated 41,000 of them in Australia. This is a 10 million increase on the numbers estimated in 2016. Forced labour is the most prevalent problem which makes it a business issue 28 million – nearly two-thirds of all cases are forced labour cases, linked to global supply chains, impacting workers across a diverse range of sectors and at every stage of production. Past reports from Walk Free revealed that a horrifying 12% of those in forced labour are children. Walk Free Global Slavery Index 20231 identifies the top five high risk sectors are electronics, garments, palm oil, solar panels and textiles. With such high % related to labour practices there is a significant responsibility on businesses to identify and fight it. This involves actively identifying, preventing, and mitigating slavery risks within operations and supply networks. By thoroughly investigating and addressing issues, businesses not only protect vulnerable populations but also set a positive example for their stakeholders, contributing to wider societal efforts against modern slavery. Modern Slavery Legislation and Reporting The Commonwealth Modern Slavery Act 2018 came into effect on 1 January 2019. The legislation introduced an annual Modern Slavery Reporting Requirement for large businesses and entities operating in Australia that generate more than A$100 million in annual consolidated revenue. “The dual aim of the Act is to increase business and government awareness of these modern slavery risks, and support entities to identify, report and address the risks.”2 Attorney General’s Department A review after three years resulted in 30 recommended improvements Similar to the UK Modern Slavery Act process, Australia’s Modern Slavery Act 2018 was reviewed after three years in practice, to identify what works and what needs to be improved. In 2023, Professor John McMillan, AO, led the review with support from the Attorney-General’s Department. The objective was to assess the effectiveness of the Act in its first three years of operation.IFRS S1: Sets out overall disclosure requirements for sustainability-related financial information. Hundreds of submissions received The Review invited submissions, receiving 136 written submissions from domestic and international stakeholders, 30 responses to the online questionnaire and 496 responses to the online survey for reporting entities. This delivered extensive feedback provided valuable insights into the Act’s strengths, weaknesses, and areas for improvement. Review recommendations The review made 30 recommendations to the Australian Government. An Australian Anti-Slavery Commissioner will be appointed The appointment of the Australian Anti-Slavery Commissioner is the first direct implementation of a key recommendation from the 2023 Modern Slavery Act review. The Government is currently in the process of selecting the inaugural Commissioner. Responsibilities of the Commissioner a blend of compliance, education and advocacy The Commissioner’s role will be to ensure compliance with the Act’s requirements by businesses and government agencies, raise awareness by educating the public, businesses, and government about modern slavery and its impacts, and advocacy by representing the interests of victims of modern slavery and advocating for their rights and support. The government will provide updates on its progress in implementing some of the remaining recommendations in the coming months and years. This could include legislative changes, policy updates, and additional resources allocated to combating modern slavery. Other recommendations: Expand scope of legislation, due diligence and reporting quality Lower the revenue threshold from $100 million to $50 million to include more organisations The review proposed reducing the reporting threshold from $100 million to $50 million significantly expanding the number of companies required to report. The proposed reduced reporting threshold would include specific guidance for small and medium-sized enterprises to meet their reporting requirements. Tighten due diligence The most substantial recommendation is to impose a mandatory due diligence obligation on reporting entities. This would require companies to assess and address modern slavery risks within their supply chains. Introduce guidance to high risk sectors and penalties for inadequate reporting A further recommendation is to introduce penalties for non-compliance or inaccurate reporting to strengthen enforcement. And providing tailored guidance for industries or sectors with a higher risk of modern slavery, such as agriculture and garment manufacturing, was also recommended. What does this mean for Boards and Executives? Recognise that good practice enhances business value Many businesses view compliance with the Modern Slavery Act as an additional expense or a burden. However, reframing compliance with the regulations as a strategic, business practice improvement and value creating investment can deliver qualitative and quantitative benefits. Adopt an impact, risk and opportunities mindset Purposeful Boards and executives can approach Modern Slavery reporting obligations through the lenses of impact, risks and opportunities, in the same way that they approach environmental and other social responsibilities. Success comes from a two-part response: Systems and Culture Walk Free estimates that $468 billion of goods imported by G20 countries are at risk of modern slavery. Systems This means modern slavery can exist in any business or supply chain, regardless of industry or location. By assuming that risks exist, you can adopt a thorough and vigilant approach to combating modern slavery. This means diligently examining every aspect of your supply chain, including direct suppliers (Tier 1) and their suppliers (from Tiers 2 to Tiers 5-6 including importers, exporters and trading companies). Culture Integrating anti-slavery measures with your company’s core values and ESG strategies underscores the importance of the issue. This alignment ensures that the fight against modern slavery is prioritised throughout the organisation, reinforcing your company’s dedication
