In April, 2022, Minister of Workplace Relations and Safety, Hon Michael Wood, released a legislative proposal on Aotearoa’s response to modern slavery and worker exploitation. The ‘discussion document’, outlines the objectives and proposed legislative changes that would affect New Zealand’s small, medium and large entities.
We are a consulting company working with a variety of New Zealand and Australian businesses on their modern slavery and supply chain traceability. On this basis, we submitted a response to the proposal. We have captured some of the key sentiments in our submission and highlighted where we feel some of the proposals objectives need to be strengthened in this blog. If you wish to read our full submission, you can find a copy here.
What is Modern Slavery?
‘Modern slavery’ is the umbrella term used to describe the use of exploitive labour practices, which include, but is not limited to things like forced labour, human trafficking, debt bondage, forced marriage, slavery, deceptive recruitment for labour or services, and child labour. According to the International Labour Organisation (ILO), in 2016 there was an estimated 40.3 million people in modern slavery, with one in four victims being children.
Under the proposal, modern slavery and worker exploitation are treated differently, with worker exploitation being described as; “non-minor breaches of New Zealand employment standards”. So for the purposes of the proposed legislation, ‘worker exploitation’ can effectively be defined as incidences happening within a business’s own operations in New Zealand, and ‘modern slavery’ incidences happening either here or overseas within a business’s supply chain.
Although many people feel that New Zealand is a safe operating nation, with relatively robust labour protections and no cases of modern slavery, there have been four people-trafficking prosecutions impacting at least 51 victims since 2015.
Notwithstanding that we need to stamp out all worker exploitation domestically, we think it is worth raising that the risk of slavery practices occuring in international supply chains is particularly prevalent. Importantly, this means that no business is immune from modern slavery, nor should they shirk away from their responsibility to take action.
Our Summary and Recommendations to the Proposal
Underpinning the legislation proposed in the ‘discussion document’ are the objectives that our modern slavery regime should seek to achieve. The primary objective is to “reduce modern slavery and worker exploitation in New Zealand and elsewhere, helping to build practices based on fairness and respect.” The secondary objectives are to:
- enhance New Zealand’s international reputation as a country that supports human rights and transparency;
- strengthen New Zealand’s international brand and make it easier for our businesses to continue to trade with the world;
- support consumers to make more informed choices in relation to modern slavery and worker exploitation risks associated with good and services;
- drive culture and behaviour changes in entities which lead to more responsible and sustainable practices; and
- level the playing field for entities which act responsibly across their operations and supply chains.
Although the objectives of the proposal are clear, the primary objective of to ‘reduce’ modern slavery and worker exploitation, does not go far enough. As a nation who believes in the freedom of all people, we should be striving to eliminate modern slavery from all New Zealand business operations and supply chains, not just to reduce it. Human rights should be a critical and non-negotiable focus of all businesses. We in Aotearoa, the privileged few, should not be benefitting from the exploitation of others.
In order to eliminate modern slavery and worker exploitation, the way we fundamentally conduct business needs to change. Therefore, we feel the second most important objective, after the ‘primary objective’ should be to “drive culture and behaviour changes in entities which lead to more responsible and sustainable practices”. Without cultural and behaviour change we will not see a shift in the way businesses prioritize human and environmental rights. To enhance and protect peoples’ lives, and for our environment to thrive for future generations, businesses need to take action now, and this will only come from holistic cultural change from the top down (as well as the bottom up!). We need this change if we stand a chance of transitioning to the just, inclusive, circular and regenerative economy we so badly need.
We also feel that the objective; “level the playing field for entities which act responsibly across their operations and supply chains” is, and will continue to be,increasingly important, as businesses move their manufacturing, production, and operations overseas. Most businesses move internationally to take advantage of lower wages and less rigorous human rights standards – a key driver in capitalism and globalization. This is fine in principle, but the status quo where businesses are able to turn to cheaper offshore labour without considering the actual human cost of moving their business there cannot continue. Unfortunately, in most instances moving a supply chain overseas increases the risk of human rights abuses in that supply chain, largely due to the lack of transparency. Accordingly, insuring Aotearoa’s anti-modern slavery action places appropraite weight on offshore supply chains is critical to solving the modern slavery issue.
