Dame Sara welcomes ground-breaking analysis of modern slavery activity in annual reports
The Independent Anti-Slavery Commissioner, Dame Sara Thornton, has welcomed new research by the Financial Reporting Council (FRC), which exposes the lack of transparency in the way major companies disclose modern slavery risks to shareholders.
The FRC’s Annual Review of Corporate Governance, published today, examines the quality of company reporting against the UK Corporate Governance Code. This year the FRC is examining, for the first time, the extent to which companies are reporting on modern slavery risk and strategy, as part of their duty to shareholders and other stakeholders.
The FRC commissioned research on a random sample of companies, analysing both their annual reports and modern slavery statements against an ethical framework developed by the Business and Human Rights Resource Centre (BHRRC).
Lancaster University’s Department of Accounting and Finance carried out the research. Its findings include:
- 42% of companies discussed the person, department or committee responsible for overseeing modern slavery in their annual reports, but only 19% referred to KPIs or other non-financial performance indicators relating to modern slavery.
- In risk reporting, there was a wide disparity between modern slavery statements and annual reports: just 15% of annual reports made reference to companies’ assessment of modern slavery risks. By contrast 72% of modern slavery statements disclosed this risk (although half of the latter were only partial disclosures).
- A mere 13% of companies explicitly discussed board-level decisions relating to modern slavery in their annual report with just 2% referring to the long-term impact of related issues on their business
- Most companies failed to link or refer to their modern slavery statements within their annual reports.
- Regarding modern slavery statements, companies’ assessments of the effectiveness of their modern slavery policy was the least transparent area, with 57% of companies failing to disclose any KPIs or other methods used to measure the effectiveness of efforts to address modern slavery risks.
Dame Sara Thornton, Independent Anti-Slavery Commissioner, said:
“I welcome this important and timely move by the Financial Reporting Council to include analysis of anti-slavery activity and human rights due diligence within annual reports. The research further underlines my concerns that modern slavery is not a mainstream concern for the boards of many major businesses.
Modern slavery presents a multitude of risks to companies, including loss of reputation, legal challenges, import bans, risk to supply chains, delivery and operations, as well as highlighting poor governance. Boards and directors need to factor in the long term impact of their decisions on the business, as well as the communities within which they operate.
Now that the UK Modern Slavery Act has passed the five year mark, businesses should be hitting their stride on modern slavery reporting, moving away from superficial and descriptive statements and preparing for more open dialogue with investors and other stakeholders. And the investment community, in its turn, needs to be pushing harder on businesses to disclose more. Annual reports present another lever for deeper engagement.”
Read the Financial Reporting Council (FRC) Annual Report here.