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Modern slavery presents significant human rights, legal, operational, reputational and financial risks. For investors, the ability to identify, assess and manage these risks depends heavily on the availability of credible information regarding modern slavery risks, impacts, governance processes and remediation efforts. Transparency and disclosure remain critical to effective investment analysis, stewardship, engagement and capital allocation decisions.
RIAA strongly supports the Government moving beyond a framework focused primarily on reporting and disclosure. RIAA recommends that a mandatory, risk-based human rights due diligence framework be established as a priority and the central measure in Australia’s modern slavery reforms. The framework should require organisations to identify, prevent, mitigate and remediate modern slavery risks and harms, while preserving transparency and incentives to identify, investigate and disclose those risks. With industry consultation, such a framework will also be consistent with the policy objectives of the current reform: to focus on “enhancing corporate accountability for preventing modern slavery in supply chains, improving protections for workers vulnerable to exploitation, and creating a level playing field for businesses that are already taking meaningful action to identify, manage and address modern slavery risks.” (page 4 of the consultation paper).
RIAA’s submission outlines concerns about proposed ‘failure to prevent’ criminal offence. If introduced as per the current design, the proposed offence risks discouraging risk identification, investigation and disclosure, reducing the quality of information available to investors and other stakeholders, and undermining the transparency necessary for effective risk management and stewardship. Criminal liability may have a complementary role in addressing serious or egregious conduct, but it should not substitute for mandatory due diligence. If the Government proceeds with a ‘failure to prevent’ offence, it should be redesigned to complement due diligence obligations, preserve incentives for risk identification and disclosure, and improve prevention, remediation and outcomes for affected people.
RIAA's response to this consultation is informed by previous policy engagement on modern slavery and human rights due diligence, as well as engagement with members through RIAA's Human Rights Working Group and broader policy consultation processes. RIAA thanks RIAA members for their ongoing engagement and contributions to the development of RIAA's modern slavery policy positions and welcomes continued engagement with Government as these reforms progress.
This submission represents RIAA’s policy position. While member engagement has provided important input, this submission should not be read as a formal consensus view of RIAA’s broader membership.
Summary of recommendations
Recommendation 1: Prioritise establishing mandatory, risk-based human rights due diligence as the central measure in Australia’s modern slavery reforms. Implement the framework on a phased and proportionate basis, aligned with existing domestic and international standards, including the NSW Guidance on Reasonable Steps to Manage Modern Slavery Risks in Operations and Supply-Chains, the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, with practical, sector-specific guidance.
Recommendation 2: Should a criminal offence be progressed, redesign the offence to focus liability on conduct which supports the policy objectives of the reform: “to strengthen Australia’s response to modern slavery by enhancing corporate accountability for preventing modern slavery in supply chains, improving protections for workers vulnerable to exploitation, and creating a level playing field for businesses that are already taking meaningful action to identify, manage and address modern slavery risks” (page 4 of the consultation paper). Any criminal offence should be redesigned to support, rather than discourage, transparency, effective due diligence and the prevention of modern slavery harms.
Recommendation 3: Develop a clear and practical legislative approach to the scope, nexus and application of the proposed reform that provides legal certainty while recognising the complexity of modern supply chains, value chains, investment portfolios and financing relationships. Key elements of the nexus test and liability threshold should be established in legislation and supported by practical guidance and examples.
Recommendation 4: Develop detailed, sector-specific guidance and implementation support, including guidance relevant to financial institutions, institutional investors, asset owners, asset managers and superannuation funds.
Recommendation 5: Adopt a phased and proportionate implementation approach supported by early publication of guidance, practical resources, authoritative risk information and ongoing stakeholder engagement.
Recommendation 6: Ensure Australia's modern slavery reforms are developed with regard to evolving international frameworks and support interoperability with comparable international due diligence and responsible business conduct requirements.
Recommendation 7: Support effective access to remedy and ensure victim-centred approaches are reflected across enforcement, remediation and implementation arrangements.
General submissions
Modern slavery risks are crucial to institutional investors
For investors, modern slavery is associated with numerous investment risks because of exposure to investee companies that do not manage the risks across their value chains.
For example:
- Brand damage, which can lead to loss of sales and good will, which can be hard to quantify. Given that market value is increasingly made up of intangible drivers, including brand and customer / supplier relationships, human rights issues can be material and therefore impact valuation multiples.
- Reputational issues can be a distraction to management and impact staff engagement, as well as business-to-business customer relationships.
- Failure to understand the value chain also leaves the company vulnerable to external shocks and unforeseen events unrelated to labour rights or human rights, such as geopolitical events, environmental catastrophes, pandemic illness outbreaks; and
- Lack of sustainable earnings where a company with value chains that relies on exploited or underpaid labour, weak regulation or even illegal activities such as modern slavery, are unlikely to produce sustainable earnings, particularly in a world with increased regulation and globalisation.