The proposal separates entities into three ‘sizes’; small, medium and large, determined by annual revenue:
- Small – below $20 million (approx. 495,500 NZ entities)
- Medium– above $20 million and below $50 million (approx. 2,200 NZ entities)
- Large – above $50 million (approx. 1,450 NZ entities).
In the proposal, all businesses are responsible for taking “reasonable and proportionate action” if they become aware of any slavery in their supply chain or operations, and to understake due diligence, to “prevent, mitigate and remedy” modern slavery and worker exploitation by New Zealand entities where they are the parent company and have significant control.
For medium and large entities, they must disclose the steps they are taking to address modern slavery in their international and domestic supply chains and operations. Large entities must perform due diligence to “prevent, mitigate and remedy” modern slavery in their international and domestic supply chains and operations.
For the purposes of the proposal, “due-diligence” refers to the “process of identifying the risks of exploitation across an entity’s operations and supply chains, taking steps to address any risks identified, and evaluating the steps taken.” In other words, conducting supplier audits, questionnaires, developing reporting frameworks etc. “Disclosures” refers to publishing a report or statement on the due diligence a business is undertaking.
Reducing size thresholds
While we support the graduated approach proposed by the legislation (recognising that smaller companies have less resources to conduct anti-modern slavery measures), we feel the threshold between the different ‘sizes’ of the businesses is too large. We believe the proposed thresholds leave the majority of Kiwi businesses (i.e. small business) without having to disclose or conduct due-diligence in their international operations or supply chains. We believe that reducing the revenue brackets for all businesses to the following, will help to increase the level of businesses reporting and taking action, to help move the needle on eradicating modern slavery and worker exploitation (especially given that the most prominent risks of modern slavery are in overseas supply chains):
- Small businesses to <$10 million
- Medium businesses $10-29 million
- Large businesses $30 million +
Naturally, moving the entity size thresholds will mean more businesses will be required to disclose or report on the actions they have taken to help eradicate modern slavery.
While this may pose changes for a number of entities, the scope of change and resource required from them to comply does not outweigh what we perceive as the benefit of including them. Further to this, the signatories of ‘Open Letter’ submitted jointly by Kiwi business to Government to take action on modern slavery in April 2021 were largely (over 80%) SMEs. This shows us that there is a drive and motivation for businesses of this size to take responsibility and act on modern slavery. Similarly, we work with a number of companies who undertake supply chain due diligence and whose revenue is under $10 million – these actions are by no means outside their reach (financially or otherwise).
Alternatively, thresholds and disclosure requirements could be made by an industry’s level of risk. Meaning a ‘phase-in’ approach of the legislation could be tapered and slowly introduced throughout the business community – with high risk industries, such as electronics, fashion etc required to act first, and lesser ‘risky’ industries reporting in following years.
As we consider the resources or capabilities of business to do the work to eradicate modern slavery, we must never lose sight of the contrast between those of us in chosen employment, to those human beings who are being forced to work.
Importance of international supply chains and transparency
Astonishingly in the year 2022, New Zealand businesses are not currently held accountable for any human rights abuses that happen in their supply chain, nor are they incentivised by the Government to undertake any action that seeks to identify, and eliminate such abuses. The people who make our products offshore, should be treated as an extended member of a business’s team, and businesses should be held accountable for any mistreatment or exploitation that they should have uncovered or done more to prevent. As an external cost of doing business using offshore labour, modern slavery is a risk that we believe businesses must address and effectively price into their operations.
