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Legal and Constitutional Affairs Legislation Committee

MUSKOVIC, Ms Francesca, National Policy Manager, Sustainability and Regulatory Affairs, Property Council of Australia

CHAIR: I welcome Ms Francesca Muskovic from the Property Council of Australia. Thank you for coming along today. I think we've provided you with some information on parliamentary privilege and the protection of witnesses. I invite you to make a short opening statement, and then we'll address some questions to you.

Ms Muskovic : I'm the national policy manager for sustainability and regulatory affairs at the Property Council of Australia. I thank the Senate committee for inviting us to participate in the hearing of the inquiry into the provisions of the Modern Slavery Bill. By way of background, the Property Council is the peak body for owners and investors in Australia's $670 billion property industry. Our members have long-term stake in what is Australia's biggest industry. As owners, managers and developers, we recognise that the property sector strongly influences and impacts on the community and our supply chains. We consider we have a responsibility to respect human rights and we are committed to playing our part in addressing modern slavery in supply chains.

The property industry in Australia is also one of the industries where we can claim to have some leadership at a global level on sustainability. The property industry in Australia regularly tops international benchmarks on sustainability. The relevant ones you could look at are the Global Real Estate Sustainability Benchmark and the Dow Jones Sustainability Index. Our leading members are world leading in what they do. We've led on environmental sustainability for a very long time, but as it's an ESG benchmark we also are trying to drive a conversation within our industry about social sustainability and how human rights risks and modern slavery fits into that. So we are very much trying to drive that long race to the top within our industry.

We support the introduction of a modern slavery act in Australia. We've been actively involved in the consultations with the Attorney-General's Department and the Department of Home Affairs. I'd like to acknowledge that they ran a very open and inclusive consultation process. I think it was really good to see a mix of business and civil society groups involved there.

In our submission we flagged areas where we think the bill as it stands could be improved. I would welcome your questions and discussion on that today. In summary, as a business organisation we also believe that there is scope for an independent advisory role that sits separate to government, whether that's a commissioner or whatever title it has. It would be someone who doesn't have a role in enforcing compliance with the act, but is focused on awareness raising, protection of victims, being that critical friend to business, and also providing advice to businesses on what steps they should take if they identify instances of slavery in their supply chains. We think it's quite important that that should be separate from the compliance function that sits within government. In all the advice that we're giving to members we want to encourage businesses to find and remediate and take steps to address instances of slavery, rather than disincentivising people to look in the first place or to conceal or not look.

Other areas that we provided comment on were around specific terms of the review at the three-year point. We think that making that a rolling three-year review and trying to embed an approach to continuous improvement would be a really good thing. We also encourage government to consider how it can show further leadership on the issue through its procurement practices. So we welcome the Commonwealth government making its own statement, but we'd like to see what else could be done through procurement.

In the property industry we know where some of the high risk areas are. We're already taking steps as an industry. Our industry has a pretty long-held culture of collaboration around issues, particularly from a sustainability perspective. We've been involved in initiatives like the Cleaning Accountability Framework, which is an independent, multi-stakeholder forum trying to address cleaning standards in Australia. So we work with property companies, cleaning companies, the unions and the Fair Work Ombudsman on certification of sites as it relates to cleaning contractors. We think that's a really unique and important initiative. We, along with others who have spoken earlier today, think that sector-specific approaches and where there are high risks should be really encouraged.

Senator MOLAN: What was that forum?

Ms Muskovic : It's called the Cleaning Accountability Framework. It provides certification and audit of cleaning practices on sites. It involves all of those parties working together. As much as possible we'd like to see initiatives like that applied in other high-risk areas.

The other thing I would like to say is that we also think it's important that a lot of emphasis is put on education, not just for the big companies, which I think, as we've all discussed, are fairly well resourced and are more able to respond to legislation like this in the first instance. We're talking about education for the smaller small to medium enterprises, the ones that will receive questions from the larger ones who are required to report. What are their responsibilities as a supplier as part of these larger supply chains? We think that that's where the focus needs to be initially, before looking at extending the scheme to include smaller companies. That's all I'd like to say in opening. I welcome your questions.

CHAIR: Has your council done any assessment of the costs to business of complying with the rules as proposed by this legislation?

