Download the full submission here, for responses to all consultation questions.

RIAA has been prominent in the financial sector’s approach to, and appreciation of, human rights and modern slavery risk. Institutional investors are both directly affected by the weakening of due diligence and supply chains through instances of modern slavery as well as having strong tools to influence and drive changes to risk mitigation practices.

RIAA welcomes the proposed changes to the Modern Slavery Act 2018 (Cth) (MSA) and the continued consultation engagement proposed by the AGD. The investor voice in combatting modern slavery in Australia is vital. For investors, modern slavery and other types of labour exploitation are issues which go beyond ethics. Investors prefer stable earnings and a business model that relies on underpaid workers, weak regulation or illegal activities, such as modern slavery, will unlikely produce sustainable earnings. In addition, due to global nature and estimated global prevalence of modern slavery, this is a systemic risk to investors, making it difficult for investors to diversify away modern slavery risk in an investment portfolio.

This risk is ultimately borne by retail investors and consumers, who are increasingly wary of their investments supporting human rights violations and modern slavery risk: see RIAA’s consumer research From Values to Riches 2024. Institutional investors also play an important role through their investment activities, such as engagements with investee companies through stewardship as well as through collaboration. In recent years, a number of investor initiatives have emerged to seek to identify and combat slavery. As such, the investor voice is paramount in the work to eradicate modern slavery.

RIAA’s response has been informed by the input of the members of RIAA’s Human Rights Working Group of investors. RIAA thanks those RIAA members who contributed to the development of this response.

RIAA relied on the following submissions for this feedback:

General submissions

‍Due diligence requirements remain a missing piece in effective regulation

The proposals in the consultation paper, while broadly supported by RIAA and its members, remain within the confines of a disclosure framework; the success of this within the existing framework has been mixed. As such, it is uncertain whether the proposed changes will be sufficient to address the limitations of a disclosure-based regime and combat the problems highlighted by the MacMillan Review, which effectively concluded that, while the MSA has raised awareness, it has not made a big difference to people in modern slavery conditions. While the proposed changes contained in the consultation paper could lead to positive outcomes, they are unlikely to materially impact how investors assess companies’ modern slavery statements and improvements in terms of how reporting entities manage modern slavery risk are likely to be limited. More tangible action and avoiding a ‘compliance mindset’ is required.

For investors, human rights due diligence can help to proactively identify issues before any incidents occur, and to priorities issues based on saliency, as recommended by the UN Guiding Principles on Business and Human Rights (UNGPs).The guidance material for the MSA specifically makes reference to the UNGPs, which calls for human rights due diligence. Therefore, it could be argued that the MSA has laid the foundation for, yet not implemented, human rights due diligence.

As highlighted in the MacMillan Review, the complexity of modern slavery presents inherent limitations on the use of disclosure-based frameworks for mitigation. The Review also highlighted that, unlike other similar regulated areas, modern slavery reporting did not follow ordinary regulatory convention, noting are commendation by the Australian Law Reform Commission that the MSA be strengthened by aligning with ‘a smart regulatory mix', with both criminal and non-criminal regulatory mechanisms and includes mandatory due diligence.

As a result, RIAA recommends the Government continues its consultation and engagement to work towards an effective form of mandatory human rights due diligence for Australia. Leading practice for such a framework involves mapping out and implementing due diligence process and policy, including assessing risk, preventing and mitigating impacts and prioritising human rights issues based on saliency, monitoring the effectiveness of these activities, developing complaint procedures and remediation, and providing public reporting. Good practice also involves collaboration across departments to define goals and build a roadmap as well as collaboration with business partners.

Role of the Australian Anti-Slavery Commissioner/clarity of the regulator

RIAA submits that further clarity is required in relation to which body will be the regulator of the MSA. The consultation paper states that ‘references to the ‘regulator’ will refer to the entity that undertakes any regulatory functions under the Modern Slavery Act, including compliance and enforcement activity’ (footnote 2 on page 7). The regulator, when identified should have the appropriate powers and resources to take action and seek proportionate penalties when there is a clear failure to comply with the MSA. However, it is difficult to comment on enforcement and regulation of the Act without properly understanding the entity that is tasked with doing so.

Further clarification regarding the role of the Anti-Slavery Commissioner once the regulator is identified will be useful. In any event, RIAA encourages the Commissioner to undertake capacity building activities from reporting, such as sharing common risk areas, outcomes achieved, examples of good practice. In addition, there may be a role for the Commissioner in determining and improving transparency in relation to high-risk sectors.

Consultation under Stream B must be broad for effective participation

RIAA recommends a broad interpretation of stakeholders and specialists is taken for the proposed Stream B consultation. This should include those reporters between the reporting threshold and the largest companies, to properly understand the breadth of reporters. In doing so, the AGD will be better informed as to how to support good disclosure from the reporters, improving information available and assisting with risk mitigation. Stakeholders should also include NGOs and broader sectors impacted by modern slavery risk (e.g. migration, labour, industrial relations).

To that end, RIAA would welcome the opportunity to participate in the Stream B consultation to provide an investor perspective on topics in scope, especially as investors are considered to be a primary user of the statements. We would be happy to convene our members who will be able to provide experiential data and practical, efficient and effective solutions.

‍

Download the ‘full submission’ for responses to all consultation questions.

‍