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Modern Slavery Act, part one | S2 EP8

Disputed - Discussions to keep your business risk-ready

July 13, 2022
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Forty million. That is the estimated number of people trapped in modern slavery, with supply chains being a key risk area. Modern slavery laws have grown across the world: first California, then the UK, Europe and Australia. Canada’s new law is imminent. Part one of this series looks at the international picture: what key trends are emerging in the UK, Europe and Australia? How can we manage compliance with multiple legal regimes? And how to balance the need for transparency with civil liability? In part one, we talk to Abi McGregor, Partner in our Melbourne office and Stuart Neely, Counsel in our London office to better understand the global landscape. 

This episode qualifies for 45 minutes of CPD credit in Ontario and 45 minutes of CPD credit in British Columbia.

 


 
Modern Slavery Act | S2 EP8

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Transcript:
Andrew McCoomb  00:10
Welcome to Disputed, a Norton Rose Fulbright podcast. This is the first of our two-part series on modern slavery.

Ailsa Bloomer  00:17
40 million people are estimated to be trapped in modern slavery today, whether that is enforced, bonded or child labour, human trafficking or even forced marriage. Modern slavery takes many different forms and it's insidious nature makes it hard to spot.

Andrew McCoomb  00:33
Over the past decade, we've seen modern slavery laws introduced across the world to target human rights abuses and supply chains. First was California, then the United Kingdom, followed by certain European countries and Australia. Now Canada's draft bill is under consideration in the House of Commons.

Ailsa Bloomer  00:49
So we have split this topic into two episodes, with the second episode looking at Canada's law, but we spent this episode looking at the international landscape. There are two reasons why we did this. Firstly, not only has the Canadian bill been informed by these other statutory regimes but, as we heard in a previous episode, supply chain issues and modern slavery risks are not confined to state lines. Modern slavery is international and the laws intended to combat it are constantly evolving. So, how do businesses manage this continuous trend of tightening modern slavery laws across multiple jurisdictions? What civil liability risks are presented by your modern slavery statement? And how do businesses balance the need for transparent and open discussion about their supply chain risks with the threat of liability?

Andrew McCoomb  01:34
This was a really great conversation with two of our lawyers who are highly recognized for their work in international business and human rights. Abi McGregor is a disputes partner in Melbourne and she advises clients on managing operational risk and corporate reporting across many industries, including financial institutions, agribusiness, construction, and government. Stuart Neely is a disputes counsel in our London office advising on due diligence, investigations and risk management. Stuart authored the UK country report for the recent European Commission study on supply chain due diligence. 

Andrew McCoomb  2:19
Okay, Abigail, Stuart, welcome to the podcast. Thanks very much for being here.

Abi McGregor  02:24
Thank you. 

Stuart Neely  02:25
Pleasure to be with you.

Ailsa Bloomer  02:28
I think we want to start by setting the scene here. So can we explain what we mean when we talk about modern slavery risk?

Stuart Neely  02:35
So, it's a bit of an umbrella term and how it's defined differs from statute to statute. But really what we're talking about is slavery, servitude, forced labour and human trafficking. So it also covers the worst forms of child labour. And, a common question is well, when you're looking at each of those terms, what the difference, say between slavery and forced labour? The answer is, it's a spectrum. And slavery is certainly the most egregious. 

It's where someone, Person A, purports to own Person B, who provides work in those circumstances, and they are unable to leave because Person A owns Person B. The difference then arises between, say slavery and forced labour, which is more where someone is not devotedly owned by somebody else, but nonetheless, they're not able to leave the working conditions they're in because the work that they're given is effectively provided under compulsion and-- and therefore, it's not freely given. Now, sometimes it's easy to spot what you might think is forced labour or compulsory labour and-- and there are a number of examples where there is state sponsored forced labour, where individuals are effectively conscripted to, for example, work in mines or-- or other conditions, which are harsh. But on the other end of the spectrum, we've worked on a number of matters, Abi and I together, where potential forced labour arises in circumstances you might not expect and-- and one of the examples that comes to mind would be, for example, if workers are required to pay for their training costs, which may in the context of what the workers are paid, may be disproportionately high. 

