This year marks the 10th anniversary of the introduction of the Modern Slavery Act 2015, designed to regulate and address the issues of modern-day slavery in business operations and their global supply chains.
The Act was genuinely world-leading in 2015, said Dame Sara Thornton, consultant in modern slavery at CCLA Investment Management: “The requirement for companies to report on modern slavery in their own organisations and supply chains, the establishment of an independent anti-slavery commissioner and the introduction of modern slavery risk and prevention orders to protect the public from the most serious offenders represented significant progress.”
However, a decade later, forced labour “isn’t just a bug in the system, it’s a feature of the system”, with the Ethical Trading Initiative finding that 77% of UK companies suspected modern slavery in their supply chains when asked anonymously.
“The UK is now being outpaced by developments in Europe and beyond, and we remain unconvinced that action taken by companies to date is improving the lives of vulnerable people within their supply chains,” said Matt Crossman, stewardship director at Rathbones. “The Act gives licence to too many companies to take a tick-box approach, producing superficial modern slavery statements.”
Investors, therefore, are calling on the government to update the legislation to protect people from exploitation. But what should these reforms look like, and what is an investor’s role in helping businesses carry out modern slavery due diligence, and act when human rights abuses are uncovered?
Current limitations
According to Crossman, several limitations have become apparent in the Modern Slavery Act that undermine its effectiveness in preventing the sale of goods linked to forced labour in the UK market.
Companies are only required to describe what actions they have taken regarding modern slavery in their organisations and supply chains, with nothing required about the quality and effectiveness of measures taken. This descriptive approach means that companies can technically comply with the law while taking minimal – if any – substantive action.
Additionally, there is no explicit ban on selling goods made with forced labour to supplement the Act. With companies not required to map their supply chains or verify labour conditions, and no corresponding ban on importing goods made with forced labour, tainted goods can easily be imported and sold on the UK market.
At inception, the Act was provided with only very modest enforcement powers for the Home Secretary, but they have never been used. The Home Office, which is responsible for preventing modern slavery in the UK, “should be prepared to use sanctions against companies that don’t produce adequate modern slavery statements,” Crossman asserted.
A report by the Modern Slavery Act 2015 Committee found similar shortcomings, stating that the currently fragmented regulation of the labour market “can limit the ability to address the fast-evolving nature of modern slavery”.
The chair of the Committee, Baroness O’Grady of Upper Holloway, said: “The prosecution rate for modern slavery is only 1.8%, with the number of victims estimated to be around 130,000 in the UK. This means too many perpetrators are free to profit from victims with impunity. Modern slavery is a hidden crime, which occurs in many areas, including illegal drugs, prostitution, domestic service, agriculture, and the care sector. Investigations and prosecutions can be complex, but there are known ways of improving their success.
“We urge our new government to prioritise protecting modern slavery victims and prosecuting the villains.”
What should reform look like?
Martin Buttle, better work lead at CCLA, suggested a number of ways in which the Act should be updated, including making it mandatory for companies to subscribe to the modern slavery registry, introducing meaningful fines for companies that are not compliant with the Act, and including financial sector and downstream due diligence in the scope of the Act.
“We would also go further than just updating the Act,” Buttle continued. “We would like to see additional mandatory human rights due diligence legislation, similar to those rolled out in France, Germany and Norway, as well as the EU Corporate Sustainability Due Diligence Directive.
“Alongside a forced labour ban, meaning that products tainted with forced labour cannot enter the UK market. This would be similar to the US Tariff Act, which is based on an assumption that products of a particular type and geography are made with forced labour unless a company can prove otherwise. That’s quite a neat way to protect the UK market.”
The Modern Slavery Act 2015 Committee similarly recommended legislation that recognised and considered the difference between migrants who come to the UK willingly and those who have come because they have been trafficked. Companies meeting the threshold should undertake modern slavery due diligence in their supply chains, and an arms-length ‘Single Enforcement Body’ should be set up to ensure stronger compliance with relevant labour rights and standards.
Crossman added: “We want to see more companies reporting instances of modern slavery that they have proactively discovered in their supply chain, along with how they have remedied or prevented the situation. Stricter reporting requirements and improved guidance on who needs to report and what to report on will lead to vastly improved modern slavery reporting.”
The role of investors
For investors, the financial and reputational risks of being exposed to human rights abuses through their shareholdings, direct operations and supply chains are clear. Businesses that effectively identify and respond to human rights risks and abuses are seen to be more competitive, less volatile and risky, and are ultimately more attractive long-term investments.
Through this exposure, investors have a responsibility to respect human rights and ensure that such abuses are identified, prevented and addressed by their investee companies and issuers of securities.
See also: How can investors carry out modern slavery due diligence?
“As long-term investors, we have an obligation to hold our investee companies to account when they fall short of the reporting requirements of the Act,” Crossman said. “Investors can use their significant influence in their investee companies through engagement and exercising their strongest form of censure – voting against management when a company has failed to comply with the s54 reporting requirements of the Act.”
In 2020, Rathbones launched the Votes Against Slavery campaign to address corporate non-compliance with the Act, challenging companies suspected of not meeting the reporting requirements. Since the launch, campaigners have engaged with over 300 FTSE 350 and AIM-listed companies, achieving over 90% compliance rate.
This year, its sixth iteration garnered the support of a record 168 institutional investors with funds under management totalling almost £3trn.
“Although we acknowledge that, for the most part, the focus on producing statements has fallen on normal operating companies, we have seen multiple investment trusts produce statements and improve transparency around modern slavery reporting on account of our engagement. Increased alignment and support for this regime by investment trusts will have a cascading effect on compliance uptake through the corporate and financial worlds,” noted Crossman.
Statutory guidance update
There are signs that perhaps the government is listening. In a statement prefacing an update to the Transparency in Supply Chains statutory guidance, the minister for safeguarding and violence against women and girls, Jess Phillips, wrote that modern slavery is so prevalent that if businesses are not identifying risks and cases, “they are probably not looking hard enough”. Businesses “need to be proactive in identifying risks” and should take a “victim-centred approach” to remediation.
Whether that means stronger legislation is on the horizon remains to be seen, particularly as current legislative trends suggest the government is focused on cutting regulatory pressure on businesses to encourage growth. But Buttle remained confident this would be high on its list of priorities.
“At the end of the day, we’re looking for a level playing field for all companies, and modern slavery is an egregious breach of human rights. The government is obligated to uphold human rights, so this would be a good step for the government to take.”
Whether the Act is amended or not, however, the fact remains, concluded Crossman: “Every part of the supply chain plays a role in tackling labour abuses and modern slavery.”
