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12 October 2016

Modern Slavery: Keeping Your Brand And Business Ethical

Modern Slavery: Keeping Your Brand And Business Ethical
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In 2014, the Home Office published the UK’s first scientific estimate investigating the scale of slavery in the UK: it indicated that there are between 10,000 and 13,000 potential victims in this country.1

Worldwide the problem is huge with almost 46 million2 people in some form of modern slavery: it is believed private individuals or businesses are exploiting around 90% with state governments or rebel factions in conflict zones responsible for the remaining 10%3.

Collectively, it is believed that modern slavery generates around £115 billion in illegal profits4. The commercial sectors most affected include food, drinks, agriculture, retail, construction, manufacturing and technology.

The Human Rights Outlook 2016 Report by consultancy Verisk Maplecroft identifies extended international supply chains as highly vulnerable to slave exploitation - through illegal working practices, poor supplier oversight and insufficient clarity around the extraction of commodities. Sometimes it hides almost in plain sight: investigations in Thailand from 2015 showed that slave migrant labour was forced to catch fish to make fishmeal – which in turn was being used to feed farmed fish and shrimp - and also as an additive in pet food.

Humanitarian issues aside, the reputational, operational and legal risks to a business with an extended international or global supply chain – one that reaches into countries with lower labour oversight standards - can be significant.

The new Modern Slavery Act 2015 applies to all businesses with a turnover of £36 million and over. It requires them to produce a slavery and human trafficking statement for each financial year covering supply chain analysis, slavery prevention policies, due diligence details, training as well potential risk identification and what the firm does in mitigation.

Here we take a look at the potential problem areas and how you can build a risk strategy that maintains ethical peace of mind.

The New Modern Slavery Act 2015

Any company with a global supply chain and an annual turnover of £36 million or more must develop a credible - and accurate - slavery and human trafficking statement each year.

  • Failure to do so may prompt government to seek an injunction in the High Court requiring compliance. Failure to comply with an injunction is punishable by an unlimited fine.
  • The financial impact from a fine is one thing: the risk to reputation is another entirely. Increasing emphasis on ethical investment (plus potential divestment) and corporate social responsibility mean a failure in slavery due diligence can spell financial disaster.
  • Slavery-related problems that come to light can cause a major backlash where consumers and customers seek out businesses with higher ethical standards - thus affecting share prices and earnings.

Insurance is not a panacea to the problem - solving it comes down to rigorous oversight and intervention. However the market has developed a number of risk management audit solutions and specific reputational damage policies that cover areas like consultancy services costs and media management support. It’s solutions like these that can mean the difference between facing ruin and being able to manage a slave labour crisis effectively.

Particular areas of cover you should consider include:

  • Directors and Officers (D&O) liability: indemnifying the board and senior management against employment practice breaches and civil or criminal proceedings.
  • Reputational risk: specialist legal and PR crisis management cover to help protect your brand and business.

Is My Organisation Exposed?

Only you can tell – so examine the composition of your supply chain objectively. For example, high demand commodities like tin, tungsten and tantalum (a transitional metal often used as a substitute for platinum) are all used in technology and automotive production. The risk is that such assembly and manufacturing firms can expose themselves to slavery practices and child labour in the country of extraction and export.

  • Research conducted by YouGov in 2014 on behalf of the Chartered Institute of Procurement & Supply (CIPS) indicated that 11% of business leaders at firms with a supply chain believed modern slavery was present within their tiered operations5.
  • Additional research by CIPS indicates that 72% of UK supply chain professionals have no supply chain transparency beyond second tier suppliers and only 11% have full visibility6.

Such is the permeation of modern slavery that it presents a clear and present risk for the supply chains of many UK firms – borne out  by the research data from CIPS. Let’s take a look at the modern slavery hotspots...

  • Highest estimated prevalence by proportion of population: North Korea, Uzbekistan, Cambodia, India and Qatar7.
  • Highest estimated absolute numbers: India, China, Pakistan, Bangladesh and Uzbekistan8.

It goes without saying that a number of these countries produce significant quantities of low-labour cost consumer goods for  western markets.

Building An Ethical Supply Chain

Designing out the risk of slavery components within a given global supply chain is down to careful mapping. It’s unmapped supply chains that do not benchmark human rights performance where raw materials are sought or low-cost labour work undertaken that are at most risk from slavery and labour exploitation. Simply put, the process works like this …

  • Collaborative mapping enables organisations to build the in-depth information needed to create a clear, multi-tiered picture of the supply chain.
  • Data gathering questionnaires are cascaded from buyer to supplier, gathering the necessary information about supplier compliance.
  • With a rounded picture of who's who and who does what and where, firms can interrogate all tiers and suppliers in the chain against areas like labour-policies, CSR, health and safety, ethics and anti-bribery. You can find more mapping tips in this handy summary from CIPS.
  • A thorough approach enables due diligence with on-site audits where needed, providing evidence for investors and corporate stakeholders – and ultimately customers and consumers.
  • For more information on compliance, read the CIPS Modern Slavery Overview and download the Guide to the Modern Slavery Act 2015.

Well executed due diligence and a firm grasp of human rights performance thus helps deliver clarity right through the supply chain, enabling you to cleanse and report instances of slavery or abuse of labour.

First Steps To Compliance

  • Your CSR policy: ensure slavery and human trafficking is covered and appoint a director to oversee the development of your
    anti-slavery statement and implementation of it as policy.
  • Whistleblowing: adapt your policy to enable the easy reporting of slavery or human trafficking suspicions - anonymously if necessary.
  • Employment: check all your UK employees are paid at least the minimum wage and qualify to work.
  • Contracts: embed an obligation for all suppliers to comply with the Act in all relevant commercial agreements.
  • Identification: investigate, audit and map your supply chain across all tiers and ensure all local market employment legislation is adhered to by your suppliers.

Risk Management Is Key

It’s chicken and egg. While thorough policy design and placement is your protection should you require it, the key to tackling slavery in the supply chain is a sound risk management strategy. A good broker must be able to help you drill right through all tiers of your extended operations and build a clear picture of labour and slavery risk. Only then is it possible to specify the requisite bespoke protections.

Arthur J. Gallagher: ignorance is no defence …

The new Modern Slavery Act 2015 now holds organisations directly accountable – and punishable – for allowing, whether by accident or design, for slave labour in their supply chains. Effectively the legislation also makes firms responsible for all workers involved in every stage of production, no matter which supplier tier – or country – they are in. The new rules are clear, the fines unlimited and compliance is king. We believe it’s an opportunity for ethical corporate governance and targeted risk management to play its part in tackling what remains a worldwide scourge.

For an intelligent approach to slavery and supply chain risk, come and talk to us.

1 Home Office Press Release: ‘True scale of modern slavery in UK revealed as strategy to tackle it published’ – 01/12/2014
2 Global Slavery Index: Global Findings Survey (Gallup) at 2016
3-4 International Labour Organization (ILO): Topics at – Forced labour, human trafficking and slavery 2016
5 CIPS Press Release: ‘Professional leaders say UK could be sleepwalking into another supply chain crisis – 21/07/2014
6 The Guardian: ‘11% of UK businesses say slavery in their supply chains is ‘likely’’ – by David Noble, 18/08/2014
7-8 Global Slavery Index: Global Findings Survey (Gallup) at 2016

Download the Modern Slavery Act.pdf

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