Three Defining Leadership Themes for 2023 – Liability, Legitimacy & Legacy
Co-author – Kirsty Simmonds, Reputation & Impact Strategist and ESG Advisor. There’s no doubt that the challenges leaders will face heading into 2023 will be complex and require an unprecedented level of intricate navigation. We are in a time of poly-crisis (the Davos 2023 buzzword), where the problems facing businesses, and society, are interwoven and reciprocally damaging. The challenges include continued fall-out from the global pandemic, civil unrest and conflict, climate change-driven extreme weather and natural disasters, increasing wealth and ideological polarisation, ambiguity around the impact of emerging technologies and a clock that is ticking loudly for the world to achieve the United Nations Sustainable Development Goals by 2030. Yet at the same time, we are seeing the emergence of collectivist behaviour and interconnected thinking. Leaders across business, government, NGOs and academia are acknowledging that big problems need a big combined force to drive solutions. In fact, the World Economic Forum set the scene for globalist thinking with its 2023 conference theme in Davos last month: ‘Cooperation in a Fragmented World’. The leaders that are making the greatest progress are already thinking and acting in interconnected ways. Businesses with a headstart in this area are implementing operating models that drive awareness of the interconnectedness of issues. Certified B Corps are a good example. There are three powerful themes that will set the scene for business leaders in 2023, that will help them not only steer through the many challenges, but also realise the once-in-a-generation opportunities before them. The three L’s: Liability, Legitimacy and Legacy. First identified in November 2022 by our partners, global foresight leaders, The Future Laboratory, these three themes challenge organisations and their leaders to embrace a new behavioural model in order to successfully lead, collaborate and become effective pathfinders. Liability The legislative and regulatory landscape is evolving rapidly, and the onus is on businesses to become more rigorous in mapping and reporting risks and impacts caused by their operations and their supply chains. Legislation is becoming increasingly complex, with more localised and topic-specific laws coming into effect. Recent examples include the US’s Uyghur Forced Labour Prevention Act, France’s Environmental Labelling law 2022-748 and the upcoming New York Fashion Act, expected to be passed later in 2023. And in Australia, the 2018 Modern Slavery Act is undergoing its first review, with more stringent deliverables for boards expected to be part of the recommended amendments. But liability is about much more than legal compliance. It is increasingly about the fact that there is an expectation from all stakeholders – customers, employees, suppliers, community partners, shareholders, environmental custodians and others – for organisations to act with accountability, to assume greater ownership and responsibility, and take proactive action in working on solving the global problems in which they are implicated. In which areas must your organisation step forward to do the right thing before legislative and regulatory changes force you to? Legitimacy Legitimacy is about social licence, which is in turn based on trust. It is earned by evidence of actions. Here organisations are expected to prove their expertise and earn their share of voice through listening to their many stakeholders, engaging with them and demonstrating genuine understanding through their actions. The consequences of not recognising this notion of ‘social permission’ to conduct business is the commercial disruption and reputational damage that comes through sophisticated stakeholder activism, as recently experienced by organisations like Shell and Coca-Cola, amongst others. Business leaders must look at their impacts through a materiality lens, focusing increasingly on those external impacts that are truly important to their stakeholders and where they may inadvertently have negative impacts on people and the planet. They are expected to have comprehensive mitigation and remediation strategies, where the needs of stakeholders are considered and addressed, and where an ongoing dialogue is established with each stakeholder group. How will your organisation engage with stakeholders to uncover, prioritise and address the issues that will lend your business credibility and support? Legacy And then finally there is Legacy. This is about leaders needing to shift their focus towards positive long-term impact. It’s about the intergenerational implications of decisions made today. This is where business leaders can be the most creative and innovative, making the shift from seeing ESG exclusively as a compliance imperative and beginning to view it as a strategic opportunity for leadership. Leaders can inspire action and accelerate change by acting with intentionality as higher-order, globalist thinkers. It’s where they can move in collaboration with other stakeholders, and build the capability of their people, to deliver against a vision of next-generation business structures that are regenerative and human-centred. Three-horizon thinking has never been more important. But the new key to success will be looking at horizon three through the lens of legacy and to focus increasingly on laying the foundations for profound intergenerational change. What will be the legacy of your leadership tenure 10 years from today and beyond? Kirsty Simmonds is a Reputation & Impact Strategist and ESG Advisor, with 25+ years’ experience working with leading B2B2C organisations, including with listed businesses like AMP and IBM. Kirsty leads The Growth Activists’ Responsible Business practice and is an accredited B Consultant and GRI-trained.Rosanna Iacono is Managing Partner at The Growth Activists. With over 25 years experience in global leadership roles with multinationals Nike and Levis and C-Level roles with some of Australia’s leading brands, Rosanna leads The Growth Activists retail & consumer goods practice.
