UK Supply chain guidance

published on 15 September 2022 | reading time approx. 5 minutes

Organisations across all sectors are becoming subject to more compliance require­ments. These can arise from specific legislative requirements or the increasing drive for businesses to operate ethically and with regard for their impact on the environment and wider society. To meet the needs for a more sustainable business, companies need to manage the impact across their whole supply chain.

In the UK, it is not compulsory by law for any risk management or prevention steps to be taken. The obligation is only for a transparency statement under the Modern Slavery Act to be published setting out what (if any­thing) has been done.

“Modern slavery” is an umbrella term which includes the offences of human trafficking, slavery, servitude and forced or compulsory labour, including sexual or criminal exploitation.

The Modern Slavery Act sets out corporate transparency requirements applicable to organisations with a turn­over of £36 million or more, including that of subsidiaries, that carry on a business or a part of a business in the UK and provide goods or services. Those organisations must report annually, on the steps that they have taken during the financial year to ensure that slavery and human trafficking are not taking place in their own business or in their supply chains.

These statements must be approved by the company board and signed by a director (or equivalent) and made available on the homepage of the company's website. The statement will disclose the steps a company has taken to ensure its supply-chain is free from slavery. If a company has taken no steps to combat slavery, this must also be disclosed.

Currently, no penalties can be imposed for non-compliance under the Act, though it is open to the UK govern­ment to seek court injunctions against businesses that fail to meet their obligations under the legislation. In­stead, the UK guidance recommends that businesses respond according to the circumstances, this may include contacting local government, law enforcement, or reconsidering commercial relationships with suppliers.

How to assure the labour supply chain

Organisations should perform due diligence to enable them to make a judgement on transactions and the inte­grity of their supply chain and protect the business by testing the credibility, legitimacy, legal and tax compli­ance of the organisation, suppliers, customers, employees and labour supply.

Exploitation, fraud and avoidance are easier to hide below the surface of a supply chain when effective due diligence is not performed by all parties, therefore checks done purely in relation to immediate suppliers and customers may not be sufficient.

It is also important to consider the credibility of the supply, payment arrangements and other surrounding circumstances. Using supply chain due diligence principles of check, act and review will help apply effective risk management and robust due diligence to assure the integrity of the supply chains, minimising exposure to risks.

Supply chain due diligence principles

Failing to take reasonable action to make sure that a supply of labour is legitimate can lead to significant legal, financial and reputational risks to businesses. Businesses should perform due diligence to enable them to make a judgement on transactions and the integrity of the supply chain.

The Gov.UK site highlights the importance of using supply chain due diligence principles of check, act and review. It highlights how this due diligence will help businesses apply effective risk management and robust due diligence to assure the integrity of the supply chains, minimising the exposure to risks.

Companies may follow this link for more information on applying supply chain due diligence.

Good governance

Good governance and leadership within an organisation are vital. For example, taking a strong stance on bribes and corrupt practices and making sure that suppliers' cash flows are not impacted by poor payment practices.
Most countries have clear anti-bribery laws. Under the UK Bribery Act, it is illegal to “offer, promise, give, request, agree, receive or accept bribes”. This includes money and gifts.

Buyers and suppliers need to have policies in place that include reducing and controlling bribery risks in their supply chains. This means clear rules about accepting gifts, hospitality or donations and measures to avoid or stop conflicts of interest.

Failure to take steps to eradicate bribery from the supply chain not only harms competition, but it comes with reputational and legal risks for any business. Commercial organisations that fail to prevent bribery by their associated persons are guilty of an offence under section 7 of the Bribery Act 2010, unless they can show that they have in place adequate procedures designed to prevent such conduct. The Bribery Act makes it clear that anyone associated with an organisation should be made aware that bribery will not be tolerated, and this includes agents acting on the organisation’s behalf, not just direct employees.

The Act includes a corporate offence for failing to prevent bribery. It also provides for the prosecution of any director, manager, secretary or similar officer of the entity for the same offence, if it was committed with that person’s consent or connivance.

Environmental commitments

Most organisations will have policies and targets for reducing their environmental impact and may require those in its supply chain to adhere to them.

The UK’s Environment Act 2021, has passed into law on 9 November 2021 by receiving the Royal Assent. Sec­tion 116 of, and Schedule 17 to, the Environment Act 2021 enable the Secretary of State to make regulations to prevent illegal deforestation by controls on the UK's international supply chain. The new provisions apply to large businesses with a turnover over a specified threshold (yet to be set out in regulations) and will:

• Prohibit them from using a forest risk commodity or a product derived from that commodity in their UK commercial activities unless relevant local laws on that commodity were complied with.
• Require them to establish and implement a due diligence system for any forest risk commodity or a product derived from it used in their UK commercial activities, and report annually on their due diligence.
• The detail of the prohibition and due diligence requirement will be set out in secondary legislation, which will include provisions on enforcement, civil sanctions and criminal offences for breach

The Environment Act also introduces a mandatory due diligence system and an annual reporting requirement on companies using "forest risk commodities" in their supply chains. The definition of "forest risk commodities" will be set out in secondary legislation (which is yet to follow) but will be commodities that are associated with wide-scale deforestation.

In consequence, greater systems of due diligence will be required, businesses should identify and obtain information on commodities used, undertaking a risk review that relevant local laws were complied with when obtaining those. To substantiate this requirement, an annual reporting obligation on deforestation in a UK business’s supply chain will follow six months from the end of the UK financial year.

The aim of such measures is to build greater resilience, traceability and sustainability in the UK’s supply chain whilst contributing to the end of the climate crisis.