Boards will have to increase scrutiny of supply chains as rules come into effect on Thursday compelling larger companies to certify that their suppliers are not using forced labour.
The provision for transparency and supply chains in the Modern Slavery Act will apply to companies with a turnover of more than £36m. It is part of a law intended to encourage businesses in Britain to root out forced labour or human trafficking from their supply chains.
These companies will have to publish statements on their websites verifying whether they have conducted due diligence to ensure their suppliers are not using forced labour.
The Home Office will publish guidance on Thursday detailing what businesses must tell consumers about their supply chains, it said.
While the act does not include financial or criminal penalties for companies if instances of slavery are uncovered, “companies risk hostile media attention and the potential for high street boycotts” said Paul Henty, a partner at law firm Charles Russell Speechlys.
“It would not surprise me to see large businesses switching suppliers if there is even a suspicion that they are tainted by modern slavery, trafficking or forced labour practices,” Mr Henty said. “This is a national law with a truly global impact.”
Senior executives must sign off on the statements, which has “brought this issue into the boardroom” by triggering directors’ duties, said Peter Talibart, a partner at Seyfarth Shaw. That creates exposure to litigation if the statement is misleading and a corporate scandal involving slavery does occur that damages the share price. “It is no longer possible to separate ethics from value in the sophisticated, informed markets of today,” he added.
The law is in some ways modelled on a requirement in California’s Transparency in Supply Chains Act, which is one of the only other rules in the world that forces businesses to give information to consumers about what they have done to eradicate trafficking from their operations.
Some legal experts say the British law does not go far enough in punishing companies that overlook possible instances of slavery, but still welcome the law for calling attention to the issue.
Neil Carberry, employment director at the CBI, said the group supported the law but “would have liked a higher threshold to ensure businesses required to report have the capacity to do so.”
He added it would “look forward to working closely with the government so that reporting requirements for the growing medium-sized firms who will be affected are proportionate and free from duplication or unnecessary bureaucracy”.
Robert Amaee, a partner at law firm Covington & Burling, said businesses would have to start taking steps immediately to ensure they were compliant.
“Many have started to examine and document the steps that may already be taking place within the business to combat human trafficking and slavery, for example, as part of the business’s screening procedures for new employees, its due diligence procedures for the engagement of third parties, its wider risk assessments, its training of employees and high-risk third parties, or its policies and codes of conduct,” he said.