And another example which is-- which is quite often in the media is recruitment fees, where people are actually having to pay to work. And that's quite common with migrant workers. And the net effect is because of those amounts that people have to pay off, whether it's their recruitment fees or whether it's the training costs or the cost of the training, they're effectively not able to leave their employment.

Abi McGregor  04:50
So I have two things, one of which is that in Australia, forced marriage is part of the definition of modern slavery. But also that I find it really useful to get above all the terms and just think that if this person considers themselves not to be free to leave their employment, they're in a position of modern slavery. And-- and we speak to a lot of clients about trying to stop thinking of it as someone in shackles because the imagery of that is really not helpful. Because there are right now an estimated 40 million people in the world who are modern slaves, and it's more than any time in history. And I think there's a perception that at the end of the American slave trade, the whole slavery thing was done and resolved. And-- and it just doesn't look like that anymore.

Ailsa Bloomer  05:41
And so when we talk about modern slavery risk then for businesses, presumably this is a risk of those activities taking place in your supply chain. For some industries, the modern slavery risk might be more obvious than in others. So for example, the food industry or retail clothing, it might be easier to identify a modern slavery risk. But, can you talk about some industries, particularly service industries, perhaps even financial sector or insurance, where the modern slavery risk might be less obvious?

Stuart Neely  06:14
It's quite interesting to see the evolution of how financial institutions have been seeing one slavery issues, and human rights issues more generally. I think if-- if we were having this conversation, say 10 years ago or-- or 15 years ago, we'd be talking about project finance principally and how banks when they finance projects in various parts of the world, there's a risk that, for example, in the context of those projects, modern slavery may be used in the course of the construction of the project. More recently, it's been recognized that all aspects of-- of financial services, or almost all of them, can potentially raise human rights issues and that includes modern slavery. 

So to pick up on a-- a good example, if you look at retail banking or small commercial banking, the risks that banks face in-- in all jurisdictions is that branches may face a risk that people who have been trafficked then all open bank accounts where those bank accounts are-- are effectively controlled by the people who are exploiting those people who are being abused. And, a number of banks have done fantastic work to identify red flags of modern slavery. 

So for example, do you have 20 people all coming into the same branch on the same day registering for a bank account at the same address? Why is that? Is-- is that potentially indicative of modern slavery and similarly, looking at spending patterns. So if you have a number of transactions which all bear the same characteristics, which suggests that, for example, there are particularly high food orders.  Looking at that-- the-- the activity within that account, there's lots of cash coming in and-- and the nature of the expenditure going out is potentially indicative that the people who owed the-- the funds pertain to modern slavery.

Similarly, general business lending, there has been a recognition that not just in the context of project finance, as I said, but also general business loans, banks may be potentially contributing to human rights issues through lending to certain businesses where there is a higher risk of modern slavery. And that has led the leading banks to look at how, for example, they incorporate human rights considerations into their lending agreements more broadly.

Andrew McCoomb  08:42
So, we're going to talk more about legislative development in the area and, I mean, obviously, modern slavery isn't new. But it is an area that's drawing a lot of attention. What has happened to-- to draw focus to this issue for legislators, for regulators, for people in business, for people practicing law?

Abi McGregor  09:02
So I think that's a really good question, where-- where is it? Where did it start? And why now are we at the point where it's-- it's starting to get a critical mass? So it's started really with California. That was the first step. And then the UK adopted a-- a Modern Slavery Act. And then from an Australian perspective, following the UK adopting the Modern Slavery Act, there was a joint parliamentary inquiry about whether or not Australia should have one. It was overwhelmingly embraced by business. Business wanted this. They wanted an even playing field so that they were competing with those that were doing already work in this space. But it was also because business is very conscious of being ethical now in a way that 20 years ago, wasn't really a core driver. So the kinds of things we see in relation to environmental responsibility, human rights is that-- that same path, and it was overwhelmingly embraced. There were very few people who thought the Modern Slavery Act in Australia wasn't a good idea.

Andrew McCoomb  10:13
I imagine there's a-- a component to this that's also about certainty for industry knowing that, yes, this is a risk out there and-- and we have to do something about it, but also wanting to have some direction on what compliance can look like to make sure that when-- when people come knocking, you can point to steps you made on a-- a yardstick to explain what you've done.

