The Growing Regulatory Risk Of Modern Slavery In Global Supply Chains

Globally, it is estimated that over 40 million people living in situations of modern slavery. Approximately 16 million people are in forced labor in the private economy, in mines, factories and fields harvesting raw materials and manufacturing products for global supply chains. Over the past few years, revelations of modern slavery conditions have been traced to the supply chains of major corporations, from smartphones produced with forced child labor in the DRC, to seafood caught by trafficked migrant workers in Thailand.

Increased awareness and concern among consumers, investors and policymakers about the prevalence of modern slavery in supply chains has led some states to introduce legislation to regulate corporate action. Following passage of the California Transparency in Supply Chains Act in 2011, lawmakers passed similar modern slavery disclosure requirements in the U.K. in 2015, in France in 2017 and in Australia last year. Large companies operating in these countries now have a legal obligation to publish an annual statement on their efforts to identify and eliminate modern slavery from their business operations and supply chains. 

Some 40 million people worldwide are affected by modern #slavery. As awareness around the issue grows, several countries have introduced legislation to pressure corporations to address modern slavery risks in their supply chains. @FreedomFund #ProxyPreview

So far, transparency in supply chains legislation has used a deliberately light-touch approach to enforcement, premised on encouraging a race to the top in corporate compliance. However, analysis of modern slavery reporting in the U.K.  highlights that while some leading consumer-facing brands have demonstrated a genuine effort to address risks, the majority of their peers have failed to act, preventing the emergence of a level playing field. There are signs that the U.K. government’s position on enforcement may be evolving, however; a recent review of the Modern Slavery Act proposed stricter enforcement action, including the possibility of introducing fines and directors’ disqualification for non-compliance. Furthermore, from March 31, 2019, U.K. companies that fail to publish a modern slavery statement risk being publicly named and shamed, with the potential to cause significant reputational damage.

chloe_bailey.jpg

In parallel, developments in Europe signal a new trend towards corporate accountability for human rights violations in supply chains. Adopted in 2017, the French Duty of Vigilance Law establishes a legally binding obligation on the largest companies in France to identify and prevent adverse human rights impacts in their supply chains. The law has increased the stakes for business by introducing judicial enforcement mechanisms, including a legal right of action for victims. Further, a proposed Dutch Child Labor Due Diligence Law would require companies registered in the Netherlands, as well as those selling to Dutch customers, to develop child labour due diligence plans. Initiatives advocating for the adoption of similar mandatory human rights due diligence regimes also are currently underway in Switzerland, Finland, Norway and Germany.

Many increasingly see modern slavery as a business-critical issue for corporate credibility. Legislation has turned up the pressure on corporations to address modern slavery risks throughout their supply chains. With a growing number of countries adopting supply chain regulation, we can expect greater investor scrutiny, as well as increased financial, legal and reputational risks for non-compliant companies.

Mark+Bateman.png

Chloé Bailey
Program Officer, The Freedom Fund