Last year highlighted just how fragile supply chains can be and how easily unexpected events can disrupt them. 2020 also underscored the critical need for transparency throughout corporate supply chains. Press reports on working conditions in UK-based garment factories, and allegations of exploitation of Indian factory workers in the supply chain of major UK brands, have highlighted the reputational risks to businesses of perceived ethical failures.
Since 2016, section 54 of the Modern Slavery Act 2015 has required certain large commercial organisations to publish a modern slavery statement on their website. This must be done annually, and detail what steps have been taken to ensure that modern slavery and human trafficking are not taking place in their business or supply chain (or, where appropriate, that no such steps have been taken).
Experience has shown various responses to this requirement. These range from businesses doing the bare minimum to wholesale changes to supply chain arrangements and implementation of robust supply chain codes of conduct and contractual procurement obligations.
To date, enforcement has been minimal, and monitoring of compliance with this obligation has been undertaken by the press and not-for-profit organisations. Where brands have failed in their duties, the risks have largely been reputational and, while such impacts are not to be underestimated, the stakes are about to get higher.
The government’s long-awaited response to a consultation on changes to the section 54 requirements mean that businesses will face stricter reporting requirements. These cover mandated contents for modern slavery statements, a single reporting date and a central government register of statements. The government is also considering a new regime of penalties and sanctions for those that fail to comply. These steps are intended to improve the quality and content of statements, and to allow external stakeholders to make decisions on how they view an organisation’s approach to these issues.
As well as the reporting requirements, the government has announced amendments to the forthcoming environment bill. These changes require large UK-based businesses to undertake due diligence to ensure supplies of forest-risk commodities have not been produced by illegal deforestation. Companies that fail to comply will be subject to fines and other civil sanctions.
Further down the track, the EU Commission has also heralded the introduction of new legislation to mandate corporate due diligence on human rights, environmental and governance risks in EU-based operations and businesses, and to require the publishing of a due diligence strategy if risks are identified. The proposal also anticipates both civil and criminal liability for failing to comply. This new European legislation will impact any business with EU-based operations or those that are conducting business in the EU. It is anticipated that the UK government will follow suit with similar, or potentially more stringent, requirements under UK law.
As a result, businesses should undertake the following initial steps to future-proof their supply chains:
- Decide as an organisation where you stand from a business and cultural perspective on these issues – in the context of the legal and commercial environment in which you operate. What are the expectations of your key external and internal stakeholders? What are the critical questions about your business and your supply chain you need answering when tendering for business?
- Map out your supply chain, tracking as many tiers of the chain as possible. The results will enable you to conduct a vital risk assessment of your biggest vulnerabilities. For example, which contracts are of the highest value or strategic importance or which suppliers operate in a high-risk geographical area?
- Introduce or review existing policies and codes of conduct relating to suppliers to ensure they reflect current and future best practice and provide training to relevant internal personnel.
- Review your key supplier contracts to ensure they are fit for purpose. For example, what requirements do they place on your suppliers relating to issues of modern slavery? This exercise could be of immediate use during a crisis, as well as a tool for future planning.
While it is impossible to anticipate all the risks that employers might face in the future, proper contingency planning is one of the key actions a business can take to mitigate potential damage.
Sarah Ozanne is an employment lawyer at CMS