Stuart Neely  10:36
I think that's quite right. And-- and actually, you've-- you’ve highlighted there, Andrew, one of the key points, which-- which Abi's also picked up on there, which is that the way that legislation has developed in this area has been quite piecemeal. And, although there are some areas in the human rights context that are very well regulated, and-- and perhaps we don't even recognize them as human rights issues, but they certainly are - things like health and safety law or employment law. 

For a number of decades, businesses have been responding to those laws, and they understand the importance of clear expectations. What we haven't-- the broader human rights area, is that there's somewhat of a governance gap in that we have global business and there's a broad recognition that global trade and global investment has been positive. But equally, there's a risk that with companies investing and trading with and having supply chains which reach into all parts of the world, that leads to interactions and business dealings in jurisdictions where there are poor human rights records. 

And that gives rise to this governance gap where there is a risk that as a business, as a global group, you are potentially operating at a lower legislative standard in certain parts of the world than you are in others. And therein lies a great reputational risk for businesses, but also an operational risk. It's-- it’s well documented that, for example, in the context of-- of projects, that if companies lose their social license to operate, then that will lead to various issues which will actually hamper the ability of the business to derive value from an asset. Say, for example, where mines have closed down because of community protests. 

So actually, as Abi says, there is that recognition in business that, ultimately, because these issues can be so reputationally damaging, many businesses were already taking these steps to identify and mitigate the human rights impacts. So when the UK Modern Slavery Act was proposed, for example, it's widely recognized that it was business that convinced government that section 54 of the Modern Slavery Act in the UK, which is the one which requires businesses to disclose the measures they're taking to address modern slavery, was necessary. And in the first draft of the modern slavery bill, there was no such modern slavery reporting requirement. So, it was really business that-- that lobbied in favor of that.

Ailsa Bloomer  13:01
That’s interesting. So, on-- on that point then, you mentioned the UK Modern Slavery Act and Abigail, you mentioned the Australian legislation too. And I think we're getting into territory now where we're starting to talk about different legal regimes in different jurisdictions that multinational companies are trying to manage. So, to start at the beginning of that point then, modern slavery laws have obviously been enforced in various European jurisdictions now and Australia for a few years, like, can you just give us an overview of some of these laws and the kind of key elements of them.

Abi McGregor  13:31
Maybe Stuart, I'll do Australia and then you can take Europe because you might be a while. So, in Australia we have a-- a mandatory reporting criteria annual report for businesses that carry on business in Australia with a consolidated revenue of $100 million dollars or more annually. 

So, really the-- the most significant part of it is that the mandatory criteria require businesses just to describe their risk. And then to describe the actions that they've taken to respond to that. So that has driven a lot of corporate behaviour because you have to go and assess your risk properly, because otherwise your statement will be misleading. 

You have to have reasonable grounds to express an opinion in relation to where your risk is. And then once you've done that, no one wants to have done nothing. Because of the need to describe risk and the need to describe what you've done, it actually has driven quite a lot of behaviour. We don't have any penalties. But if you write a statement that's misleading there, then it constitutes engaging in misleading or deceptive conduct under the Australian Consumer Law and that is a penalty, but the failure to report is not a penalty. 

We are however, reviewing the Act at the moment. So there was a decision made to review it after three years and that's in the statute. So it has been more than three years but COVID kind of-- there was slowed-- slowed us up a little bit. 

So there will be-- everything will be back on the table in relation to whether or not penalties are needed, whether or not they need to reduce the threshold for having to report and learning from all of the other jurisdictions. I think they want to keep up with the developments in Europe, which Stuart will cover so maybe I’ll throw it to him.

Stuart Neely  15:24
Thanks, Abi and-- and maybe I'll start by talking about the UK and then I'll talk about Europe more generally. But certainly the UK Modern Slavery Act is a-- a law which resembles the Australian Modern Slavery Act in some respects, but-- but differs in others. So the UK Modern Slavery Act applies to businesses that are carrying on a part of their business in the UK, which supply goods or services and have a turnover in excess of 36 million pounds. 

