Investing for change: Combating Modern Slavery in the Renewable Energy Sector

There is a growing concern that the clean energy transition is facilitating a rise in modern slavery.

The renewable energy sector relies on complex and extended supply chains where the length and complexity of these supply chains makes it difficult for businesses to accurately assess the prevalence of modern slavery practices. The supply chains in the renewable energy sector often commence in developing nations (where many raw materials are extracted and converted into products) and the labour force may be susceptible to exploitation, including long hours, low pay, and hazardous working conditions.

This article considers the Australian legislative backdrop which addresses modern slavery (including upcoming reforms) and sets out measures that companies may take to minimise the risk of modern slavery in renewable energy supply chains.

Modern slavery globally

The most recent “Global Estimates of Modern Slavery” report prepared by the International Labour Organization, Walk Free Foundation and the International Organization for Migration estimated that 50 million people were living under conditions of modern slavery in 2021.1

Although there is no globally agreed definition for “modern slavery”, the Walk Free Foundation (an Australian human rights organisation) defines modern slavery as “situations where one person has taken away another person’s freedom – their freedom to control their body, their freedom to choose to refuse certain work or to stop working – so that they can be exploited. Freedom is taken away by threats, violence, coercion, abuse of power and deception. The net result is that a person cannot refuse or leave the situation”.2

Australian legislative framework

In Australia, modern slavery is addressed by the Modern Slavery Act 2018 (Cth) (MSA), Modern Slavery Act 2018 (NSW) and the Criminal Code Act 1995 (Cth) (Criminal Code). The Criminal Code criminalizes what is considered ‘traditional’ slavery – chattel slavery, and slavery like practices. Practices involving the sale or ownership of a person, or the assertion of ownership of a person (whether by debt or contract), or the purchase of a slave, or the capture or transport or disposal of a person to be a slave are criminal offences under the Criminal Code. The MSA is a transparency reporting law which attempts to promote a race-to-the top to eradicate modern slavery from supply chains. It defines ‘modern slavery’ to include slavery and slavery-like offenses, the trafficking of persons and the worst forms of child labour.

The MSA creates annual mandatory reporting requirements through the filing of a Modern Slavery Statement (MSS) for entities based or operating in Australia which have an annual consolidated revenue of more than $100 million. A publicly accessible Modern Slavery Statement Register houses filed MSSs and attempts to promote public scrutiny and engagement. Reporting entities must set out the risks of modern slavery in their operations and supply chains, and actions to address those risks in the MSS. Other entities based, or operating, in Australia may report voluntarily. The Commonwealth Government also has reporting obligations under the MSA.

While some argue that ‘paper-based’ reporting obligations do not significantly influence business practices, the creation of a regulatory risk for businesses may incentivise businesses to scrutinise their supply networks and relationships to comply with the obligations imposed by the MSA.

Upcoming reforms

The ‘Report of the statutory review of the Modern Slavery Act 2018 (Cth): The first three years’ was released in May 2023 and made 30 recommendations as to the regime’s effectiveness.3 These recommendations included:

  • expanding the application and scope of reporting obligations (including by lowering reporting threshold from companies with a $100 million consolidated revenue to those with a to $50 million consolidated revenue);
  • introducing penalties for specific noncompliances (including failing to submit an MSS or making a materially false statement);
  • mandating that reporting entities have due diligence processes;
  • grievance and complaints reporting mechanisms; and
  • empowering the Minister or Commissioner of a region, location, industry, product, supplier, or supply chain to make declarations as to high modern slavery risks.

It remains to be seen whether these reforms will be considered for formal adoption. There are concerns that Australia’s modern slavery regime will become too prescriptive and cause excessive administrative burden, particularly for the smaller businesses that would fall within the scope of the MSA.

How to ensure compliance

Addressing modern slavery requires a multi-stakeholder approach that involves governments, businesses, civil society, and consumers working together to identify and eliminate exploitative practices from supply chains. Organisations operating in the renewable energy sector must assess their supply chains, engage with suppliers, and implement policies and processes to prevent and address modern slavery risks.

Specifically, renewable energy companies (alongside sponsors and financiers) should,

  1. conduct due diligence on their supply chains to identify and mitigate the risk of modern slavery practices: this includes mapping out supply chains, identifying the origin of raw materials, and assessing suppliers’ labour practices prior to formalising contractual arrangements;
  2. create robust policies and procedures to prevent the use of modern slavery in their supply chains: including establishing a code of conduct that suppliers must adhere to (with contractual warranties of compliance and indemnities for breach), implementing training programs for employees and suppliers on labour rights and modern slavery risks, establishing reporting obligations and performing periodic audits on suppliers’ compliance with the code of conduct;
  3. build strong relationships with suppliers based on transparency and a carrot-and stick approaches: including by proactively monitoring supplier compliance with mandatory MSA reporting obligations to improve accountability and promote a culture of compliance and best practice; and
  4. increase collaboration with government: including by sharing best practices and advocating for policy changes.

Looking forward

It is important that the path to achieving net-zero is not undermined by human rights violations and environmental damage. Companies in the renewable energy sector should scrutinise supply chains to ensure modern slavery compliance. Alongside human rights benefits, doing so will ensure that companies do not fall afoul of ESG obligations, and that investor confidence and public reputation remains intact. The legislative trend is for obligations to become more stringent (and penalties more severe), so now is the time for companies to assess and ensure compliance.

1Global Estimates of Modern Slavery: Forced Labour and Forced Marriage (12 September 2022).
2Walk Free Foundation Submission – Inquiry into an Australian Modern Slavery Act (28 April 2017).
3Report of the statutory review of the Modern Slavery Act 2018 (Cth), Professor John McMillan, AO (May 2023).