Passing of Customs Amendment Bill by Senate highlights the need for business ESG integration - International Trade & Investment

On 23 August 2021, the Australian Senate voted to pass the Customs Amendment (Banning Goods Produced by Forced Labour) Bill (2021) (Bill) prohibiting the importation into Australia of any goods made by forced labour.

Originally introduced following widespread publicity of alleged human rights abuses of Uyghur people in Xinjiang province, the Bill was amended to implement the Senate Standing Committee on Foreign Affairs, Defence and Trade's recommendation to adopt 'a global ban on the import to Australia of goods produced by forced labour' by prohibiting the importation of any goods that have been produced or manufactured by forced labour, regardless of origin.

At this stage it is unclear whether the Bill will have the necessary support in the Australian House of Representatives to become law. However, similar legislation has been proposed in the US and in Europe and the trend from voluntary to mandatory supply chain due diligence regarding modern slavery requires attention.

The need for ESG integration

In an environment where responsible business is valued, environmental, social and governance (ESG) reporting and disclosures are becoming increasingly important in order to attract both capital and outstanding employees. A ban on products known to be produced with, or expected to have high risks of, modern slavery may make it difficult to reach environmental targets.

Addressing modern slavery is a mandatory reporting requirement for certain Australian-based organisations, and we should all welcome the removal of forced labour from the supply chains of the goods we consume. However, the recent release of the IPCC report, and the push for a green economy driven with renewable energy, creates some challenges that reflect a need for an integrated approach to ESG management. For example, it is estimated that 65% of the world's polysilicon (an essential ingredient in solar panels) comes from China, with 45% of that coming from Xinjiang. It is widely accepted that goods produced in Xinjiang carry an unacceptable risk of forced labour. As we move to renewable energy in order to reduce carbon emissions, it is possible that we could diminish our climate impact and risk on the one hand, while increasing the risks of modern slavery in our supply chains on the other.

Similarly, cobalt is an essential material for the production of batteries and a vital tool for the transition to green energy. It is primarily mined in the Democratic Republic of Congo under difficult and often conflict conditions, and child labour is common. There have been calls for battery manufacturers to address child labour and exploitation in the industry which is understood to continue to have unacceptably high risks of modern slavery.

Companies have begun to address these types of forced labour issues through business associations and alliances. The Solar Energy Industry Association has developed traceability protocols that apply to products in the solar supply chain, while the Fair Cobalt Alliance is investing in measures to support the transition of illegal mining projects to alternative, sustainable operations. However, the ongoing likelihood of forced labour in these markets means that organisations, particularly those operating in the renewable space, should maintain a clear understanding of their risk exposure, and develop plans around how they will manage that exposure in the future.

With investors and activists asking questions about the compatibility of human rights and clean energy future goals, the way that companies deal with these conflicting issues at the board level will be critical to the ongoing success of the company in the face of increasing scrutiny.

Broader trends in business and human rights

Although it is unclear whether the Bill will be enacted in Australia, it nonetheless demonstrates an intensified scrutiny of forced labour in supply chains from local and international law-makers. Alongside similar measures adopted globally, it represents a broader push to impose positive legal obligations on importers to address modern slavery and forced labour.

In the US, for example, a similar bill recently passed the Senate and has progressed to the House of Representatives where it is expected to pass easily. The Uyghur Forced Labor Prevention Act (US Act) prohibits certain imports from Xinjiang province and imposes sections on parties that are responsible for human rights violations in the region. Specifically, the US Act introduces a rebuttable presumption that all goods produced or manufactured in Xinjiang were the subject of forced labour.

Meanwhile, the European Parliament has asked for a legislative proposal that would effectively provide a mechanism to ensure the traceability and ban products that may be produced with the use of forced or child labour. Until now, the onus has largely been on businesses to adopt voluntary human rights commitments, such as the OECD Multinational Guidelines, or the United Nations Guiding Principles on Business and Human Rights. However, as these international examples demonstrate, legislators are increasingly pushing for greater accountability and hardened commitments from the business community when it comes to human rights.

Looking ahead

The Bill seeking to prohibit imports of goods produced on the back of forced labour reflects a broader trend towards mandatory corporate human rights due diligence. Regardless of whether or not it passes in the Australian House of Representatives, we can expect to see the introduction of related legislation in the future.

Forward thinking organisations will do well to prepare now by ensuring they are building human rights due diligence mechanisms and accountabilities into their systems and processes, and taking an integrated approach to ESG risk management to ensure that addressing environmental considerations does not increase risk exposure in respect of human rights.

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