The requirement of section 54, which is the-- the disclosure requirement is that businesses publish, on an annual basis, the steps that they have taken during the financial year to address the risk of modern slavery occurring in their business and their supply chains. The law is now seen as slightly out of date and the independent review of the Modern Slavery Act, which was published in 2019, made a number of recommendations that the UK Modern Slavery Act should be strengthened. 

And part of that was looking across at the Australian Modern Slavery Act, which became law three years later than the UK Act, and-- and identify where the Australian Act was-- was stronger because the Australian legislators had the benefit of seeing how the-- the UK law was already being criticized because the UK law came into force in 2015 and the Australian law came into force in 2018. So by that point, it had become clear that the UK law probably needed to be strengthened in some respects. So, one of the key recommendations was that the reporting requirements should become mandatory, which would bring it into line with the Australian law. 

Sure enough, the UK Government has committed to strengthening the UK Modern Slavery Act to implement that recommendation. The-- the government has also committed to introducing fines for non-compliance, though the nature of those fines and-- and-- and how they will apply is currently unclear. Looking more broadly at-- at Europe generally, there are two types of laws which have emerged. One, is reporting-style laws and-- and that's where I would put the UK Modern Slavery Act. It's a requirement that businesses disclose to their stakeholders what steps they've been taking to address modern slavery risks. The other type of law is a mandatory due diligence requirement and this is certainly very much now in vogue. And that type of law is different because it actually requires businesses not just to report on what they're doing, but to actively take steps to identify and then prevent or mitigate the human rights impact, and then report publicly on what they're doing. 

These laws really draw strongly from the UN Guiding Principles on Business and Human Rights, which is the authoritative international soft law document in this area. In 2018, France published a law called the Duty of Vigilance law that requires the largest French companies to design and implement a Duty of Vigilance plan, which involves the steps of identifying and preventing human rights risks arising from the company's operations, its subsidiaries and also suppliers with whom it has a direct contractual relationship. 

That was the first real business and human rights law that required businesses to undertake human rights due diligence. And that has since been followed by a-- a range of other laws, which are now coming into force. We have in Germany, the German Supply Chains Act, which will apply from the first of January 2023. 

And again, that law requires German companies or companies with a German branch to exercise due diligence to mitigate the human rights risks arising in the business and also the supply chain. There are a few other laws which I-- which I won't go into detail with. But by far the most important law which I'll-- which I'll conclude on, is a proposal from the European Commission, which was tabled on the 23rd of February this year, which will require businesses to undertake human rights and environmental due diligence extending to their subsidiaries and their value chains. 

So that would not just be suppliers, but also customers, and-- and that law is likely to take some time to pass through the EU legislative process, but once it becomes law will likely be the high watermark of laws in this area. In terms of requiring businesses to undertake human rights due diligence.

Ailsa Bloomer  20:04
You mentioned that the legislation is going to extend to customers. Can you just explain how that-- how that would work in practice?

Stuart Neely  20:14
Sure. I think, as a-- as an opening point, in response to that, I'd flag that the law, as currently drafted, would be potentially subject to change and the provisions are particularly onerous. And-- and-- and therefore, it-- it remains to be seen exactly what businesses would be required to do in terms of the mitigation steps that they put in place once they've identified a potential human rights impact. Looking at customers, possible examples of-- of where a human rights impact might arise for a business in the context of the customers. 

You have, for example, what Abi and I were talking about previously with financial institutions dealing with clients and transactions which present a human rights risk. Similarly, technology companies face particularly acute human rights issues depending on the nature of the technology that they sell where, for example, the technology empowers customers to-- to exercise surveillance which may have for example, impact on individuals, family lives with the right to privacy, or indeed in the case of, say repressive regimes, even the right to life. 

The directive has embedded within it an-- an envisaged standard of reasonableness and-- and-- and that is apparent in the context of indirect contractual relationships. So it appears that the obligation to mitigate or prevent a human rights impact is-- is higher where you have a direct contractual relationship. 

And the assumption there is that because your leverage is greater. By contrast, where there is an indirect contractual relationship, the draft directive references contractual cascading, if it's reasonable to rely on contractual provisions, i.e. if you have a contractual provision in place with your customer, and they in turn have a contractual provision in place with their customer, then it may be appropriate to simply rely on those contractual provisions to just to discharge the duty. 

