Managing the Risks of Modern Slavery in the Resources and Energy Sectors

Welder used grinding stone on steel in factory with sparks

On 7 December 2021, the Australian Human Rights Commission (AHRC) released a new guide to assist stakeholders in the energy and resource sectors with their compliance obligations arising under the Modern Slavery Act 2018 (Cth.)

The Guide is the fourth in a series that are industry-specific. The AHRC has previously released three such guides for the construction and property industry, financial services industry, and the health services industry.

The Guide is a 49-page document and is a useful tool for energy/ resource compliance managers to assist them with their compliance obligations in relation to modern slavery. This article will provide a summary of the Guide. The full document can be found at:

https://humanrights.gov.au/sites/default/files/document/publication/ahrc_kpmg_modern_slavery_energy_2021.pdf

This article will summarise the following:

  • What is Modern Slavery:
  • What does the Modern Slavery Act 2018 (the Act) Require?
  • What are the Seven Mandatory Reporting Criteria?
  • What Risks are Identified in the Resources and Energy Sector?
  • What Risks are Identified (specifically) in the Resources Sector?
  • What Risks are Identified (specifically) in the Energy Sector?

What is Modern Slavery?

Modern slavery is a term is used to describe situations where coercion, threats or deception are used to exploit people and deprive people of their freedom. These violations are crimes in Australia.

Modern slavery includes trafficking in persons, slavery, servitude, forced marriage, forced labour, debt bondage, the worst forms of child labour and deceptive recruiting for labour or services. The Guide acknowledges that the economic and labour market shocks accompanying the COVID-19 pandemic have exacerbated the risks of modern slavery globally, especially for women, children and migrant workers

The Guide noted the changing ground in relation to the mining of fossil fuels and energy supply:

Relationships between the traditionally distinct sectors of mining, oil and gas, and power generators and retailers, are rapidly shifting with the global shift towards decarbonisation and sustainability. This has added complexity to the supply chains of companies in these sectors, creating new modern slavery risks that must be considered and addressed under the Modern Slavery Act 2018 (Cth.)

What does the Modern Slavery Act 2018 (the Act) Require?

The Act requires entities with a consolidated revenue of $100m or more to submit a modern slavery statement. The statement must disclose what the entity is doing to identify and manage modern slavery risks in both their operations and supply chains. The statement must be approved by the entities board and signed off by a director or a responsible member of the entity. The statement is then published on a central online Australian Government register.

NB: It is important to note that there are also state laws in this space. For example, NSW has the Modern Slavery Act 2018 (NSW) relating to entities with consolidated revenue of $50m or more. The penalties in the NSW Act include fines of up to $1.1m.

What are the Seven Mandatory Reporting Criteria?

There are seven mandatory criteria that your entity must respond to under the Modern Slavery Act 2018 (Cth.) requiring descriptions of:

1. The reporting entity.

2.  Your structure, operations and supply chains.

3. The risks of modern slavery practices in your operations and supply chains and any entities owned or controlled by a parent entity.

4. Actions taken to assess and address those risks, including modern slavery due diligence and remediation processes.

5. How your entity assesses the effectiveness of the actions taken.

6. The process of consultation with entities owned and/or controlled by you.

7. Any other information that you consider relevant.

What Risks are Identified in the Resources and Energy Sector?

The AHRC research shows that there are four key factors that elevate the risk of modern slavery: vulnerable populations, high-risk business models, high-risk procurement categories, and high-risk geographies. Where multiple high-risk factors co-exist, there is a greater likelihood that actual harm is being experienced, and additional controls are required to ensure that risk does not become harm.

The Guide highlighted the common modern slavery practices connected to the resources and energy sectors as human trafficking, bonded labour, forced or unpaid work and the worst forms of child labour. The reasons given for the resource and energy sectors being high risk included:

  • High-risk geographies in operations and supply chains such as the presence of militias, criminal organisations and corrupt governments in countries that are conflict affected or prone to instability;
  • Alleged forced labour in developing countries is a supply chain risk for several renewable energy technologies;
  • Demand for base-skill workers in construction of infrastructure; frequent outsourcing of labour to third party contractors; and
  • Low visibility over multi-tiered supply chains.

