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Can consumers and market actors ‘regulate’ corporate reporting on Modern Slavery risk?

Dr. Jolyon Ford, Associate Professor of Law at the Australian National University

Slavery protest

Australia’s pending federal statutory requirement for corporate reporting on modern slavery risks does not rely, ultimately, upon federal regulatory monitoring and enforcement. Instead, the model relies on non-governmental (and sometimes related) societal forces -- consumer action, and market investor, insurer and other pressures -- to drive and police corporate compliance. Firms’ exposure or interest in reputational factors are then key in this compliance logic: the risks of adverse publicity and the benefits of progressive intent and action. 

Consumers and market actors as proxy compliance regulators 

Notwithstanding some facility for Ministerial intervention under the Australian Act, this twin rationale whereby government ‘stands back’ from the scheme underpins Australia’s Modern Slavery Bill. In the September 2018 Second Reading Speech, the Minister’s clear expectation was that non-compliant businesses will be ‘penalised by the market and consumers’ and so might ‘severely tarnish their reputations’. We need to test the proposition that reputational risk is a sufficient motivator, and also question how effective consumers and market actors might be as proxy compliance ‘regulators’. Those actors are, of course, not synonymous: ‘consumers’ and ‘the market’ may have very different sets of incentives and access to information. 

‘Business and human rights’ commentators often overlook that emerging reporting models in their own field are not new: decades of insights exist from equivalent ‘stand-back’ schemes in toxic pollution control and environmental protection. Likewise our lawyer-dominated field has focused on the ‘supply’ or design of laws and policies, appearing less interested in the corresponding ‘demand’ side: ‘how significant are market and consumer impulses relative to legislative and regulatory ones, how do they underpin regulation?’

Critics say that corporate responsibility for human rights cannot be left to consumers and market forces and must be directly regulated by the state. The perceived innovation in stand-back reporting models is that they invoke state regulatory power (required reporting) but also harness potentially more profoundly transformational non-state societal influences on corporate behaviour. Even if political will or governance capacity existed for direct state oversight and action with punitive mechanisms (the argument goes), the indirect model is also better suited to hugely diverse and complex sectors and supply chains.

Big onus on society 

It moreover puts the onus on society itself. Half (49%) of all respondents to a 2013 Eurobarometer survey believed that citizens themselves (through their consumer behaviour) should take the lead in influencing responsible corporate actions. Only a third (36%) thought that public authorities should lead through policies and regulation. Again, the model here is a mix of public regulatory power and societal sources of influence. One risk is that Australians see modern slavery risk as an issue for government and business to resolve, not questioning their own consumer behaviours

Noting the caveat that different sectors (and companies, and particular brands within them) differ hugely in their vulnerability or sensitivity to reputational risk, in principle, there is an argument for regulation that relies on reputational risk exposure. For market ‘policing’ of reporting, demand for reassurance about an entity’s mitigation of human rights risk might conceivably and increasingly drive compliance. Australia’s relatively concentrated retail banking scene and its developed institutional investor cohort might exert particular influence (and report themselves). Assurance and advisory firms might compete to produce the best reporting for clients; if their methodology is sensible and reports comparable, civil society might organise credibly to rank reporting quality and consistency. Some market players will be sensitive to how consumer/citizen sentiment and action might impact the reporting entities they invest in or insure. 

Will Australian consumers take action based on modern slavery reports?   

Consumer policing of reporting is more problematic. Broad assumptions and potentially inconvenient truths raise the question of whether this ‘outsourced regulation’ model relies too heavily on the existence of a critical mass of well informed and highly engaged consumers. (As with reputational risk, not all firms are equally vulnerable to consumer sentiment whatever their exposure to market pressure). First, will enough consumers seek out information to make viable, company-comparable choices? Second, will interested consumers have sufficient information from reporting practices alone? A 2013 European Commission survey found that 80% of Europeans are interested in what companies do to behave responsibly, but over 60% felt they lacked information on that. On modern slavery reporting, can civic ranking and other initiatives help, so that the model’s design does not turn merely on the hope that consumers will actually read and understand corporate statements?

Beware the ‘attitude-behaviour gap’  

Third, even assuming a mass of aware consumers, research tells us to treat carefully assumptions that ethical purchasing behaviours, at scale and sustained over time, will necessarily follow. What’s been referred to as the ‘attitude-behaviour gap’ means that even self-declared ethical consumers do not necessarily change their behaviours. Stated ethical intentions do not automatically translate into ethical buying behaviour at the ‘moment of truth’ (the cash register or ‘buy’ icon). (Carrington et al, 2010). 

Embedding ethical consumerism and related corporate and regulatory behaviours requires activity and interactivity by and between individuals, corporations and policy/regulatory institutions.  More needs to be known about how Australian consumers become informed and motivated so as to act as a ‘social control’ on business behaviour. Time may tell: this is a somewhat ‘new’ issue, and maybe the enactment of a legislative model that assumes consumer awareness may itself create that awareness and interest among consumers. But the scheme may also be largely premised on an at-scale ethical Australian consumer public whose existence is simply a ‘myth’.