But that is subject to reasonableness. And the implication there is in not all situations may it be reasonable to simply rely on contractual clauses. And-- and clearly, the contractual obligations in-- in-- in many cases would need to actually be monitored and implemented. And--- and-- and so, much remains to be seen. 

But I think the point you're raising there is-- is-- is quite right, that at this stage, it's not quite clear exactly what might be required. What is clear, is that the directive envisages that a corrective action plan would be, for example, one measure which may be put in place if a human rights issue is identified.

Abi McGregor  22:59
I think one of the things that's important about this is although customers sounds difficult, it is part of the UN Guiding Principles that you don't only look at your supply chain and your operations, you-- you can impact in other ways. 

So to some degree, this European draft directive does reflect those concepts in the UN Guiding Principles. So it's obviously very difficult if you're a supermarket and you're selling to people. You're obviously not going to do due diligence in relation to everyone who walks through the supermarket. 

But there are businesses who know that there is risk that what they are supplying will be used in a particular way that could impact human rights. And I think that's really what this is intended to deal with. So that to make sure that-- that businesses have done that assessment, worked out if they can be linked to human rights impacts, or in the case of modern slavery, modern slavery, as a result of who's acquiring the goods and services that they supplied.

Andrew McCoomb  24:03
So, it's a very helpful summary of sort of the legal principles that the legislation is intending to address. And the words I was pulling out of your answers - diligence, vigilance, mitigation - can you put those in practical terms for what your clients are doing to act on those requirements? What-- what does it look like when they're fulfilling these obligations?

Abi McGregor  24:27
So, we have a standard process that we work through with most clients who are starting at basically zero, and they start with a commitment at the beginning. So we're committed to respecting human rights. And then there has to cascade down through the organization. So, you look at all your other policies and procedures. 

So what do we have in place to ensure that when we recruit people they're working at their own free will? What do we have in place to make sure we've embedded the concept of mapping and understanding our supply chain when we’re selecting suppliers. So, they've looked at that too. So, you can't do this without understanding your suppliers well enough. So one of the things that inevitably has to be done, is that you need to understand your suppliers more than you have before. So, where does their supplier originate from? 

And mostly, we don't know that question because we buy from a local company and it doesn't really matter to us. They just supply me with, you know, this product and I don't really know where it was manufactured. So there's a lot of work being done in relation to understanding your supply chain better. There's a lot of working on requests for tender, what information do you really want to see? And then when you have it, how do you teach procurement? How to look at that information? How do they take it into the procurement process? And then contract terms and the process of managing throughout the supplier lifecycle. So it's not just an engagement decision, it's about how do I start if I keep going with the supplier, etc. and it's really a continual review. 

There are lots of different stages. So whistleblowing processes are really important. So, how do you make whistleblowing processes available to your suppliers’ employees, but that is increasingly important in particular industries. So for instance, mining or construction, where what you'll have is a lot of sub-contractors. 

And if there's an issue with the plasters who have come, who you haven't been able to come-- communicate with because they're from the Philippines, how will you find out if actually they're trafficked unless you've got a-- you provide a way for those people to communicate? So that whole worker voice is really an important part of the development and particularly where suppliers do only supply to you. 

So there might also be manufacturing, it might be you, you're selling t-shirts and they're being manufactured somewhere. How do you go and try to find out what's happening there? And so whistleblowing is a really good way of doing that.

Ailsa Bloomer  27:15
Is there, I mean, at the risk of sounding a bit gratuitous, perhaps. But why is it important to involve a lawyer in the processes that our business is going through that you've just outlined?

Abi McGregor  27:27
So I think there's lots of reasons about that. I think right at the very top is that human rights is international law. So lawyers assist in relation to law. But apart from that, in-- in much the same way as if you were looking at bribery and corruption and appropriate compliance programs to have in place to respond to risk, you speak to your lawyer about what would be adequate for that. 

Otherwise, it's really, really important to make sure that the corporate reporting you're doing in this space is not misleading. So "greenwashing", which has taken the globe as a concept that everyone's very worried about, this is the same issue. 

