"The main problems highlighted were a lack of detail, little integration into the wider business and there being little guidance to where content can be found online"
Stay informed with regulations, insights & events by joining our mailer
A recent review of modern slavery reporting by the Financial Reporting Council (FRC) raised questions as to how much this issue is considered in boardrooms. Yes, companies have policies, and yes, they have statements, but are they effective and how are they measured?
With increased scrutiny around supply chains and human rights (brought further to light during this year’s World Cup), we foresee modern slavery being a hot topic in 2023. In this blog we outline where we hope to see improved reporting; we have also suggested what best practice may look like within those areas.
Modern slavery requirements
Section 54 of the UK Modern Slavery Act 2015 requires businesses with a turnover of £36 million or more to write an annual statement, setting out the steps they are taking to address the risk of slavery in their operations and supply chains.
In April this year, the FRC carried out a review of modern slavery reporting in the annual reports of 100 major companies. The report, Modern Slavery Reporting Practices in the UK, analysed companies from the FTSE 100 to Small Cap. The research raised whether modern slavery is really considered in boardrooms and if it is integral to companies’ opportunities and risks.
Similar results are found in another FRC report published later in the year. The FRC’s Review of Corporate Governance Reporting commented that, yes, companies report on their policies and procedures, but the reporting fails to address the effectiveness of the measures. The main problems highlighted were a lack of detail, little integration into the wider business and there being little guidance to where content can be found online.
Where can improvements be made?
How are modern slavery policies and strategies integrated across the wider business, and how is this measured?
Aligning modern slavery to wider policies, strategy, KPIs and culture can help to improve the alignment and integration of modern slavery.
A good example of how this can be achieved can be seen with the evolution of culture reporting. It is common to now see culture being aligned to a company’s purpose, mission, strategy and values, and companies can assess these factors to address any misalignment that may occur. Taking a similar approach with modern slavery would help to prevent isolation and further encourage integration.
Ownership is another area where we could see improvement. Boards are actively reviewing and approving policies, but how involved are they in developing modern slavery policies and preventing the issues behind them? Could we start to see this responsibility listed within a board’s roles and responsibilities in governance reports?
What is the impact of modern slavery, and how is this evaluated and mitigated?
In its Modern Slavery Reporting Practices in the UK report, the FRC found many companies did not view human rights issues as a principal risk for their business when, in fact, this lack of concern could affect relationships with suppliers and employees. In order to combat this, companies with large supply chains could consider the following:
- mapping suppliers to identify particular industry/sectoral risks and risks from their geographical location;
- assessing the likelihood and impact of risks through modern slavery risk heatmaps, allowing companies to prioritise and develop mitigation plans; and
- assessing those identification methods and mitigation strategies to understand whether they are effective.
How do companies engage with stakeholders on modern slavery, and how are outcomes considered?
Whilst there has been a big improvement in stakeholder engagement reporting in the last few years, we often see a lack of detail on how companies engage with their employees, suppliers and other stakeholders on modern slavery.
The need to report on engagement, the outcomes of that engagement, and then how those outcomes have been considered in key decisions can help to integrate modern slavery into the wider business.
How is the effectiveness of policies, engagement and risk mitigation assessed and ensured?
Risk identification and mitigation strategies, stakeholder engagement and alignment to the wider business could all be assessed for effectiveness. As the FRC argues, failure to report on the outcomes of engagement around modern slavery misses an opportunity to demonstrate the effectiveness of internal processes.
Whistleblowing policies are an example of this. These policies allow employees and suppliers to raise modern slavery concerns, but how do we know these methods are effective? What is to say employees are aware of these policies?
The role of the annual report
The FRC reported that only 14% of annual reports provided direct links to corresponding modern slavery statements online.
We are certainly not encouraging that even more information goes in the annual report, but a quick fix is simply alluding to modern slavery policies that are regularly housed online. A better fix would be to provide direct links and concise summaries and perhaps consider reporting on effectiveness or developments in the year regarding the policy. This could be the first step to improving reporting in this area.
Not sure where to start?
If you are looking to understand how to communicate actions and developments within your business, get in touch with us at email@example.com.