In our recent blog, we alerted you to the Commonwealth Modern Slavery Bill, which was introduced into Parliament last week, for debate in August, following the passing of the Modern Slavery Act 2018 (NSW) on 21 June 2018.
The NSW Act establishes a new modern slavery reporting requirement which will have a significant impact on many Australian businesses, including insurers, insurance intermediaries and insureds.
Here are ten quick questions and answers to help you get ready for the NSW Act.
1. Who needs to report?
You will need to report if your organisation provides goods or services, has an annual turnover of $50M or more and has at least one employee in NSW.
This will include many large multinational and domestic insurers, insurance intermediaries and insureds with operations in NSW
2. What do I need to report?
In broad terms, the NSW Act will require you to report on the steps you/your organisation is taking to ensure that none of your goods or services is a product of supply chains in which modern slavery is taking place.
The details of the NSW regime will be contained in regulations, but each reporting organisation is likely to need to report on the following:
- the organisation’s structure, business and supply chains;
- its due diligence processes in relation modern slavery;
- the parts of the business and supply chains where risks exist, and steps taken to manage those risks; and
- the training about modern slavery available to its employees.
3. When will I need to report?
The timing of the first reporting phase under the NSW Act has yet to be determined. For now, the NSW Act provides for all reporting organisations to prepare a modern slavery statement for each financial year and make that statement publicly available within a specified period after the end of that business’s financial year.
4. What if I don’t comply?
Penalties of up to $1.1M will apply for non-compliance and for false or misleading statements.
5. How will compliance be monitored?
The Act establishes the role of Anti-Slavery Commissioner whose role will include maintaining a public register of modern slavery statements, interacting with government agencies, reporting to Parliament, monitoring the effectiveness of the Act and raising awareness.
As the statements will be public, organisations can expect their statements to be scrutinised by many interested stakeholders, including employees, customers, business partners, industry, the media, government, NGOs and civil society.
6. Is anyone exempt from reporting?
The reporting requirement is not expected to apply to foreign corporations or government agencies.
Also, commercial organisations obliged to report under the anticipated Commonwealth Modern Slavery Act or other State or Territory laws will be exempt from the reporting requirements under the NSW Act, so long as the laws are considered to correspond. We hope this will encourage legislators to adopt similar reporting criteria.
7. How will this impact on insurers?
Many insurers may consider themselves at low risk of being involved in modern slavery abuses, given the nature of their core services and their highly skilled professional workforce. But there are still plenty of other areas of risk, some of them inherently high risk.
Take, for example, all the third party goods and services supplied to the business, which may include IT and telecoms services; facilities management services (including cleaning, catering and security); marketing materials; and uniforms.
Do you know how, where and by whom all the goods and services provided to your organisation are produced? The NSW Act will oblige you to investigate those issues in order to identify, assess and manage your modern slavery risks.
8. What if I already report under the UK Modern Slavery Act?
Insurers who are used to complying with the UK Modern Slavery Act may find all this easier – but they will still need to look out for differences in the regimes, not least the mandatory reporting criteria in Australia which are different from the ‘suggested’ areas of reporting outlined in the UK Act.
These differences may lead to a different scope and emphasis of reporting in different jurisdictions. For example, while insurers reporting under Australian regimes will be expected to report on what they are doing in relation to their employees and third party suppliers (including Third Party Claims Administrators and contractors), the flexibility of the UK regime means that some UK modern slavery statements have covered a more diverse range of issues, including own clients and business transactions, investments and acquisitions, money laundering and financial crime, and broader CSR initiatives.
9. What about insureds?
Insurers should consider how the new reporting requirements will affect their insureds, many of whom will need to take steps to comply with the applicable legislation.
The inclusion of penalties in the NSW Act will place compliance pressures on reporting entities. Non‑compliance or misleading statements will increase the risk of third party claims against the company, and the requirement for a director (or equivalent person) to sign off on the statement raises the spectre of personal liability for directors and officers.
More generally, a culture of greater transparency and accountability may expose companies to a variety of new claims, including claims based on allegations of false advertising, misleading statements or complicity in modern slavery abuses. All this increases risks and opportunities for insurers.
10. What next?
If they haven’t already done so, insurers should begin to review their own policies and processes and consider how they will investigate the risks within their operations and supply chains in order to comply with these reporting requirements. They should ask their insureds how they are preparing to comply and consider how the new reporting requirements may affect their underwriting risk.
At minimum, businesses that have not already done so should consider taking the following steps:
- Map the organisation’s structure, businesses and supply chains.
- Formulate policies in relation to modern slavery – this will involve collating current policies, identifying gaps, adapting existing policies and formulating new policies, as needed.
- Carry out a risk assessment – identify those parts of the business operations and supply chains where there is a risk of modern slavery taking place.
- Assess and manage identified risks – this may include carrying out further due diligence in the entity’s operations and supply chains and reviewing and adapting contract terms and codes of conduct with suppliers.
- Consider and establish processes and KPIs to monitor the effectiveness of the steps taken to ensure that modern slavery is not taking place in the business or supply chains.
- Carry out remedial steps where modern slavery is identified.
- Develop training for staff on modern slavery risks and impacts.
Insurers should also recognise that these latest reporting requirements are just part of a growing demand for more ethical and sustainable business practices across all sectors and consider how their approach to modern slavery risks sits within their wider approach to good corporate governance, ethical trade, human rights and corporate social responsibility, as well as their human rights and environmental due diligence processes, where these exist.
Click here to learn more about the anticipated Commonwealth Modern Slavery Act.
To access our recent report prepared with BIICL on supply chains and human rights due diligence best practice click here.
To learn more about how to embed ethical and sustainable business practices into your operations and supply chains, please contact us.