The Next Phase of ESG Reporting? Reforming Modern Slavery Transparency Obligations

The reforms form part of the Government’s wider Immigration and Asylum Bill and its Restoring Order and Control programme. The Bill’s Explanatory Notes state that the Government intends both to strengthen the UK’s response to modern slavery and to reform aspects of the current framework that it considers vulnerable to misuse.

From a corporate reporting perspective, the Government has identified concerns regarding the quality and consistency of modern slavery statements, as well as the limited enforcement options available under the current regime. The proposed amendments seek to address those concerns through more prescriptive reporting requirements and stronger enforcement measures.

Section 54 of the MSA requires commercial organisations carrying on business in the UK with an annual turnover of £36 million or more to publish an annual slavery and human trafficking statement. The statement must either describe the steps taken to address modern slavery risks within the organisation and its supply chains, or state that no such steps have been taken.

Although the MSA and accompanying guidance identify topics that may be included, there is currently limited mandatory content and considerable flexibility regarding how organisations report. As such, statements often vary significantly in scope and level of detail.

Enforcement options are also currently limited. While the Secretary of State may seek an injunction requiring compliance, there is currently no direct power to impose financial penalties on non-compliant organisations.

Interestingly, the Bill does not propose changing the existing £36 million turnover threshold. Rather, it focuses on expanding reporting requirements and strengthening enforcement, bringing the statutory baseline closer to standards many larger organisations may already meet.

More prescriptive reporting requirements

The most significant change is the introduction of mandatory reporting requirements. If enacted, organisations would be required to report on prescribed topics, including:

• modern slavery risks within their operations and supply chains;
• the steps taken to identify, assess and mitigate those risks;
• policies and governance arrangements;
• due diligence processes;
• staff training; and
• the effectiveness of measures taken during the reporting period.

Importantly, organisations would also be required to explain where key measures have not been adopted. For example, where no risk assessment, due diligence process or training programme has been implemented, the statement would need to explain why.

For businesses that already report beyond the statutory minimum, many of these requirements may feel familiar. For others, they are likely to require more robust governance, record keeping and data collection processes to support future disclosures.

Increased governance and accountability

The Bill would place greater emphasis on board-level oversight. Modern slavery statements would continue to require approval and signature by an appropriate senior individual, but the signatory would also be required to declare that the contents are accurate to the best of their knowledge and belief.

Whilst the reforms do not create personal liability for directors, they are likely to increase scrutiny of both the information contained in modern slavery statements and the processes used to compile them. Organisations may therefore need to revisit internal reporting and verification procedures before obtaining final sign-off.

The proposals would also allow parent companies to certify statements on behalf of subsidiaries, which should simplify reporting for many corporate groups.

Publication requirements

The reforms would require statements to be published as soon as possible after the end of the financial year and, in any event, within six months. Organisations would also be required to submit statements electronically to the Secretary of State through prescribed channels, thereby supporting mandatory use of the Modern Slavery Statement Registry and improving public access to reporting.

Taken together, these changes should make it easier for stakeholders to compare reporting across organisations and identify those falling behind market practice.

Extension to public authorities

The proposed regime would also apply to certain public authorities meeting prescribed financial thresholds. Public bodies would be subject to broadly similar reporting and certification requirements as commercial organisations.

This may have important implications for suppliers to the public sector. As reporting obligations increase, businesses participating in public procurement exercises may face greater scrutiny of their own modern slavery controls, due diligence procedures and supply chain governance arrangements.

Financial penalties

The Bill would empower the Secretary of State to introduce regulations imposing financial penalties for non-compliance with modern slavery reporting obligations. Any penalty could not exceed the greater of:

• £1 million; or
• 1% of annual turnover (or, in the case of public authorities, 1% of budget).

The Explanatory Notes also envisage warning notices, opportunities to make representations and rights of appeal before penalties are imposed. Further, only one penalty may be imposed in respect of any single statement in a given financial year.

In our view, the introduction of financial penalties is likely to attract the greatest initial attention. The more significant long-term change may be the requirement for organisations to explain, with greater specificity, how they identify and manage modern slavery risks across their operations and supply chains.

Although the proposals remain subject to the Parliamentary process, organisations should begin assessing whether their existing governance and compliance frameworks are capable of supporting the enhanced reporting requirements.

In particular, businesses may wish to:

• review existing modern slavery statements against the proposed disclosure requirements;
• identify higher-risk areas within their operations and supply chains;
• assess the adequacy of existing due diligence processes;
• review governance, reporting and approval procedures; and
• consider how the effectiveness of modern slavery controls can be evidenced and measured.

In our experience, many organisations already hold much of the information that would be required under the proposed regime. The challenge is often that responsibility for that information sits across multiple functions, including procurement, legal, compliance, sustainability and HR, making it difficult to collate and verify for reporting purposes.

For many organisations, the focus is likely to be on ensuring that the policies, processes and data underpinning modern slavery statements can withstand increased scrutiny.

Sophie Kemp is Head of Kingsley Napley’s Public Law Team and a leading specialist in complex public, regulatory and ESG‑related matters.

Nicola Finnerty is a leading defence lawyer specialising in high profile and complex Government enforcement cases, proceeds of crime, white collar crime, fraud, asset forfeiture, investigations and AML in the UK and internationally.

Úna Campbell is a trainee solicitor at Kingsley Napley and is currently sitting in the Public Law team. She works on a broad range of public law matters, including judicial reviews, inquests and public inquiries.