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The Modern Slavery Act four years on: what's new for the ethical investor?

27 June 2019

Enacted in 2015 to some fanfare, the United Kingdom's Modern Slavery Act (MSA) established a new legislative standard for tackling one of the most perfidious aspects of globalised economic and labour systems. Complex international supply chains and the availability and ambition of workers across different social and employment contexts have allowed for sustained growth and prosperity in the post-Cold War era, expanding financial flexibility and creating new opportunities for market-led development. Yet, the same networks and technologies that have allowed for the increasingly efficient transfer of goods and capital around the planet have also opened up dark spaces for the trafficking of people; their coercion into illegal employment circumstances; and the abuse of their hopes for new horizons and desires for peace and economic security.

Looking to address these issues James Brokenshire, the then Under Secretary For Crime and Security who first introduced the bill to Parliament, said that the Act would:

"...send the strongest possible message to criminals that if you are involved in this disgusting trade in human beings, you will be arrested, you will be prosecuted, and you will be locked up".

Gaining worldwide approval, the Act has gone on to inspire similar legislation to be created in six other G20 countries, with Australia being the latest to adopt anti-Modern Slavery laws in 2018. However, four years on the implementation and provisions set forth in the Act have faced some criticism, and for the ethical investor the Act certainly falls someway short of establishing the transparency and accountability for businesses that can be required to adequately inform active investment decisions.


What the Modern Slavery Act Covers

The Act covers two main areas. First, it sets out a domestic agenda and a legal framework for the effective policing and prosecuting of cases of Modern Slavery in the United Kingdom. The Act has led to the exposure of human trafficking and slave labour abuses occurring in the country and has so far gone some way to revealing the true scale of the problem in Great Britain and North Ireland. However, despite improved reporting and the inclusion of a 'duty to notify' addenda to the legislation - meaning that every suspected case of Modern Slavery received by authorities is given some initial investigation and assessment to establish its validity and prospects for prosecution - the Government's own review of the Act's effectiveness paints a less than rosy picture.

In 2018, the Government restated that, although hard to accurately quantify, the number of potential victims of Modern Slavery in the United Kingdom is continuing to gradually increase from original estimates of between 10,000 and 13,000 potential victims in 2014. The number of reported cases is certainly increasing, from around 1,750 in 2014 to over 5,000 in 2017. Of those, almost half were related to allegations of labour exploitation and around a third to adult (around 20% of total cases) or child (around 10%) sexual exploitation. After initial assessment under the 'duty to notify' process, over 80% (around 4,100) of cases for 2017 received positive reviews and were so progressed to being investigated as crimes.

Modern Slavery cases can be shocking, sometimes involving continuous degradation, including physical and emotional abuse of the vulnerable and the desperate, that may have begun many thousands of miles away and many years before being reported. Investigations and the complicated processes of establishing witnesses and identifying culpable suspects across domestic and international networks can be lengthy. Significant lag-times exist in effective prosecutions, and despite the many thousands of cases of Modern Slavery that have been investigated since the Act came into law, only around 1,000 cases have been prosecuted, with around a third of prosecutions being unsuccessful. Civil society groups and NGOs have criticised the Act's emphasis on policing and processing, with little attention being given to victims and victim support, notably during the lengthy gaps between reporting and trial. Critics have also highlighted the lack of international reach of the legislation and poor conviction rates.

The second element of the Act, and perhaps that which may have more impact on ethical investment, is concerned with international business and its oversight of the risks of Modern Slavery in its supply chains. The threshold for businesses to comply with the legislation is very low: any company with operations in the United Kingdom and a global turnover of more than £36m, essentially all listed companies, is expected to provide regular statements in support of the recommendations of the Act. These recommendations essentially offer guidance on the content and publishing expectations of a company's Modern Slavery statement. This element of the Act was not included in its earlier versions but found its way in at a later stage, and had been modelled along the lines of the Transparency in Supply Chains Act set out by the California State legislature in the United States in 2010. As such, this part of the Act is not geared towards policing and prosecution, as is the domestic element.

Indeed, this part of the Act does not include any substantive policing elements. Companies are recommended to publish a statement annually, setting out internal policies for identifying the risks of Modern Slavery in its supply chain, and for training their staff in how to identify such risks. If a company fails to do so there is currently no legal or financial penalty. As such, the impact and utility of this element of the Act depends to a large extent on the volitions of the individual company. Done well, a comprehensive Modern Slavery statement can highlight a company's commitment to transparency and oversight of its supply chain operations and those of its partners, potentially improving the labour and human right outcomes for thousands of direct and indirect employees across many nations. Done poorly, the Modern Slavery statement does little to highlight the impacts and mitigation strategies of companies that could potentially have extensive supply chain footprints.


Future Developments

Encouragingly, there is evidence that this unmonitored part of the Act may be amended in the near future. In early 2019, an independent review of the Modern Slavery Act focused specifically on the elements that relate to international supply chains. The review made several observations and noted that:

  • it was not always clear which companies need to comply with the Act;
  • recommendations for statements are vague and allowed companies to dictate content; and
  • there exists no effective sanction for companies that do not comply.

Among a series of recommendations for amendments, the review proposed that the content of company statements "must", rather than "may", contain certain information, and that a system of sanctions for companies that repeatedly fail to comply should be instigated, with fines levied being put towards funding domestic policing.

As part of our screening and engagement processes, Ethical Screening has observed many of the reviews' findings, and would endorse all of its recommendations. Companies, notably international companies with limited operations in the United Kingdom, often do not recognise the need to comply with the Act, but after prompting have been willing to update and publish compliant statements. Support for the Act and its objectives are evident in the business community, but the open wording of the Act and the lack of effective, centralised, monitoring for compliance means that companies often do not take compliance into serious consideration.


Conclusions

With further amendments, effective dissemination, clear frameworks for compliance and sanctions for repeated failures to do so, the Modern Slavery Act can offer real insight into a company's approach to supply chain management and provide a space for companies to share and digest best practice. What's more, the Act can support improvements in transparency and the accessibility of reporting on supply chain relations, helping investors and consumers to influence the trajectory of business culture towards a greater support of human and labour rights, improving the lives and wellbeing of victims today as well as the culture of globalised business tomorrow.


Jim Blackstock - Researcher

27/06/2019


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