Podcast transcript
Rebecca Archer
Welcome to Navigating the New Normal – Grant Thornton’s podcast exploring trends in business and the marketplace.
I’m Rebecca Archer and today I am joined by Katherine Shamai – Partner in the Risk Consulting team.
Today we’re unpacking modern slavery and how businesses can be more aware about current and future obligations in Australia. The Global Slavery Index 2023 indicated that Australia imported US$17.4 b worth of goods including electronics, garments, solar panels, textiles and fish products with supply chains at risk of modern slavery throughout the year. This highlights the need for businesses to take precaution, ensuring they’re not passively taking part in modern slavery through exploitation.
So, what is modern slavery and how can businesses ensure it doesn’t exist within their supply chain?
Welcome to the podcast Katherine!
Katherine Shamai
Thanks, Rebecca.
Rebecca Archer
Can you tell me exactly what is modern slavery? How would you define that?
Katherine Shamai
Modern slavery is a hidden crime that affects every country in the world – even Australia. We often think that there is no modern slavery here, but we do hear about stories of domestic servitudes periodically – somebody working in somebody's home in a forced setting and not having the proper pay. And it can happen in all industries in various contexts, especially when it comes to complex supply chains where you import goods or componentry from other parts of the world, and also where profit margins are quite thin and there's the pressure to be profitable and find different ways of sourcing cheaper equipment or raw materials, et cetera.
Modern slavery in terms of what it could look like, include human trafficking, so that's using force or violence to coerce people to be transported, recruited, and to exploit them in prostitution, labor, criminal activities, marriage, and even organ removal. There's also forced labor – so making people work against their will; debt bondage, which we have heard a bit of in the press. So, this is where people borrow amounts of money and they're working off the debt, but the debt has an interest rate that is exorbitant that's applied to it. So really there's no way for the worker to actually work that off and pay it off.
There's child slavery, which pretty self-explanatory probably to me personally, one of the more horrendous type of modern slavery. So, children trafficking, child soldiers, domestic slavery, child marriages. There's also forced marriages, so people getting married against their will, and domestic servitude, which is an interesting one in the sense that there's genuine domestic work where you're getting paid appropriately, you have all the rights and you can leave if you so desire, and it's properly regulated.
But you have, conversely, a domestic servitude in terms of you're not being paid appropriately, your working conditions are poor and you're not treated well – full stop, you can't leave. And the common themes there are really threats, violence, coercion, and abuse of power. It's taking away somebody's right to choose and to be where they want to be and to be able to do what they want to do. And we don't always think about it as something that happens nowadays.
When we think about slavery, quite often, we think to olden times, hundreds of years ago, where this was a lot more common in practice, but the Walk Free study has estimated that 49.6 million people live in modern slavery across the world, and a quarter of these victims are children.
And of the 27.6 million people trapped in forced labor, 17.3 million are enforced labor for private economy. So, to your point, Rebecca, at the beginning, this is where people are working for private enterprises and therefore turning profit, et cetera. So, it's a really important issue to tackle, and I think the COVID-19 pandemic has also exacerbated these conditions because it has made it easier to in some ways to exploit vulnerable workers when work was scarce, in particular, and it's not an issue that's going to go away without support and cooperation between private sector and government.
Rebecca Archer
And, Katherine, what are the current obligations in Australia for businesses when it comes to this?
Katherine Shamai
So, in 2018, the Australian government passed the Commonwealth Modern Slavery Act 2018, which came into force 1 January 2019, which means for entities with revenue of $100m or more, has to report what they do in terms of modern slavery and managing that risk in the supply chain. It's similar to the legislation that was passed in the UK in 2015 and other jurisdictions around the world, but it is one of the leading pieces of modern slavery legislation.
So, this means that organisations, reporting entities, have to prepare an annual statement which identifies risk in their supply chain and what actions they take to address these. The quality to date is variable, shall we say, and each Modern Slavery statement has seven elements that it has to include so you have to identify who the reporting entity is, outline your operations and supply chain, identify your risk, say what you're doing to address those risks, evaluate whether your actions are effective and also consult with your controlled entities and joint venture entities and then any other information you want to include.
So, there's a fair bit to cover in your annual statement, but in June 23, there was a review of the act that was tabled in Parliament, which included a number of recommendations. The review found that the obligations were not being taken seriously. So, I guess the three main things in terms of recommendation include lowering the reporting threshold to consolidated revenue of $50m, potentially introducing a penalty for non-compliance with reporting requirements, but also improving the quality and the standard of reporting so that there's less variability. It provides better information for people who are using the statements.
Rebecca Archer
How can a business actually know if modern slavery exists in their supply chain?
Katherine Shamai
That's a really tricky one, Rebecca, because quite often these things are hidden. It's not necessarily easy to spot. So, one of the first things I always recommend our clients do is map out the supply chain to assess the risk areas. Look critically at your suppliers and identify any high-risk industries such as textiles, food production, technology production, jurisdictions where there's a high volume of lower skilled workers – so, places such as India, China, Pakistan, and high risk sectors such as industrial cleaning, hospitality, construction, manufacturing, and agriculture.
By understanding what your supply chain looks like, you can then understand, okay, well, what do I need to do as an organisation to manage this risk? So also vetting your supplier and establishing that as a process. A lot of organisations do this as part of taking on new suppliers, but we look at things more like financial sustainability. Are they compliant, are they properly registered? And whether they are, to some extent of good reputation that we want to deal with them, but not necessarily the modern slavery piece.
