Transparency and supply chain provisions come into force alongside government guidance

​On 29 October 2015, the provisions in the UK Modern Slavery Act (the Act) on transparency in supply chains (TiSC) came into force and the government published its long-awaited Guidance.  The first organisations who will have to publish their Slavery and Human Trafficking Statements (Statements) are those whose current financial year ends on 31 March 2016.  They must publish the Statement for their 2015 to 2016 financial year, and must do so "as soon as reasonably practicable" after their financial year end, so the pressure is now on.  However, as the Guidance indicates, following best practice in this area is likely to be a significant exercise for affected organisations.

Transparency in Supply Chains provisions now in force 

On 29 October 2015, Regulations brought the Transparency in Supply Chains (TiSC) provisions of the Act into force. They, together with a final set of Regulations on turnover, were accompanied by long-awaited government Guidance.  These confirmed that organisations with an annual turnover of £36 million, wherever incorporated, which are carrying on a business or part of a business in the UK and which are supplying goods or services, must publish a Slavery and Human Trafficking Statement for financial years beginning on or after 31 March 2016.  These organisations must publish a Statement which covers the whole financial year.  However, if an organisation has only recently undertaken any activities, it may choose to produce a Statement noting that the activity only relates to part of the financial year.

Organisations with financial year ends falling between 29 October 2015 (when Section 54 came into force) and 30 March 2016 will not have to publish a Statement for that financial year. For example, if an organisation has a financial year end of 31 December 2015, it will have to produce its first Statement in relation to the financial year from 1 January 2016 to 31 December 2016.

The publication deadline, set in statutory Guidance rather than in the Regulations, is "as soon as reasonably practicable" after the financial year end, with the Guidance encouraging reporting within six months of financial year end. However, the Guidance acknowledges that many organisations may choose to publish the Statement alongside other annual financial and non-financial reports.

As expected, the Guidance expands upon the suggested content of the Statement as set out in Section 54 of the Modern Slavery Act.  It emphasizes that publication of the Statements is intended to begin a "race to the top", with organisations demonstrating progress year on year. Organisations are also expected to tailor their activities in this area to their specific sector and business. The Guidance, however, also demonstrates that following good practice on transparency in supply chains may require significant planning and resources in the organisations affected.

Guidance clarifies which organisations are affected

The Guidance clarifies that if an organisation in any part of a group structure, wherever incorporated or established, meets the turnover threshold and is carrying on a business or part of a business in the UK, it must make a Statement. The Guidance reiterates that the question of what constitutes "carrying on a business" will ultimately be a matter for the courts and will be a question of fact, taking a common sense approach. It notes that organisations that do not have a "demonstrable business presence in the UK" will not be caught by the provision. Similarly, having a subsidiary in the UK "will not, in itself, mean that a parent company is carrying on a business in the UK" as subsidiaries may act independently of their parent or other group company. 

Each parent or subsidiary company, whether based in the UK or not, must produce a Statement.

A Statement should include details of action taken in relation to the supply chains of a foreign subsidiary which is not itself caught if that subsidiary is part of the business or supply chain of an organisation which is covered by the TiSC reporting obligation.

Foreign subsidiaries which are part of the parent company's supply chain or business must be included in the parent company's Statement.

The Guidance stresses that even though a non-UK subsidiary or parent company is not legally required to publish a Statement, it is good practice to do so, particularly if the non-UK subsidiary is operating in a high-risk industry or location.

Publishing the Statement: deadline, other reporting requirements and publication 

The question of when the deadline for publishing falls has now been clarified.  This is set out in the Guidance (which, as statutory guidance, is of persuasive force in court proceedings).

Organisations are expected to publish a Statement for every year in which they meet the turnover threshold (and indeed, are strongly recommended in the Guidance to continue to do so even if the turnover falls below £36 million during a financial year). They should publish it "as soon as reasonably practicable" after the end of the financial year, although they may choose to publish at the same time as other financial or non-financial reports. The guidance states that: "[i]n practice, we would encourage an organisation to report within six months of the organisation's financial year end".

The Guidance notes the potential overlap in content required under other reporting obligations for certain types of organisation, such as that in a listed company's Strategic Report in an Annual Report.  However, the government still expects that the Statement would appear as a separate report.

A link to the Statement should be published prominently on an organisation's website. Larger organisations, which may have more than one website, should place the Statement on the most appropriate website for that organisation's business in the UK.

Content of the Statement 

The Guidance fleshes out the list of potential Statement topics set out in Section 54 of the Act to assist those compiling, and those expected to be reading, the Statements.  The Statement should be concise and written in English, although it may also be provided in other languages if this is appropriate.  It must relate to steps which the organisation has undertaken or begun.

The Guidance confirms that there are no specific requirements to follow on layout, content or level of detail.  It also states that, in producing a Statement, organisations are not being asked to guarantee that the entire supply chain is slavery free.  Instead, the Statement must include all steps that have been taken by the organisation to prevent modern slavery in the organisation's supply chains and own business in that financial year.

Organisations may link to any existing, relevant reports, such as their Corporate Social Responsibility or ethical trade policies as part of their Statement.

Practical guidance is given on each of the issues set out in Section 54 (but it is not compulsory to include these):

• details of the organisation's structure, business and supply chains - relevant considerations could include the sectors in which goods or services are supplied, the countries from which goods and services are sourced and the organisation's operating model and relationship with its suppliers and others (such as Trades Unions).
• slavery and human trafficking policies - the Act itself does not require a standalone policy to be developed or the introduction of any new policy or the amendment of any existing policy. However, the Guidance notes that the organisation's policies should be supported by senior management and effectively communicated internally and externally. It lists certain questions an organisation could consider, including whether the labour standards expected by a subsidiary or supplier align with the industry standard, the level of due diligence in a supply chain, support for whistle-blowers and victims and whether any slavery discovered can be remedied.
• due diligence procedures - the Guidance notes that these are the main way of assessing risk but that their nature will vary depending on factors such as the severity of the risk and the level of influence a business may have. It recommends the use of tools such as the OECD Guidelines for Multinational Enterprises. There is also a recommendation that businesses actively involve third parties, including civil society stakeholders or workers themselves, in due diligence exercises. A list is given of the types of information which organisations may wish to consider as part of their due diligence (such as risk management processes, impact assessments and action plans).
• assessing the parts of the business or supply chain with the highest risks and the steps taken to manage the risk - the guidance suggests a number of risks which may be identified (and have senior management oversight) including country risks, sector risks, transaction risks and business partnership risks.  It also recommends developing a culture that rewards disclosure and sharing risks with "trusted partnerships".
• effectiveness in ensuring slavery and human trafficking are not taking place in the business or supply chains, measured against appropriate key performance indicators (KPIs) - the recommendations in the Guidance set out how KPIs could be used and note the importance of the different types of training required for different parts of the business. KPIs could be used in two ways. Firstly, existing KPIs should be considered for their potential to contribute to slavery (e.g. commitments to short turnaround times and the associated pressure on the workforce).  Secondly, KPIs measuring the effectiveness of anti-slavery measures could be introduced, e.g. grievance procedures, whistle-blowing and oversight of suppliers.
• training - the Guidance recommends that organisations think about where training should be targeted in order to identify and remedy modern slavery within a supply chain.

What does this mean for affected organisations? 

These developments are aimed at assisting affected organisations to begin to prepare their Statement. Whilst the Guidance underlines the importance of having a full understanding of slavery and human trafficking risk in supply chains and businesses, it only provides recommendations which organisations may choose to follow. Affected organisations will now be assessing risk in their supply chains and their approach to it, in order to produce their first Statement.