Modern slavery statements still ‘largely descriptive and superficial’, finds FRC review

One in 10 companies has failed to comply with requirements to produce a modern slavery statement.

Modern slavery statements remain “largely descriptive and superficial, with little attempt to critique performance and highlight areas of concern”, according to research by the Financial Reporting Council (FRC).  

Published on Monday, the report – produced in collaboration with the UK Anti-Slavery Commissioner and Lancaster University – looked at a sample of 100 companies comprising FTSE 100, FTSE 250 and Small Caps. 

It assessed the prevalence of modern slavery statements, which are mandated under Section 54 of the Modern Slavery Act 2015 (MSA), as well as the extent to which firms are reporting on the issue in annual reports.

Key findings include the claim that one in 10 companies do not provide a modern slavery statement, despite it being a legal requirement. Where companies did comply, only one-third of the statements were considered clear and easy to read. 

Many companies opted for broad-brush statements rather than precise descriptions on issues such as their policy on withholding wages or imposing recruitment fees. The lack of detail and critical assessment of performance is particularly evident for reporting on training, due diligence processes, risk assessment, and policy effectiveness,” the report noted. 

Disclosures about key performance indicators (KPIs), which measure the effectiveness of steps to minimise modern slavery risks, were also seen as particularly poor. Only a quarter of companies disclosed KPI results and just 12 percent confirmed that they had made informed decisions based on those targets. 

The vast majority of modern slavery statements were also found to be “wholly backward-looking, with only a minority clearly identifying emerging issues or a long-term strategy”. 

A related finding was that, although the majority of companies report that they assess modern slavery risk in their own business and supply chain, less than a third disclosed an action plan based on the risks identified. 

Not surprising

Responding to the report, James Corah, head of sustainability at CCLA, told Responsible Investor: “The findings of the FRC’s analysis are disappointing but sadly not surprising. Many companies continue to treat addressing modern slavery as a ‘nice to have’, not a regulatory imperative.

He continued: “Investors need to step up and encourage companies to build proper structures for addressing modern slavery. If not, they will continue to fall foul of ever-increasing standards expected by regulators and legislators. It is beyond time to address the governance of slavery.”

CCLA heads up the £7 trillion investor initiative Find It, Fix It, Prevent It, which aims to tackle modern slavery by promoting public policy, corporate engagement and improved data.

Earlier this month, Responsible Investor spoke with the Independent Anti-Slavery Commissioner Dame Sara Thornton about financial institutions’ role in tackling modern slavery, and why legislation needs to go further.

Perhaps unsurprisingly, the FRC review found that company size, sector and business complexity were important factors influencing the level of transparency in modern slavery statements.  

For instance, sampled companies operating in sectors which rely to a large extent on manual labour within their supply chain, and are therefore at greater risk of modern slavery, tended to provide more information on average. 

By comparison, companies in the tech and financial services sectors generally provided less information.

“Patterns likely reflect a combination of supply considerations (companies operating in these sectors have more issues to discuss) and demand factors (external stakeholders are more sensitised to the risks and therefore request more information),” the report’s authors noted. 

They also suggested that, judging by annual reports, too many companies still do not view human rights issues in their workforce and supply chain as a principal source of risk for their business, and that modern slavery considerations are not a mainstream concern for many boardrooms. 

The issue of modern slavery was highlighted in a report by the UK’s All-Party Parliamentary Group on Environmental, Social, and Governance (APPG ESG) earlier in April. 

Recommendations included a call for the government to implement “amnesty periods” for companies to address reported modern slavery in supply chains, as well as the creation of a taskforce to support businesses in identifying and addressing the issue.

It is estimated that modern slavery generates $150 billion annually. According to the ILO, there are more than 40 million people in slavery globally, of whom 25 million are in forced labour. One in four victims of modern slavery are children.