Australian procurement professionals could face challenges with the new modern slavery law because of confusing reporting methods and risk management frameworks.
The new law came into effect in December 2018, requiring all organisations with revenue in excess of $100m to prepare statements describing what they’ve done to identify and address slavery risks in their supply chains.
The first reports aren’t due until the end of the 2020 financial year – some eight months away – but Dr Leeora Black, principal of Deloitte Australia’s risk advisory division, told SM that companies had been highly active in coming to terms with the legislation.
She said the federal government had offered detailed draft guidelines about the information it wants businesses to disclose in modern slavery statements, but it had been far less prescriptive about the steps they should take to produce it.
Black believes this will promote innovation and lead to better outcomes from the legislation over the long term. However, it also means that businesses are facing challenges meeting some requirements.
The toughest of these, she said, was the law’s requirement that businesses “measure the effectiveness” of their actions. Black said it was hard for companies to know what success “actually looks like” when developing such metrics and that they might ultimately evade capture by using tested business evaluation models.
“The government doesn’t ask you to report on your success; it’s asking you to report on how you’re assessing your effectiveness, and that is a difficult question,” she added. “The problem with modern slavery is that, by nature, it’s a hidden problem and, if you don’t go looking for it, it probably won’t jump out at you.”
Black explained further: “So, is it a measure of success that you’ve found modern slavery in your supply chain and taken action to fix it? Or is it a measure of success that you haven’t found modern slavery in your supply chain? Or does that just mean that you haven’t looked hard enough?”
The problem was exacerbated, Black said, because key data that might indicate success or failure – such as International Labour Organization data – was more likely to be captured at country level than by individual businesses.
The next major challenge was the lack of a prescribed way to conduct modern slavery risk assessments. Black said it was possible a more consistent approach might develop over time but that, for now, businesses remained “on a steep learning curve”.
Deloitte explained that, while it currently had no ambitions to push for a standardised approach, it was advising procurement executives to use a method that examined at least three tiers of risk:
The first tier examines risk to procurements at a high level using data sources to evaluate the overall prevalence of slavery in supplier countries around the world.
The second tier examines product categories, recognising that the manufacture of some products is inherently more at risk of human rights abuse in certain countries; for example, electronic goods in China or textiles in India.
Thirdly, Deloitte is recommending that procurement professionals examine their degree of dependency on suppliers to identify those that need to be given the highest-level priority to resolve existential risk issues. The consultancy is also developing a fourth tier, however Dr Black said it was aimed at “sophisticated clients” with special reputation management needs.
For now she said businesses were still in the early stages of grappling with the legislation, focused on updating their supplier contracts and codes of conduct and building awareness among their suppliers.