Whereas don't say, I mean, I've seen a lot of reports, and some of them say things like ‘we take human rights into consideration in everything we do’. And that's just not true. So, you-- you really need to be very careful when you're describing what it is. Once you've got a regime that says you must describe your risk and you-- then you must describe what you do, you need to make sure it's accurate. And so we do a lot of work in-- in that regard, too, because we don't want to end up in a situation where clients are being sued in relation to what they've said.

Stuart Neely  28:36
Yes, I totally agree. And certainly, one of the key changes and-- and why this modern slavery legislation has made sure that these issues have now become a board level issue, or that it engages the directors duties. So for some time, companies have been signing up to voluntary standards, which pertain to human rights issues. 

And a very good example of that, and it is only one example is the UN Global Compact. And there was some criticism of the UN Global Compact, where companies sign up to the Global Compact, and then publish sustainability reports annually, was that actually that was “blue washing”. And that was the term used before "greenwashing" Even and that was blue because the United Nations colour is blue. 

What this legislation, which requires companies to do, in terms of publishing these statements, is they require the boards of companies to approve the statements and directors to then sign those statements. What that does, is it engages directors duties. So, for example, the duty on directors to act with reasonable care, skill and diligence, and the duty of directors to act in the best interest of the company for the benefit of the members as a whole, but also taking into account the interests of other stakeholders and considerations including human rights and the environment. 

And-- and that's how-- now in the United States there have been a number of claims against companies for purported misleading statements about their human rights performance. And in particular, for example, in the context of the cocoa industry supply chain. A number of those claims, or most of those claims, have actually failed because the statements that have been published by companies have been aspirational. And I think the claims that have succeeded were claims where companies have confirmed that they have taken certain steps. 

And-- and-- and that's why Abi’s point is so important about making sure that the company's modern slavery statements and indeed the other statements that they publish in the area of human rights and ESG more generally, are accurate. 

More broadly, what companies say about what they're doing from a human rights perspective, and that would include what they publish on their modern slavery statements, can feature in litigation which includes claims by rights holders, for example, in the form of group actions, or class actions, where claimants allege that certain steps that a company has taken or failed to take has resulted in the claimants suffering harm. 

And this is a feature of, for example, parent company liability claims, which I know has been covered on a previous one of your podcasts. In the UK, what we've seen is that, where companies have published statements, that claimants are in the disclosure process, saying you have signed up to these voluntary standards, you say that you respect human rights. 

Now, in disclosure, which is-- is-- is discovery, of course in North America, show us what steps you've taken to implement those standards, which you've signed up to. And that point would apply equally to modern slavery statements. 

So-- so for example, in the English courts, in the context of a claim against a company arising from alleged abuses by security forces engaged by the company, the judge found that the company's commitment to adhere to the voluntary principles and security and human rights had to be more than lip service, and therefore the claimants’ application for disclosure of all the materials, proving that the company had taken steps to adhere to the voluntary principles and security and human rights was allowed, and therefore that was accessible by the claimants. And that-- that principle really also applies to modern slavery statements.

Ailsa Bloomer  32:24
Wow. So you-- you can be in a situation where you could be compelled to disclose all the material, the due diligence steps that you say you've taken behind your statement, right? That’s so-- in-- yeah. 

Andrew McCoomb  32:37
It's interesting. We talked about that in our parent company liability episode and I think a couple of other episodes that we've done, but-- and-- and-- and this idea that litigation can be brought for purposes outside of seeking damages. Litigation can be brought to bring companies or people to account for wrongdoing in ways that aren't just providing a damages award to people who feel like they've been wronged or suffered some-- some damage. 

And you can-- you can anticipate-- I-- I-- I was speaking to a lawyer from California on a file last week, and we were talking about comparative differences in our disclosure regimes. In Canada, most jurisdictions have a deemed undertaking of confidentiality such that when things get disclosed in-- in depositions and discovery that they're not-- they're not publicly available, this is a function of the fact that they've been disclosed. But that's not the case in other jurisdictions, and my understanding is that's not the case in a place like California. 

