FRC finds “significant shortcomings” in modern slavery reporting

This FRC research report indicates that too many companies are failing to treat human rights issues in their workforce or supply chain as a principal source of risk or mainstream concern for boardroom discussion, with annual reports and modern slavery statements found to be lacking the information needed for shareholders and wider stakeholders to make informed decisions. Many companies treat this reporting as more of a compliance exercise, providing limited and often superficial commentary on this key business risk.

The FRC has published this new research report, in conjunction with the UK Anti-Slavery Commissioner and Lancaster University, which has identified significant shortcomings in the quality of companies’ modern slavery reporting. 

In annual reports, reporting was found to be minimal,  which is consistent with the evidence found of patchy reporting on risk assessment and effectiveness in modern slavery statements, with very few referring to KPIs. Relatively few reported on internal controls linked to the oversight of human rights and slavery in their annual report. Even fewer gave any information about when and how frequently their modern slavery policies and governance arrangements are reviewed.

The report calls on companies to: 

  • disclose how they engage with suppliers on modern slavery issues;
  • improve labour practices before contract approval and subsequently monitor performance;
  • provide more detail on the nature and scope of risk assessment processes; and 
  • disclose how companies review their policies and KPIs to assess performance and influence company exposure to slavery risk. 

The report also calls for a more joined-up approach to modern slavery disclosures in annual reports, with particular criticism of section 172 statements as only a tiny minority explained the long-term impact of modern slavery on the business. The report also highlights that the vast majority of annual reports fail to discuss modern slavery in the context of principal risks and uncertainties or provide a direct link to the modern slavery statement. 

These findings may make it more likely that the government will prioritise the implementation of their 2020 proposals that are intended to increase transparency and compliance, improve reporting quality and extend the scope of the legislation, including mandatory content and reporting deadlines.

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Published 28 April, 2022

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