The key trends giving rise to these risks were identified as:

  • Profound shift towards decarbonisation means rapidly changing procurement strategies and increasingly complex supply chains;
  • Increase in scrutiny and reporting requirements from markets, exchanges, lenders and investors on environmental, social and governance (ESG) issues;
  • Increase in scrutiny and minimum supplier standards from downstream customers regarding ESG issues; and
  • Increase in scrutiny from civil society on ESG issues, including shareholder action.

What Risks are Identified (specifically) in the Resources Sector?

In determining the resources sector as ‘high risk’, the AHRC cited the following reasons:

  • demand for migrant and base-skill workers;
  • the short-term and temporary nature of some work, such as construction;
  • high-risk business models, including labour hire and sourcing;
  • frequently operating in high-risk geographies; and
  • chartering and contracting sea transport, which is a known high-risk sector.

(As discussed above) in identifying the complex context-specific issues relating to certain countries, the AHRC cited the presence of militias, criminal organisations and corrupt governments in countries that are conflict-affected or prone to instability. The AHRC noted that these contextual factors, coupled with certain supply chain and operational complexities, increase modern slavery risk and require resource companies to proactively identify and manage that risk.

The Guide gave an example provided by Andrew ‘Twiggy’ Forrest who when investigating his corporations supply chain found an instance where workers were being forced to work after having their passports confiscated. He stated:

…it is now widely accepted that inaction, and hiding our head in the sand, are no longer options.

Resource companies are also exposed to risks associated with their corporate operations. These include risks relating to building management and other functional services, such as catering and cleaning, which have elevated risks of forced labour and trafficking practices.

What Risks are Identified (specifically) in the Energy Sector?

The AHRC clearly cite the procurement of goods in the construction of power infrastructure as the greatest source of risk for energy entities. This is largely due to the massive expansion of renewables in recent times. Traditional supply chains in the energy sector are as changed as the source of energy itself.  The procurement risks relate to:

  • Personal Protective Equipment (PPE) and uniforms;
  • Solar panels;
  • Electrical parts and electronic equipment, including metering equipment;
  • Mechanical parts; and
  • Processed metals.

The reasons that the AHRC give for risks in the procurement of goods in the energy sector include:

  • The high demand for migrant and base-skill workers in construction of infrastructure;
  • The supply chains that include high -risk geographies in the context of both manufacturing and resource extraction;
  • The short-term and temporary nature of some work, such as construction; and
  • The use of labour hire and outsourcing of construction and maintenance to third-party contractors.

Energy retailers are also increasingly purchasing renewable energy directly from third-party generators, such as wind and solar farms, to on-sell to customers. Adoption of PPAs has increased as companies offset their carbon emissions and even look to achieve neutrality. This exposes those energy companies purchasing renewable power to modern slavery risks in the manufacturing of renewable plant-sourced by generators from whom they purchase power.

Like resource companies, energy companies are also exposed to risks associated with their corporate operations. These include risks relating to building management and other functional services, such as catering and cleaning, which have elevated risks of forced labor and trafficking practices.

Summary:

The Guide gives a series of case studies and provides resource and energy sector entities with practical guidance in identifying risk, reporting of risk, and processes that assist with minimising risk. It is a clear indication of how serious the Commonwealth (and the States and Territories) consider the issue of modern slavery in relation to domestic industry.

As general investors are becoming more aware and increasingly concerned with unethical practices in supply chains generally, ensuring your entity’s compliance in this space is not just a matter of legal obligation it is a matter of financial survival. The carrot is being able to inform shareholders of the progress of this critical compliance obligation and the strident steps being taken to ensure that no one is harmed in the business itself and the associated supply chains. The stick is the turning away of ethical investors, the serious legal ramifications for failing in compliance and the reputational (and ultimately financial) damage for compliance failure in this space.

As the AHRC states in the Guide:“When companies fail to take their human rights responsibilities seriously, they expose people to harm and themselves to business risk”.

Connor James

Connor James

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