In November 2018, the Business and Human Rights Resource Centre released its third annual assessment of FTSE 100 companies’ modern slavery disclosure under the UK Modern Slavery Act 2015 (the MSA).
The MSA, requires companies with a turnover of not less than £36 million to produce an annual statement outlining the steps they have taken to tackle forced labour and human trafficking in their operations and supply chains.
FTSE 100 companies are the largest in the UK, with a combined market capitalisation of £1.9 trillion and a global workforce of 6.8 million people. The impact these companies could have in elevating standards across the industries they operate in is considerable, which is what makes this scrutiny particularly noteworthy.
One strong area of improvement from last year, was compliance with the MSA. Almost all FTSE 100 companies met the minimum requirements set out by the MSA, compared to only 47 companies in 2017. A higher proportion of companies also reported: having policies related to modern slavery; including modern slavery in social audits; having conducted a risk assessment to identify modern slavery risks in their supply chains; disclosing results from audits or assessments; and providing capacity building and training to employees and suppliers.
However, the average overall score was only 31%, with 28 FTSE 100 companies scoring below 20%. The assessment revealed that there is still a lack of detail in reporting, particularly when it comes to measuring effectiveness of efforts to address modern slavery. According to the report, approximately 35% of FTSE 100 companies do not provide enough disclosure in this area.
“Companies themselves recognise that a level playing field has not been achieved. Consumer-facing companies are subject to greater scrutiny and are expected to demonstrate a strong commitment to fighting modern slavery, while their lesser-known peers can get away with publishing weak statements, or not publishing at all. However, the MSA review currently being undertaken by the UK Government (with an interim report due out in November) may well result in stricter requirements on companies under Section 54. Companies should be aware that their inaction on modern slavery is only serving to illustrate to policy makers the need for stronger enforcement measures.” Business and Human Rights Resource Centre “FTSE 100 & the UK Modern Slavery Act” 2018 Report
Key recommendations deriving from the FTSE 100 assessment
FTSE 100 companies should:
- carry out human rights due diligence which includes direct engagement with key stakeholders whose knowledge of the local operating context can help identify risks;
- disclose the modern slavery risks which are identified in their operations and supply chains; and
- collaborate with their peers to investigate modern slavery risks in common supply chains and develop initiatives to bring about industry-wide change.
The UK Government should:
- institute mandatory requirements for companies to conduct human rights due diligence as set out in our report on mandatory due diligence;
- monitor compliance with the MSA, including establishing a central registry of statements, similar to the Gender Pay Gap register and publishing a list of the companies required to report;
- enforce the MSA by imposing impactful financial penalties where companies fail to publish an MSA statement or report that they have taken no steps; and
- engage closely with key stakeholders on how to strengthen the MSA and incorporate recommendations from the Home Office review.
Investors should:
- assess modern slavery statements and understand how they fit into the wider human rights strategy (if any) of the company;
- signal to investee companies that comprehensive human rights risk due diligence and management of human rights-related impacts, notably in relation to modern slavery, are evidence of strong corporate governance and management; and
- use this analysis, and other benchmarks, to learn what companies can and should be doing to combat modern slavery, and use these resources and good practice examples to engage with companies.