The construction, real estate and development industries are about to come under renewed scrutiny in relation to their supply chain due diligence and labour practices.
On 16 August 2017, the Minister for Justice Michael Keenan announced that the Federal Government proposes to introduce legislation to require large businesses to report annually on their actions to address modern slavery. This announcement reinforces Australia’s commitment to having one of the strongest responses to modern slavery in the world.
It is currently proposed that businesses with revenue of more than $100m will be required to report annually on their efforts to identify and stop modern slavery in their operations and supply chains.
Many Australian construction, real estate and development businesses may be unaware of the slavery risk in their business or supply chains. For these key risk industries, statistics reflect a low level of awareness of the modern slavery risk, both domestically and overseas.
Here, we outline what the reporting requirement is likely to involve and how Australian businesses in the sector can prepare. But first, we take a look at the statistics and some examples of keys risks in the sector.
Did you know…
- in excess of 40 million people globally are subject to some form of modern slavery, the construction and real estate industry employs approximately 7 per cent of the global workforce;
- the construction and real estate industries are some of the most vulnerable sectors to modern day slavery (caused by strict deadlines, high demand for low-skilled, manual, low-waged or migrant workers on temporary visa and lack of education);
- in the Asia Pacific region alone the infrastructure market is expected to grow by 7–8 per cent a year over the next decade approaching $5.36 trillion annually by 2025, and along with it the US$150 billion per year generated from forced labour will likely grow too, if not addressed;
- growing economies through South East Asia have created a strong demand for infrastructure projects, building and construction materials and services, and in turn Australian development and construction business are increasingly leveraging their exposure to the Asian markets;
- many of the materials used in the construction industry are high risk for slavery in their manufacture, including bricks, timber and rubber produced with forced labour and/or child labour in India, China and Brazil;
- according to a 2016 study by Achilles Group, 39 per cent of construction businesses across the globe do not have a plan in place to find out who is in their supply chain.
What is modern slavery?
At its broadest, the term 'modern slavery' incorporates any situation of exploitation where a person cannot refuse or leave work because of threats, violence, coercion, abuse of power or deception. It includes slavery, servitude, forced labour, debt bondage, and deceptive recruiting for labour or services.
The Australian Government proposes that for the purpose of the reporting requirement, modern slavery will be defined to incorporate conduct that would constitute a relevant offence under existing human trafficking, slavery and slavery-like offence provisions set out in divisions 270 and 271 of the Commonwealth Criminal Code. However, the exact scope of 'modern slavery' is still the subject of consultation and it remains unclear whether the definition of 'modern slavery' will go beyond the Criminal Code offences
How will a Modern Slavery Act affect your business?
Given bipartisan support for a Modern Slavery Act, Australia is likely to have a reporting requirement relating to modern slavery that could be in place as early as 2018. The likelihood is that the new Australian regime will be similar in many respects to the UK regime.
The current proposal would require businesses to address the following matters in their statements:
- the entity’s structure, its operations and its supply chains;
- the modern slavery risks present in the entity’s operations and supply chains;
- the entity’s policies and process to address modern slavery in its operations and supply chains and their effectiveness (such as codes of conduct, supplier contract terms and training for staff); and
- the entity’s due diligence processes relating to modern slavery in its operations and supply chains and their effectiveness.
The Joint Standing Committee on Foreign Affairs, Defence and Trade, which is responsible for the ongoing Inquiry into establishing a Modern Slavery Act in Australia, has given its in principle support for the Australian Government to publish a list of businesses obliged to report and a list of businesses that fail to report. A publicly accessible central repository for published statements is also proposed.
Australian businesses ought to expect that there will be significant public criticism of those businesses that do not comply with their reporting obligations and that statements, once published, will be subject to intense public scrutiny, as has been the case in the UK.
The existence of a central repository of statements will facilitate the monitoring and review of statements. It is also likely to assist businesses, consumers and other stakeholders to understand the steps being taken by businesses to eradicate modern slavery in their operations and supply chains and take more effective steps to address the underlying issues.
What’s your risk?
Every business caught by the regime will need to assess its modern slavery risks in order to prepare a statement. This will need to be an ongoing process and should incorporate an assessment of sector, jurisdictional and entity specific risks.
From an industry perspective, there is a high risk that businesses in the construction, real estate and development sectors have modern slavery in their operations or supply chains (see stats above), particularly where construction occurs in emerging economies. Those risks are in addition to the risks that all businesses face in sourcing products and services globally.
So, what should you do?
If they have not already done so, larger businesses operating in the construction, real estate and development industries should consider taking the following steps:
- mapping the organisation’s structure, businesses and supply chains;
- formulating policies in relation to modern slavery – this will involve collating current policies, identifying gaps, adapting existing policies and formulating new policies, as needed;
- carrying out a risk assessment – identifying those parts of the business operations and supply chains where there is a risk of modern slavery taking place;
- assessing and managing 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;
- considering and establishing 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;
- carrying out remedial steps where modern slavery is identified; and
- developing training for staff on modern slavery risks and impacts.
Additionally, Australian construction, real estate and development businesses should bear in mind that apart from the introduction of new government regulation, there are many other good reasons for taking these steps, particularly at a time when businesses are facing renewed public pressure to operate sustainably and ethically.
By undertaking these steps, businesses will be well placed to respond effectively to new regulations and show that they are committed to eradicating modern slavery, in Australia and overseas, and taking concrete steps to achieve that objective.
Norton Rose Fulbright is a global law firm with offices in more than 50 cities worldwide, including London, Houston, New York, Toronto, Mexico City, Bangkok, Beijing, Shanghai, Hong Kong, Sydney and Johannesburg. We have experience in Australia and globally assisting clients with modern slavery risk management and reporting, as well as broader business and human rights advice. We made a submission to the Inquiry (No. 72) and participated in the public hearing held in Sydney on 23 June 2017.
For more information, contact Abigail McGregor or JP Wood to discuss how modern slavery legislation may impact on your business and ways to manage your supply chain risks.