Ms Muskovic : Not detailed analysis. We went and asked our members. We've worked with probably a set of about 20 or so of the largest members and asked what they thought of the estimation of compliance costs that was in the consultation paper. I think it was put at around $11,000 or so. They said that would grossly underestimate what companies would bear. What we've said in our submission is that a lot of these things should be reviewed at the three-year mark. We didn't take a specific view on a threshold, but we thought that it's likely that companies like this will invest heavily in trying to get a better understanding of their supply chains in terms of resourcing and man hours. It's likely to be much, much higher than the figure that's been estimated. We also suggested that companies could report on the number of hours spent and other resources, so that at that three-year review point the government would then be in a much better position to say that this has been the cost of compliance for these companies and is there a case for lowering that threshold from where it's initially set?

CHAIR: Thanks for that. In a perfect world a lot of the submissions that have been made seem to be valid, but in the practical business world we live in this comes at a cost to Australian business. You mentioned that you had discussed it with your working group, 20 of your largest businesses. I am really more interested in the impact on smaller big businesses. I guess the larger ones have the wherewithal to employ expensive lawyers or accountants or to put people on their own staff to do this, but the smaller big businesses would struggle. Have you done any survey, particularly of that?

Ms Muskovic : We work in collaboration with a couple of not-for-profits. There is an organisation called the Supply Chain Sustainability School. That's a purpose-built initiative to look at education and engaging with sole traders, small to medium businesses that service not just the property and construction sector, though they've had a strong focus there initially. We are acutely aware of that, the burden that might be placed on smaller or medium businesses with larger entities being liable. One of the things that we've tried to do as a council—I mentioned that we have a working group—they want to focus on trying to do some work collaboratively. That means we're reducing the burden on our tier 1 and tier 2 suppliers who, following the release of this act, will then put questions onto suppliers. Because a lot of the supply chains are complex and multitiered and all crossover, we would expect tier 1 suppliers—whether it's construction firms or product manufacturers—to be flooded with an influx of questions, and a bunch of companies might be asking the same things slightly differently. What we're looking to do as a sector is get that large group of companies I mentioned—there are about 13 so far—signed up to pilot a platform where we look at establishing a common questionnaire for suppliers. That's going to reduce the burden on the small to medium enterprises.

That's how we're trying to approach things, but I don't know if that approach has been taken broadly across industry. From our perspective, it's really critical that there's a strong focus up-front on education and creating materials that are going to support those smaller businesses because you're absolutely right: they're not going to have the resources within their business to employ someone to specifically focus on this.

Senator PRATT: Your submission talks about how you don't believe in the introduction of legislation with financial penalties and that you don't believe penalties would act to motivate corporate engagement. Are you aware of the evidence out of the United Kingdom that illustrates that there was a high level of noncompliance for the regime because it doesn't include penalties? Why don't you think penalties are necessary?

Ms Muskovic : We said in our submission that we don't believe the introduction of penalties immediately is going to foster the kind of reaction from business that we want to engender. We want a culture that encourages people to find and remediate instances of modern slavery rather than something that creates a disincentive up-front for companies not to look. As you've correctly said, you can submit a statement under the UK act that says: 'We looked. We didn't find anything. Tick.' That's a compliance statement. We're not wanting to encourage that sort of approach from the outset, so we've said that we don't think the immediate introduction of penalties is going to motivate corporate engagement.

We have said that you could look at providing a public list of liable entities, noting that that's a very difficult thing to get up. We've recommended that government could seek to partner with an academic institution to compile such a list and put that up. To mark publicly whether a company is compliant or not is likely to be, in the first instance, a much stronger motivator for companies to provide reports. In our industry, we think that they're going to be compared to their peers; they will be judged in the court of public opinion based on what their actions are. From the first instance, we want to encourage a culture of positive engagement, so starting from the outset with penalties is not the way to go. We haven't objected to it down the line.

Senator PRATT: Are you confident that Property Council members and other Australian companies will report?

Ms Muskovic : I can speak with confidence about the members that we've been working with closely that they've already established pretty comprehensive internal work programs. We've had conversations with our board about it, so there's very high awareness of and engagement with the issue. I can speak confidently from the perspective of our leading members on the work that we're trying to do in creating the race to the top. We are doing a pilot project with some leading members to show the way for the smaller businesses that will be involved. It will perhaps not to make them liable but it will try to create that culture of collaboration.