So what gets disclosed in discovery can become public, and it can be held against you in the court of public opinion. So it creates interesting strategic dynamics for how these-- these pieces of litigation could develop, even if there aren't necessarily breaches that give rise to some obvious monetary penalty. Let me ask you this. Where do you guys see the next sort of frontier, the next major developments of-- of legislature here in this space?

Abi McGregor  34:00
One of the other things that I think is really important to anticipate is that securities regulators are going to care about the accuracy of the things. So we're seeing that already in relation to environmental issues that disclosures in relation to climate, etc, and do you have the science behind what you're saying. Because as soon as the market h, and the consumers care about what's being said, then the regulators start to care about whether or not what you're saying is accurate and the investors are caring. 

So I think that that-- that it is the next issue after everyone settles down a bit of about-- about "greenwashing," this one is next after that. In relation to developments from a regulation point of view, after the EU, which I think is going to be absolutely seminal in relation to this area because there are, if you're a large company, you operate somewhere in the EU, so it's going to start driving how corporations deal with this. 

We know that Canada has a draft piece of legislation, New Zealand has a draft piece of legislation. It's taken to the point where it's-- there are more jurisdictions that have a-- a regulatory regime around this, than not. There's been a bit of dynamic in Australia where-- where we've had global institutions and they've been needing to report and Australia, it's a bit of a the tail wagging the dog situation where you report to the mothership and the mothership says, well, how can this possibly be that we need to report in relation to our supply chains and how we do things around the globe, just in relation to Australia, that can't be true. 

And I think we will get to the point where everyone's having to report everywhere, reports are going to become global in nature. So you don't need to have 12 different reports, one for each jurisdiction, I think we should really be trying to get to the point where it's more meaningful, and there's less box ticking. And you know, having to have a report for each jurisdiction, that's not useful. That’s just a whole lot of people pushing paper around.

Stuart Neely  35:58
I totally agree with that point. And one of the things that Abi and I see frequently, if not, in all cases, is that where you have one subsidiary within a corporate group, that's reply-- that's required to comply with a specific piece of legislation. Quite often, the group will dictate how that law is responded to. 

And so, for example, whilst it will only be perhaps, that the entity which is specifically caught by the modern slavery law or the German Supply Chains Act, or the French Duty of Vigilance law, if there's companies hire up the corporate structure chart, they will not want to make sure that that subsidiary is the only entity in the group which is undertaking human rights due diligence and having a human rights policy and implementing human rights training. 

So actually, what you're seeing is through the backdoor lots of companies at a group level, implementing human rights measures on a voluntary basis. And then determining whether or not the group wants to report as one, or whether the entity within the group, which is caught by the law publishes its own statement. So actually, as these laws develop, you'll see more and more that companies are taking a group-wide approach to these issues. 

I would just pick up a few additional points. In the procurement context, you're seeing governments taking greater measures to restrict companies from participating in public tenders where they are implicated in human rights issues. And most notably, just last month, the UK government included in a new piece of legislation the requirement that the Secretary of State will pass regulations to prevent the National Health Service from procuring goods or services which are tainted by modern slavery. And I think that shows that not just regulator activity, but also other forms of enforcement will continue to develop which will encourage businesses to-- to proactively develop their human rights procedures.

Ailsa Bloomer  37:59
I think the public procurement point that you just touched on there with the NHS is a really interesting trend because I think that's a recent change in Canada's bill as the introduction of the Act applying to government institutions. Will we increasingly see application of this legislation in a public sector context? Are these laws going in that direction?

Abi McGregor  38:20
So I think that it's not just the laws, it's also the practice. So in Australia, the Commonwealth Government has to report as well, but the New South Wales government, which is the state that Sydney sits in, has an obligation to engage in reasonable endeavors to prevent there being modern slavery in their supply chain. 

So that means if you deal with a state government department in New South Wales, they absolutely have to ask you. But as a matter of practice, I've been in negotiations where it's not just that there's a contract term, they want to see all of your documents, I want to see your human rights policy, I want to see your supplier code of conduct, I want to see the contract terms you're going to use on my-- on my project. 

And then I want to understand how you're going to implement it. Government has a massive amount of power here. And to-- they’re-- they’re such large acquirors of goods and services in nearly all the countries in the world, which means that once they've decided to adopt it, it really starts driving behaviour because everyone wants the construction job with the government. And as a result of that, everyone needs to respond to what the government wants. And so I think that the government has a really important role to play in each of the jurisdictions.