Patagonia’s Big Move – When Stakeholder Capitalism Meets Legacy
Patagonia’s recent announcement that the Earth would become its only shareholder sent shockwaves through the global business community. It was the ultimate throwdown to Milton Friedman’s long-standing edict that the sole responsibility of a business is to deliver profit to shareholders. This move is not only the most high-profile example of a major for-profit organisation embracing stakeholder capitalism – the idea that companies must deliver value to a broader group of stakeholders, including the environment and society – it’s also bold in the way it legally enshrines the intent. The Chouinard family transferred ownership to two new entities: Patagonia Purpose Trust which owns all the voting stock (2%) and plays a governance role, and Holdfast Collective which owns the remaining stock (98%) and ensures that any profits not reinvested into the business will be used to fight the climate crisis. The company expects an annual dividend of approximately USD $100million. Patagonia founder Yvon Chouinard said, “Instead of extracting value from nature and transforming it into wealth, we are using the wealth Patagonia creates to protect the source.”. The announcement should have come as no major surprise to anyone who has been watching the business over recent years. What we have witnessed is a gradual evolution from authentic outdoor apparel brand to activist organisation that happens to make outdoor apparel. In fact Patagonia’s stated company purpose reads ‘We’re in business to save our home planet’. Patagonia’s Big Move – When Stakeholder Capitalism Meets Legacy B Corp global leader When Patagonia first certified as a B Corp in 2011 it achieved an exceptional score of 107.3 (it takes 80 points to certify and the average business scores only 50.9). But when the business re-certified in 2019, it achieved a staggering 151.4 points and was recognised by B Lab as extraordinary and leading in supply chain poverty alleviation, philanthropy, resource conservation, land and wildlife conservation, toxin reduction and remediation, and for its commitment to arts, media and culture. Responsible Consumption advocacy & education The brand’s infamous ‘Don’t Buy This Jacket’ ad, launched on Black Friday in 2001, challenged consumers to buy only what they need. Any scepticism was rapidly displaced when the company launched its Ironclad Guarantee, offering free repairs on all Patagonia garments and gear. Its Worn-Wear program allows customers to buy and trade-in used gear. The brand also uses 87% recycled materials in its product and is striving to close the loop and achieve circularity through continuous investment in material innovation, as evidenced in the recent film The Monster in Our Closets. Environmental Activism One of Patagonia’s gutsiest moves came in 2018, when the company moved to sue the Trump administration for its decision to reduce Utah’s Bears Ears National Monument by 85%. A company statement read: ‘This is not about politics; it’s about protecting the places we love and keeping the great promise of this country for our children and grandchildren. We won’t let President Trump tear down our heritage and sell it to the highest bidder’. That same year Patagonia took a USD$10m tax break granted to the business, after the Trump government’s new tax code lowered corporate tax, and donated all of it to fighting climate change. ‘Existential Dirtbag’ Founder But the business’s most profound evolution towards social and environmental sustainability was driven through the values of founder, Yvon Chouinard. A rock climber who discovered a niche for rugged technical clothing back in 1970, Chouinard founded the company with the philosophy that financial success should also enable the achievement of other goals , like ensuring Patagonia was an outstanding place to work for its employees and providing funding for environmental activism. On-site childcare and meals, and paid time off for working on environmental projects are just some of the many employee benefits. In 2002 Chouinard also founded 1% For The Planet, an international organisation whose 3400+ members contribute at least 1% of sales to environmental causes and includes businesses like The Honest Company, and Australia’s Flora & Fauna. Chouinard’s core business philosophies were related in his 2005 memoir ‘Let My People Go Surfing’, where he explains how embedding doing good and pursuing adventures into the business model ultimately drove Patagonia’s financial success. Despite the business’s stellar results, Chouinard despises hearing himself described as a businessman, and once told a journalist he would rather be described as a ‘dirtbag’. When challenged by the journalist that a billionaire cannot be a dirtbag, his defiant response was “Being a dirtbag is a matter of philosophy, not personal wealth. I’m an existential dirtbag.” Criticism The company’s ground-breaking move has not gone without criticism, with a number of high-profile fashion eco-warriors pointing to the organisation’s prolific use of petro-chemical derived materials. They’ve argued it should focus on overhauling its entire operations and move out of fossil fuel derived fibres entirely. In the company’s defence others have pointed out that Patagonia is one of the most prolific users of recycled materials of any brand of its size and also one of the most active in sustainable material innovation. The brand must also remain true to its purpose of providing ‘performance’ apparel to athletes, and at this time there are not yet viable non-synthetic substitutes to replace technical materials like Cordura or Gore-Tex. Supporters have also been quick to point out that this recent event is about much more than a material strategy and will have a profound influence on the global business community, challenging them to re-think their business models to create value for more stakeholders. Legacy It has been argued that the rise of ESG in recent years is about much more than Millennials and Gen Z’s influence as the most principled generations in history, but that it is also being driven by Baby Boomers re-thinking their legacies. Do they want to be remembered solely for the financial growth and earnings they delivered as business leaders, or also for lasting positive change on society? At 83 Chouinard may well be approaching his twilight years, so it is natural that he is considering
Retail Leadership Skills of the Future
A new breed of retail business is emerging to take the place of those who failed to innovate for the new economy.