Senator PRATT: Do you mean that that is perhaps not an obligation because their turnover or size is not as large?

Ms Muskovic : Correct, so they might not be captured.

Senator PRATT: You'd like to encourage them all to participate anyway. You think there will be 100 per cent compliance among Property Council companies that do have an obligation to report.

Ms Muskovic : I'd say that the ones that we've engaged with are very well aware of their obligations and they already have plans in place to make statements.

Senator PRATT: What might motivate outliers within the industry to participate and comply?

Ms Muskovic : As I mentioned before, if there's a list out there of liable entities, maybe it's the case that you can start with a list that's relatively easy to comply with by working with the tax office and by looking at the top listed companies and such. I think what's likely to motivate them is if they're compared to their peers who've done a lot of work and they're shown up to have not put in the effort.

Senator PRATT: You talked about procurement. What could be done through procurement? Could we, for example, have government exclude companies from being eligible to participate in government procurement, if they haven't complied?

Ms Muskovic : For liable entities of course, because they should be complying with the act. What we've also suggested is that government could look at ways of incentivising it. We noted the challenge with that in the submission, and we've talked about it: having that requirement for smaller businesses who contract with government could be unnecessarily onerous in the first instance. Maybe it's the case that they're preferenced for certain work.

Our members are looking at a similar approach. When you consider a property company's operations and supply chains and the companies it contracts with, we'd hope to get to a point where we can preference suppliers who've decided to opt in and are doing their own work in that space, because it means that you've then got someone you can collaborate with and work with further through your supply chain. They're looking at that at the moment. We would encourage government to do the same.

Senator PRATT: You've said that it's not okay for companies to turn a blind eye and not look within their supply chains. Why should they not be penalised for failing to look, in terms of not meeting their reporting obligations and therefore not looking at the supply chains?

Ms Muskovic : I think, for a lot of companies, this is a bit of a new concept. I don't think that there's broad awareness amongst Australians on what 'modern slavery' means. We're not saying that they shouldn't be penalised down the track. What we're saying is, in the first instance, you want to try and encourage businesses to do the right thing and to engage with this. Everyone who I've spoken to in my industry is acutely aware that, at the end of the supply chains, we're talking about people who are working in foreign factories in unsafe conditions. Everyone would like to focus on work that's going to lead to better outcomes for those people, but I just think you can't start by putting up a hard, stick compliance regime. I think you want to encourage positive engagement. What that's going to mean is you'll get more statements initially, perhaps, where companies will look to say, 'We looked and we didn't find the risk; therefore, we don't have to do anything about it.'

CHAIR: I think that's all I need from you. I'm pleased to have your input. We've got a remarkably small number of witnesses who are in business.

Ms Muskovic : From industry.

CHAIR: Yes, so I do appreciate your comments. From my investigations, I think you're probably speaking for a lot of people who will have to actually implement this.

Ms Muskovic : Just to emphasise the support for that independent role—I appreciate there aren't as many business groups as I would have hoped to see here—certainly, in the background, I've been talking to a lot of business groups that support the idea of an independent advocate like that. Businesses that do find something don't necessarily want their only avenue for remediation to be approaching the compliance function within a government department. I think it's really important that those things are separated and that they're able to act in the best interests of the person who's in that difficult position to make sure that they're rescued from that situation.

CHAIR: I think you gave the example of a company that reported by saying, 'Yes, we've had a look but can't find anything,' and whether that's sufficient to avoid a monetary penalty.

Ms Muskovic : I think that, certainly from our industry's perspective, any company with a $100 million turnover would be kidding themselves if they put in a statement that said, 'We don't see any risk in our supply chain,' because we know it's there. We have an idea of where the high-risk areas are. We just need to create that sort of culture of collaboration and a race to the top, and we're trying to do our best as an industry body to foster that.

CHAIR: I'm told—this is gratuitous; it's not even evidence—that there is a prominent Australian company who'll remain unnamed who've actually done just that in relation to the UK legislation, which they're also subject to. So, yes, there's a lot of work to be done in the next three years, I think, until this works out. Thanks very much, Ms Muskovic.

Ms Muskovic : Thank you.

CHAIR: We appreciate your time.

Ms Muskovic : We'd obviously be happy to follow up offline with any of you if you have further questions.

Senator PRATT: Thanks very much.

CHAIR: Thank you very much.