So, vetting your suppliers could include looking for adverse media, but also asking them what they do around their modern slavery risk and do they understand it, and once you've done this, vetting really critically asking yourself, do you want to work with this organisation? Some of the controls you can consider is also setting expectations with your suppliers through code of conduct and doing a modern slavery survey, which makes them fill out and gives you information on what they do around this issue. And the clients that we've been seeing lately are more in that space – there's a downward pressure, I guess, if you like, of modern slavery risk management, and people delving deeper and deeper into their supply chains. And of course, if you're ever unsure, seek expert advice.
Rebecca Archer
I wonder how modern slavery might tie into the broader environmental, social, and governance frameworks, and indeed, reporting that we're seeing highlighted in the current regulatory environment?
Katherine Shamai
Ties in very strongly with the social pillar. It is about respecting human rights, and consumers are more and more in tune with buying ethical products, and that includes what businesses have touched on in the supply chain, and I think one important element here to really think about is how to live your values.
If you put forward a position on modern slavery and how you would tackle the issue of modern slavery, it's really important to deliver to it and genuinely place value on it. What I mean by that is, for example, saying no to a supplier who's offering you a great deal but has a poor track record of human rights abuse, understanding those things and saying, where do we draw the line as an organisation on who we want to work with and who we don't want to work with?
Rebecca Archer
And if a business is learning about modern slavery for the first time, what sort of recommendations do you have for being prepared?
Katherine Shamai
There's a lot of materials out there on modern slavery, so some research is a really good starting point. Understanding what that means to your organisation is then the next element. How complicated that is depends on the organization's strategy, appetite and ESG positioning. So, for example, if a company's brand is tied very strongly to ethical sourcing or doing good in terms of environment, et cetera, that's probably going to be a fairly high priority for the organisation, and even if you're under the reporting threshold – consider your client base. What are your customers or clients looking for? What are they asking you about your position on modern slavery and your controls and how do you respond to that? Just because there's an obligation for entities over a certain threshold doesn't mean that you can't voluntarily submit a modern slavery statement yourself for example. I'm always happy to have a chat about this topic because I think it's one worth exploring on the more one to one level. Sometimes I think these concepts can be a little bit high level and how does that apply to my world? If I'm making X, how does that apply to my supply chain and should I be worried about it?
Rebecca Archer
You discussed turnover. I wonder, should businesses below the threshold still consider implementing processes or understanding obligations in case it is legislated or thresholds perhaps change? And if that's the case, how can they start to do this?
Katherine Shamai
I do think they should start to think about it, because it's good to be prepared as a starting point. But also, as we're seeing more and more of this downward pressure of asking suppliers about their modern slavery arrangements and risk management, it's good to have those frameworks implemented, ready to go.
So, if the legislation does change and you are required to report, you are ready to start that whole process. And it's no different than an entity over $100m, it's working out your supply chain risk and understanding how you would go about making your supplier decisions of who to work with and who not to work with.
Rebecca Archer
If you were running a business and you did have a supplier who you might not necessarily know a lot about, but they are operating overseas in a jurisdiction that doesn't have a great track record when it comes to human rights perhaps and modern slavery, and they are a good client to deal with – the supply chain is smooth, you might have suspicions about perhaps everything's not above board.
As a business, what should you do? What is your obligation, both morally and legally?
Katherine Shamai
Great question. So, I would suggest doing a deeper dive. So, if you've done your initial triaging, which is what you've described, you've done your risk assessment and you go, I'm not sure about this, you can always do a deeper dive into the supplier, and that can include things like site visits. And quite often, especially in the manufacturing space, there are site visits to look at the quality of the goods being produced. You can weave modern slavery into that and looking at the working conditions of the workers performing interviews and depending on which jurisdiction you're working in, there are companies out there who specialise in doing onsite factory or site inspection visits with forced labor elements built into it.
So, there are different avenues that you can pursue depending on where they're based, and if unsure, ask more questions until you get the answers you're happy with and you're comfortable with.
Rebecca Archer
Katherine, why is it important to act now?
Katherine Shamai
It's important to act now because modern slavery distorts global market. You mentioned the dollar value of the goods and services being procured, which may be tainted with modern slavery. There's an implication there, of course, that it's an unfair business practice because they are exploiting vulnerable communities, which in itself is not acceptable – simply is a tradeoff for better margins.
There's a legal and reputation risk, and if you think about the outrage over the production of textiles and the use of sweatshops, for example, some brands have a really hard time coming back from those poor practices and being linked to it. So, it's really important from a protecting reputation and therefore ultimately a commercial positioning perspective. I think we talked before about consumers buying ethical products and being a lot more savvy to ethical procurement and ethical sourcing, and we're also seeing consumers – a cohort of consumers – who are willing to pay a premium for these types of products. So, what's that market worth? Is that something that your organization is looking to pursue? And is that a segment that's of particular interest?
But I also think to, I'm sure, misquote a sage out there. If not now, when? Slavery's been around for so many years. We're in such a better position as a global economy to be doing more and be doing better, so why not do something?
Rebecca Archer
Katherine, do you have any final comments around modern slavery and what businesses can do to be more aware so that they can indeed take action?
Katherine Shamai
My final comment would be, it can feel really daunting, but taking that first step just opens those doors. So be brave and have a go.
Rebecca Archer
Katherine, thank you so much for your time on this important topic. If people are wanting to get in touch with you who are listening today and they're interested in hearing more or indeed learning more specifically about what it is you do and how you might be able to help them, how should they find you?
Katherine Shamai
Always happy to hear from people via LinkedIn, and also my details are available on the Grant Thornton website.
Rebecca Archer
If you liked this podcast and would like to hear more, you can find and subscribe to Grant Thornton Australia on Apple podcasts or Spotify.