Many New Zealand businesses are small, and order relatively low quantities compared to other international businesses, meaning they often deal with third parties, or ‘agents’. This increases the opaqueness of the supply chain, and makes it hard for businesses to gain traceability of their products. We believe that a government mandated regime (and accompanying infrastructure such as guidance, training and collaboration / resource pooling opportunities) will empower smaller Kiwi businesses to better cut through the challenges of obtaining traceability presented due to their scale.
We believe businesses should be prioritising actions which help them to gain transparency of their supply chain, and ensure slavery or worker exploitation is not happening, regardless of their actual complaince obligations. However, in our work we often find that regulatory obligations and the accompanying risk can be an effective driver for business to progress (as is the case in other areas of sustainability such as climate-related financial disclosures) and we believe this will be the same in the case of modern slavery.
Due-diligence and disclosures are important
We believe a due-diligence based approach best addresses the complex nature of modern slavery, and best enables solutions that result in better outcomes for people, especially those who are subject to slavery. Imposing bans or other more blunt or severe options do not adequately protect those people suffering from abuse, as opposed to a due diligence approach which enables businesses to work with suppliers to remedy issues. While a particular approach for due diligence does not necessarily need to be set out in the legislation, we believe that the legislation should require businesses to develop and implement a strategy to address any instances of abuse if detected. A crucial part of a modern slavery regime’s success, in our view, is its ability to influence real world outcomes, rather than just identify and compel companies to select suppliers that make their compliance obligations easy.
Similarly, we believe that the transparency provided by a disclosure regime is required in order for the legislation to be applied fairly, and for it to achieve its objectives of promoting consumer awareness. Unfortunately, we believe our current economic system promotes businesses to meet minimum standards because this is more efficient (financially and otherwise). Requiring companies to disclose their modern slavery approach, exposures and actions will go a long way to promoting best practice.
That said, we also acknowledge the difficulties of doing business, particularly in Aotearoa at the current time. Accordingly, we support the graduated approach as proposed in the draft legislation, in principle. However, we are also keen to see a regime that promotes meaningful action within all supply chains, regardless of size of the business. As such, we are uncertain whether the current obligation on small entities (<$20m) to “Take reasonable and proportionate action if they become aware” of modern slavery imposes a strong enough of a positive oblgiation on those businesses to understand their modern slavery risks and act appropriately (for example, undertaking simple things like including questions about it in their supplier onboarding processes).
We think the most important action small and medium businesses can do is to have visibility over their operations, and know who is working for them and how they are being treated. A due-diligence approach, although time-consuming to start, can ensure all businesses have a a high level of transparency, and a framework and action plan on how to deal with any issues of slavery or exploitation, if they occur.
What does due diligence and disclosure look like
Policies, and procedures, need to be put in place to ensure standards are communicated from the beginning of a business relationship. Policies such as a Supplier Code of Conduct for suppliers, will help them to understand the level of human rights standards a business expects from them.
A Business Code of Ethics, and a Responsible Sourcing Policy, will help employees who are working with suppliers, to understand their responsibilities when dealing with suppliers, and how they can conduct business ethically, to ensure they are not participating in practices that can lead to modern slavery or worker exploitation.
This aligns with expectations being proposed to be imposed on European companies (albeit as part of a wider framework than just modern slavery). We think we should at least match and keep pace with this standard. Training and support structures will be critical to ensuring these obligations do not become overburdensome on smaller businesses.
We would suggest that entities’ disclosures are conducted annually, to keep them accountable and motivated in their actions. We would recommend that the following information is included in an entities disclosure:
- Details on the business operations, such as locations, number of employees, size of the business, and governance structure (including which individuals are responsible for implementation and delivery of anti-modern slavery measures and the reporting mechanisms to senior decision-makers / Board within a company) etc.
- Details on the businesses supply chain, such as number of suppliers, locations, and level of transparency into the different tiers of the supply chain (noting there is commercial sensitivity which these kinds of disclosures)
- Identifying key risks, and likelihood of slavery-like practices, to the business and operations.
- Key actions taken in the last 12 months to mitigate any cases of slavery.