Australasian investors are cognisant of the risk of modern slavery and human rights abuses and the impact on both responsible investment strategies as well as reliability of returns. RIAA’s Benchmark Research shows that, in 2023:
In Australia:
- the most significant focus for fund allocation in positive screening was respect for human rights including human trafficking and modern slavery with the largest amount of AUM being positively screened ($139bn); and
- asset managers are highly engaged with corporates on human rights, including modern slavery, with 74% of respondents highlighting this issue as a focus in their corporate engagement.
In New Zealand:
- asset managers are highly engaged with corporates on a broad range of both social and environmental issues, with 70% of respondents focused on human rights, including modern slavery; and
- respect for human rights including human trafficking and modern slavery increased in popularity with 13% of respondents positively screening against this risk, up from 9% in 2022.
In recent years, there have been a number of examples globally which demonstrate the consequences of poor supply chain risk management: see Appendix B (in full RIAA Submission).
Transparency must continue to remain a central tenet of the modern slavery regime
RIAA welcomes the Government's focus on strengthening Australia's legislative response to modern slavery. Consistent with the findings of the statutory review of the Modern Slavery Act, the current consultation reflects an important recognition that transparency and reporting obligations alone are insufficient to drive meaningful improvements in modern slavery outcomes.
While the Modern Slavery Act has improved awareness and reporting practices, disclosure requirements have not consistently resulted in stronger risk management, accountability or remediation. However, transparency remains a critical foundation of an effective modern slavery framework. The objective of reform should therefore be not only to improve the identification, prevention, mitigation and remediation of modern slavery risks and harms, but also to preserve and strengthen incentives for organisations to identify, investigate and disclose risks where they occur.
For institutional investors, credible information about governance, remediation and modern slavery risks is essential to assessing enterprise value and business resilience. It enables investors to differentiate between organisations that are actively managing these risks and those that are not, informing investment analysis, stewardship, engagement and capital allocation decisions.
Reforms should therefore be assessed by whether they strengthen accountability without weakening incentives to identify, investigate and disclose modern slavery risks. Discouraging those activities would reduce the quality of information available to investors, regulators and other stakeholders and undermine efforts to prevent and address modern slavery harms.
For this reason, RIAA supports reforms that strengthen prevention, accountability and remediation while maintaining strong incentives for organisations to identify and disclose risks. A modern slavery framework should encourage greater visibility of risks and impacts across operations, supply chains and value chains, recognising that effective risk management and accountability depend on the availability of reliable information.
Prioritise a mandatory human rights due diligence framework under this reform
RIAA's longstanding view is that a mandatory, risk-based human rights due diligence framework is crucial to any successful modern slavery framework.
A mandatory modern slavery due diligence framework is a legal requirement that requires companies to actively identify, prevent, mitigate, and account for forced labour, human trafficking, and exploitation in their operations and supply chains. Unlike disclosure or transparency laws (which only require businesses to report what they are doing (or not doing) a mandatory framework makes active risk management a legal duty with enforcement and penalties for non-compliance.
Such an approach is better positioned to drive the systematic identification, prevention, mitigation and remediation of modern slavery risks across operations, supply chains and value chains. It also supports the ongoing generation of information regarding modern slavery risks, impacts, governance arrangements and remediation efforts, providing the transparency and accountability that investors, regulators and other stakeholders rely upon to understand how organisations are managing those risks in practice.
Effective due diligence obligations should be risk-based, proportionate and aligned with existing domestic and international standards, such as the NSW Guidance on Reasonable Steps to Manage Modern Slavery Risks in Operations and Supply-Chains, UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct.
The United Nations Guiding Principles on Business and Human Rights (UNGPs)
The UNGPs are the authoritative global standard outlining expectations of governments and businesses in preventing and addressing business related human rights abuses.
The UN Human Rights Council unanimously adopted the UNGPs in 2011, with Australia co-sponsoring the resolution.
The UNGPs comprise 31 principles within a 3-pillar framework:
- Pillar I: The state duty to protect against human rights harms by businesses.
- Pillar II: The business responsibility to respect human rights.
- Pillar III: The need to ensure access to remedy for business related human rights harms.
The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD Guidelines)
The OECD Guidelines are recommendations addressed by governments to multinational enterprises. They aim to encourage positive contributions enterprises can make to economic, environmental and social progress, and to minimise adverse impacts on matters covered by the Guidelines that may be associated with an enterprise’s operations, products and services. The OECD Guidelines cover all key areas of business responsibility, including human rights, labour rights, environment, bribery, consumer interests, disclosure, science and technology, competition, and taxation.
