Aware Super has backed the call for a legislative change that will introduce mandatory human rights due diligence for large Australian companies, as head of responsible investment Liza McDonald said it’s a “reasonable request” which will help asset owners understand and manage the governance risks in their portfolio.

The recommendation that the federal government should amend the Modern Slavery Act 2018 and incorporate the requirement was a part of the UN Committee on Economic, Social and Cultural Rights’ conclusions from its sixth periodic report on Australia, released earlier this month.

If adopted, it would no longer be sufficient for companies to merely report on human rights risks across their supply chains as they need to identify steps to address these risks and prevent future harm.

“There’s a bit of debate around whether it should be a mandatory obligation, or whether it should be say, you are a high risk [company], that you probably have more of an obligation to report on what your due diligence actually is,” McDonald told the ACSI conference in Sydney on Tuesday.

“I think it’s a reasonable request to actually ask companies to explain what they’re doing… they can work through the Modern Slavery Actand report on their obligations and tick a box, but I think from an investment perspective, actions are louder than words.

“We actually want to be able to understand what companies are doing, and unless they’re doing due diligence and actually understanding what their risks are and reporting on those, it’s very hard for us to understand how they’re managing that risk as well.”

Based on past engagement experience, McDonald said disclosures by itself are often not enough to promote genuine solutions to address potential human rights risks in companies’ operations.

“We’ve engaged with some companies and at the outset of a lot of engagement, [they’re] really interested. Then they produce their modern slavery statement, they go ‘oh any questions you have, just read our statement’,” she said.

“To me, that means that’s where we should be paying more attention is to those companies that think that they can just actually produce the modern slavery statement and not engage with shareholders.”

This is important for the super fund’s own compliance, too, as Aware Super’s investment portfolio is categorised as an operation and covered under the Modern Slavery Act, McDonald said. The fund has more than $200 billion in assets under management.

Aware assesses direct assets based on a modern slavery risk assessment matrix and works with asset managers to understand the risk exposures in external mandates. She points out that there has been a focus on improving the data and metrics around modern slavery in private markets.

“We want companies disclose metrics so that we can look at those. Even in the public space, getting key, consistent metrics on modern slavery has been challenging. If you go to private markets, it’s even harder to get that information,” she said.

McDonald called on other investors like Aware Super to utilise their power, which is what will eventually ensure human rights and modern slavery risks get the appropriate elevation they need – which is often to the board level.

“It’s about using our leverage in whatever way we can to get the issues raised into the companies and sometimes, like we hear from teams [inside companies], they want the help. So that they’re actually getting resources and they’re getting the funding to be able to do what they need to do in the business as well, because businesses are all competing for financing into their various areas,” she said.

“For all of us in this space, there’s a lot of issues that we deal with… we can’t do it alone.”