TIMOTHY STAMP, Mercer’s modern slavery advisory expert
More than 200 years after the abolition of the transatlantic slave trade, slavery is flourishing –there are now more than 40.3 million modern slaves globally.[1]
Australia is not exempt, with modern slavery hiding in plain sight. According to the 2018 Global Slavery Index, “on any given day in 2016, there were 15,000 people living in conditions of modern slavery in Australia, a prevalence of 0.6 victims of modern slavery for every thousand people in the country.”[2]
The MSA reporting requirement is particularly complex for superannuation funds because it applies to investment portfolios (both internally and externally managed), in addition to operations and supply chains.
However, for several reasons – in part legislative newness and in part, modern slavery’s unfortunate inherent invisibility – the MSA has been under the radar for many funds.
This issue has been propelled into the spotlight by the new legislation, and the investment industry is buzzing with conversations about how to tackle both the issue itself and the reporting requirements.
Few in the industry have any direct experience, but the existing tools in the Responsible Investing (RI) toolbox can be a good starting point. Noting that any RI methodology must be tailored to the particularities of modern slavery and the specificities of the reporting requirements.
Funds with over AU$100m combined revenue must publish a Modern Slavery Statement by 31 December 2020, describing the actions they took with respect to modern slavery risk in the preceding financial year.
Superannuation trustees need to specifically consider their fund’s investments as well as operations and supply chains. Trustees now need to map out their investment chain to identify modern slavery risk. In seeking to address these risks, trustees will need to first prioritise investments, operations and suppliers with the highest risks of modern slavery practices but let the extent of their leverage guide their response to those risks.
Whilst the new requirements do not technically apply to funds with less than AU$100m, it may be prudent for such funds to consider voluntary compliance from a reputational and competitive perspective.
In our experience, funds have been surprised by both the level of detail and the breadth required in their modern slavery risk assessment.
A typical fund may identify promotional items and merchandise (e.g. fund-branded pens and clothing) as a high-risk area, and may seek further assurances, or more reputable suppliers, for these items.
Likewise, a fund may identify specific equity or credit holdings within their investment portfolio with a high modern slavery risk. If those assets are managed internally, the fund would be expected to take steps to control the risk of modern slavery in that security. This could take many forms but might include engagement with the company in question, or in extreme cases, divestment.
If the asset were held by a third-party fund manager, the fund would need to set up a program to inform the manager of its expectations, monitor the manager and gauge how well the manager was addressing these risks. Activities taken by the investment manager to manage modern slavery risk would need to be reported to the trustee and the trustee would need to be satisfied with the actions taken by the manager. Contingencies need to be in place where the manager fails to act in line with trustee’s expectations.
Superannuation funds must lodge their annual Modern Slavery Statements with the Department of Home Affairs, who will publish the Statement on a central register that is accessible to the public.
This is the question funds must answer in their Modern Slavery Statement (to be lodged by December 2020 for most), because the statement is a ‘look-back’ document aimed at providing transparency on trustee’s actions in the preceding financial year. For this reason, trustees must act now.
Given the newness and complexity of the reporting requirements, funds must start preparing now. Key activities include planning, scoping, risk assessment, responding to risks, and reviewing your activities.
Mercer has already begun working with funds to help answer a number of the key questions that often arise when first looking at modern slavery and the Act’s reporting requirements, including:
Rather than seeing the Modern Slavery Act as an additional regulatory burden, we encourage businesses to engage with it as an opportunity to review policies, risk management processes and supply chain arrangements.
With Mercer’s global expertise in human rights and modern slavery from an investors perspective, we can rapidly assess your modern slavery risks and guide you through the practical steps, risk assessment and reporting requirements.
[1] The International Labour Organisation https://www.ilo.org/global/topics/forced-labour/lang--en/index.html
[2] The Global Slavery Index 2018, from https://www.globalslaveryindex.org/2018/findings/country-studies/australia/
[3] Antislavery.org
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