Stuart Neely  39:42
And-- and they are under significant pressure to do so. Certainly here in the UK, the same position applies that UK government bodies-- public bodies are required to publish modern slavery statements. And one of the things that we have noticed in the UK is that while the UK was the very first country to publish a national action plan on implementing the UN Guiding Principles on Business and Human Rights, that was back in 2013, which referenced public procurement as being a key lever in terms of encouraging responsible business conduct, relatively little was done. And so, the UK Government has increasingly been accused of hypocrisy in terms of its purchasing decisions. And I think you can now see the response to that in terms of this recent legislative change around the NHS.

Ailsa Bloomer  40:30
To some extent, businesses need to be able to have transparent, open conversations and when they've identified issues in their supply chain, there needs to be almost a safe space to talk about the issues that they've discovered. 

My point is, how do we get past this, you know, the need to have an open discussion about big issues in supply chains to move forward. And at the same time, the risks of civil liability if you are public about issues that you've uncovered?

Stuart Neely  40:57
I think it's a very good point. Certainly in the context of these draft due diligence laws and human rights reporting laws, one criticism that has been levied at the consultation processes is that there hasn't been enough engagement with stakeholders from lesser developed jurisdictions that may face a situation where transnational groups look to de-risk and therefore look to invest in jurisdictions which presents a lower ESG risk because the liability risks of investing in certain jurisdictions are too high. That may, for example, lead to companies saying why should I get my lithium from the DRC, where the risks of child labour are so high, when I can perhaps get it, albeit at a higher price from North America. 

One of the key differences between, say parent company liability claims and claims which may arise from laws which require companies to undertake human rights due diligence, is that parent company liability claims in common law, are founded really on that first predicate question of whether or not the parent company has assumed a duty of care for the acts of the subsidiary. What the statutory requirements do is they impose a statutory duty. 

So there is no longer that question of whether or not a duty of care has been assumed. And then we turn to the question of whether it's been breached. The law imposes the duty and then the question immediately turns to whether or not it's been breached. And therefore it effectively requires company to discharge the duty provided, therefore, within the jurisdiction of the law.

Ailsa Bloomer  42:38
Yeah. 

Abi McGregor  42:39
And there's no doubt there’s a-- an issue as between balancing out transparency and liability. But to what degree do you disclose what you've identified, because a lot of these laws you can comply by not providing all of the information that you have, but you have disclosed, you have a risk, but you haven't disclosed all the details of it. 

So, I think there is an issue where a safe harbour would be a good outcome if you want greater transparency. There's no doubt, I think, about that, that if what you said in your report, you couldn't be sued in relation to, and you could come out and say, we found the following 12 risks, then explain them in full. I think the NGOs would love that. What they want is transparency, they want you to come out and say everything that you've found. 

That-- that is a real issue for companies. And so there's a balancing that's going on at the moment, I think the issue you've raised is-- is correct. We find that our North American headquarters clients in particular, are very anxious to make sure that the modern slavery statements are compliant, but not really as much detail as the NGOs would like, just to deal with that and balancing of that risk. 

Ailsa Bloomer  43:56
What are the key areas or trends that you're monitoring most closely and where, in a nutshell, do you think this area of law is going?

Abi McGregor  44:04
So I think the key trend is that modern slavery becomes human rights become sustainability, and that the modern slavery reporting will become human rights focused, but may well actually just become part of an overall process. 

So I think that the direction that Europe is going in, is that the-- the direction that the world will follow once they've done it. Well, what we're seeing is a movement away from the first few years of dealing with frameworks. And so how do I-- how do I get my business ready to do this thing, and moving into actually taking action. So where is your risks? What can you actually do about it? And so that's what we're doing a lot with clients now about trying to prioritize where do they have leverage, what can they do?

Ailsa Bloomer  44:51
Okay, well, Abi, Stuart, thank you very much.

Stuart Neely  44:54
Thank you so much.

Abi McGregor  44:55
Thank you.

Ailsa Bloomer  44:57
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