- Key policies adopted by the business to ensure slavery or exploitation does not occur and how these policies are monitored, executed, and kept up to date.
- Reporting and remediation framework on what to do if a case of slavery is identified in their operations or supply chain
- Key stakeholders or other organisations the business has worked with to help identify and remediate any cases of slavery or exploitation.
- Actions or goals for the next 12 months on what the business will do to help prevent slavery or exploitation of people in their supply chain or operations.
- Onboarding process and procedures for new employees and new suppliers.
- Whistle-blower or grievance mechanisms used to ensure the business is aware of any issues or cases of modern slavery or exploitation.
Disclosures or reports should be kept in a central register – as per Australian Modern Slavery statements. This will help keep businesses accountable and allow stakeholders to review and engage with all statements in an easy manner and identify ‘best practice’.
As the victims of slavery and worker exploitation are often the most vulnerable, every step should be taken to ensure their protection and support. Companies should have an action framework ready, on the processes and people that are to be involved in case any such breach should occur. Companies should have a package of compensation at the ready to ensure victims do not lose out on wages or benefits, because of their willingness to come forward.
What else is important?
For the legislation to be successful, businesses will need support from the Government, and other industry bodies to ensure they understand the scope of the requirements and what actions they must take. We would recommend that the Government supply training documents, clear guidelines with FAQ’s, and develop webinars and online videos as well as have a hotline/email for specific questions. We would also recommend training a few reliable ‘experts’, or consultants, and business representatives from around the country on the legislation so these ‘experts’ can then help the businesses in their direct communities.
We would also recommend that an independent advisory board, or committee, should be maintained, to ensure there is consistent feedback on the regime collected and analysed, and to ensure that anti-modern slavery actions are taken responsibly. The advisory board or committee can support the Government with implementation, add independent and business advice on ensuring businesses are well informed and trained, and can give insights from the business community.
Timing and compliance
We support the introduction of a Modern Slavery Act into New Zealand, but recommend a phase-in period of 12 months should be given for businesses. This will allow them to attend training, review and adopt the guidance, and obtain support before reporting on their actions.
To ensure adherence to the legislation, we support the enforcement of penalties for breaching. For example, enforcement processes should be commenced if a business does not disclose within the required time limit or to the requisite standard. We believe that enforcing penalties builds accountability, which was a critical failure and criticism of the UK Modern Slavery Act, where no penalties have been imposed. Appropriate enforcement action could include financial penalties or investigations into the entity (reflecting financial and reputational risk for non-complying entities) and public statements issued by the breaching company.
Also, if a case of modern slavery is identified in the operations or supply chain of the business itself (ie. its direct operations), then imprisonment in accordance with the Crimes Act should be contemplated. We do recommend that a phase-in approach for penalties of 36 months is given to ensure companies are well trained and aware of their requirements before enforcement action is taken.
We are pleased to see that the Government is taking action on such an important issue, which will help to prioritize human rights in every company trading in Aotearoa.
It will be key for the right thresholds to be established and defined, so that businesses are clear on their reporting and due diligence requirements. Training, advice and support will need to be provided, especially to smaller businesses with fewer resources. In our line of work, we know first hand that a great strategy – in this case legislation – is just words on a page. Implementation is the key.
From our research on already established legislation in other parts of the world, ‘transparency only’ legislation is not enough to achieve the scale of change we need to liberate the more than 40 million people currently suffering under modern slavery. There needs to be action taken and penalties established to address modern slavery on a global scale. Businesses will need to create reporting frameworks, and collaborate with other industry stakeholders to create remediation processes and policies, to ensure all victims that are identified are safe and supported. Due diligence requirements will force businesses to dive deep into their supply chain, and gain visibility of who, and how their products and services are being procured.
In doing this, we are quietly optimistic that this legislation will help to change the culture of businesses in Aotearoa, to one that ensures that all people are treated fairly, and with dignity. This is the foundation of the just and inclusive economy we see as our future!