The OECD Guidelines were updated in 2023 with recommendations for responsible business conduct across key areas, such as climate change, biodiversity, technology, business integrity and supply chain due diligence.
NSW Guidance on Reasonable Steps to Manage Modern Slavery Risks in Operations and Supply-Chains (GRS)
The GRS aims to assist covered entities in applying clear policies, consistent procedures, and effective risk management strategies for modern slavery risks in their operations and supply-chains. It provides guidance on how to prevent, identify, mitigate, address, and remediate modern slavery risks and harms in operations and in supply-chains.
The GRS sets out the main issues and concepts that covered entities need to understand to meet reporting and due diligence expectations under NSW law.
A future framework should support effective governance, risk assessment, stakeholder engagement, grievance mechanisms, remediation processes, monitoring and public reporting, while remaining practical and proportionate for different sectors, business models and risk profiles.
RIAA recognises that the consultation is considering a proposed ‘failure to prevent’ modern slavery offence as a means of strengthening accountability within Australia's modern slavery framework. While criminal accountability may have a role to play within a comprehensive framework, RIAA considers that mandatory human rights due diligence is more closely aligned with the objective of systematically identifying, preventing and addressing modern slavery risks before harm occurs. In contrast, the effectiveness of any criminal offence will depend heavily on whether it supports or undermines incentives for organisations to identify, investigate and disclose modern slavery risks.
Accordingly, RIAA considers that mandatory human rights due diligence should be prioritised as the central reform measure within Australia's modern slavery framework. Any consideration of a ‘failure to prevent’ offence should occur within the context of, and be complementary to, a broader due diligence framework. Should Government proceed with a criminal offence, it should be designed to support transparency, risk identification, effective remediation and continuous improvement, while contributing meaningfully to the prevention of modern slavery and improved outcomes for affected people.
Align with relevant domestic and global existing frameworks
While the consultation focuses primarily on the design of a proposed ‘failure to prevent’ offence, RIAA considers that equal attention should be given to how Australia's broader modern slavery framework will interact with these international developments.
For investors and businesses operating across multiple jurisdictions, regulatory fragmentation can increase compliance complexity, create duplication and reduce the effectiveness of efforts to identify and address modern slavery risks. International interoperability should therefore be an important consideration in the design of Australia's reforms. This includes consideration of how any future due diligence obligations, reporting requirements and enforcement mechanisms align with comparable international frameworks and whether organisations can leverage existing processes and systems to meet multiple regulatory requirements.
Alignment with international approaches will support regulatory coherence, reduce unnecessary duplication and improve comparability for investors operating across markets. It will also assist investors, businesses and regulators to develop more consistent approaches to identifying and addressing modern slavery risks across global value chains, while supporting Australia's broader responsible business conduct and sustainable finance objectives.
In addition, there are already existing domestic frameworks which have been operating in the absence of federal modern slavery reform. For example, NSW has a legal binding mandatory modern slavery due diligence and reporting framework covers approximately 100,000 private sector entities which supply $60 billion worth of goods to NSW government agencies, local councils, universities and state-owned corporations. This regime applies companies as well as government agencies, with many companies that would be subject to the proposed federal ‘failure to prevent’ criminal offence already having an obligation to take reasonable steps under NSW law.
Clarify relevance and application to the finance sector
RIAA encourages Government to provide clear guidance on how any reforms apply to the finance sector, including to asset owners, asset managers and superannuation funds. Investors play an important role in identifying, assessing and addressing modern slavery risks through investment decision-making, stewardship and engagement activities.
RIAA notes that the case studies included in the consultation paper primarily focus on operational supply chain relationships and do not appear to include examples relevant to investors or financial institutions. As a result, they provide limited insight into how the proposed offence and reasonable steps defence may operate in the context of investment portfolios, stewardship activities, investment mandates or financing relationships. Additional examples and case studies relevant to investors would assist stakeholders in understanding the practical application of the proposed framework and identifying any sector-specific implementation challenges.
The absence of investor-focused case studies makes it difficult to assess how key concepts within the proposed framework, including nexus, reasonable steps, leverage and influence, are intended to operate in the context of investment relationships.
Any framework should recognise the distinction between operational supply chains and investment exposures, including the differing levels of leverage and influence that may exist across investment relationships. Expectations should support risk-based prioritisation and meaningful stewardship approaches rather than creating unrealistic expectations that all risks can be identified or controlled across complex and diversified portfolios.
Clear guidance for investors and financial institutions will be important to ensure regulatory certainty, support effective implementation and encourage constructive engagement with investee companies on modern slavery risks and outcomes.
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