The UK’s Modern Slavery Act – how will businesses react?

When The Economist features an article titled Modern Slavery: Everywhere in supply chains, we can be sure that the issue of slavery is on the radar of many corporations, not merely for ethical reasons but as a potential reputational risk. This is hardly surprising, given the frequent media exposés of the inhumane conditions in which people are forced to work. According to the International Labour Organisation, 21 million men, women and children globally are in some form of slavery, generating a profit of $150 billion a year.

This makes it all the more significant that Parliament has just passed the Modern Slavery Act 2015 as its swansong before the election recess. The fact that this Act contains a provision on company supply chains is a tribute to the relentless efforts of human rights and anti-trafficking organisations, which forced the government to back down, as there was nothing on supply chains in its original Bill.

But will this make much difference to the presence of slave labour in the supply chains of UK companies? 

If the government’s position is to be believed, the Act will drive businesses to make disclosures about their supply chain policies that will change their behaviour. Businesses over a certain turnover threshold now must publish a yearly statement of the steps they are taking to ensure that slavery and human trafficking is not taking place in their supply chains or any part of their business. Those that don’t disclose information that demonstrates effective action will be breaking the law - and face a backlash from shareholders, consumers and campaigners.

A neat idea, but how will it work? Companies are not renowned for providing reliable and comprehensive information about their social and environmental impacts. How far can we trust them to provide us with an accurate picture of what they are doing to combat slavery?  Will their annual statements be any more than a PR exercise, highlighting the positives and concealing uncomfortable truths?

While NGOs wanted the Act to specify what pieces of information companies must provide, the Government opted to give businesses the flexibility to choose what to disclose. In our view, this will mean that companies will volunteer minimum information, unless shareholders act more boldly than usual and challenge those companies that produce inadequate statements.

The anti-slavery disclosure statement is intended to be a prominent document, easily accessible from the business’s website homepage. However, one of the flaws in the legislation is the lack of a central repository to which these statements must be uploaded. In order for government, investors and civil society to know which companies are taking effective action, the reports need to be in one place on a single website, and easily comparable between sectors.

Another major weakness of the legislation is the lack of enforcement measures for businesses that fail to comply. While companies that choose to ignore the requirement will be breaking the law, they can do so knowing they are unlikely to face consequences. Intuition tells us that those laggard companies most inclined to ignore the presence of slave labour in their supply chains are also the least likely to publish statements drawing attention to their failure.

While the supply chain provisions of the Modern Slavery Act are to be welcomed as a significant step forward in principle, only time will tell whether this will contribute to the far-reaching changes in business behaviour that are necessary to stop them profiting from such inhumane practices.