Modern Slavery Statement Preparation for Companies Listing in Hong Kong

Hong Kong-listed companies will face a material compliance inflection point in 2025-2026 as the Hong Kong government progresses its legislative agenda on modern slavery, following the 2024-2025 Policy Address commitment to introduce a dedicated bill mandating supply chain due diligence disclosures. The HKEX’s 2024 consultation on enhancing ESG reporting requirements under Listing Rules Appendix C2 (formerly Appendix 27) already signals that the Exchange expects issuers to address modern slavery risks within their governance frameworks, even before a standalone ordinance takes effect. For companies in the IPO pipeline, the window to build compliant systems is narrowing: the SFC’s 2023 thematic review of ESG funds found that 68% of surveyed fund managers lacked adequate human rights due diligence processes, and the HKMA’s 2024 Supervisory Policy Manual (SP-1.2) now explicitly requires authorised institutions to assess modern slavery exposure in their lending portfolios. This article outlines the regulatory trajectory, the specific disclosure requirements under existing and proposed frameworks, and the practical steps that listing candidates and their advisors — sponsors, legal counsel, and company secretaries — must take to prepare a defensible modern slavery statement that satisfies both HKEX listing criteria and the anticipated statutory regime.

The Regulatory Trajectory: From Voluntary Guidance to Mandatory Disclosure

The Hong Kong government’s 2024-2025 Policy Address, delivered by the Chief Executive on 16 October 2024, explicitly states that the Administration will “introduce a bill to require companies to report on their efforts to combat modern slavery in their supply chains.” This follows the 2023-2024 Policy Address commitment to conduct a feasibility study, which concluded in mid-2024 with a recommendation for a legislative approach modelled on the UK Modern Slavery Act 2015 and Australia’s Modern Slavery Act 2018 (Cth), but adapted for Hong Kong’s unique cross-border supply chain characteristics.

The UK and Australia Precedents and Hong Kong’s Adaptation

The UK Modern Slavery Act 2015, Section 54, requires commercial organisations with an annual turnover of £36 million or more to publish an annual slavery and human trafficking statement. Australia’s Modern Slavery Act 2018 (Cth), Section 16, applies to entities with consolidated revenue of AUD 100 million or more, mandating statements that cover seven mandatory criteria: structure, operations, supply chains, risks, due diligence, remediation, and effectiveness assessment. Hong Kong’s forthcoming bill is expected to adopt a similar materiality threshold — likely HKD 1 billion in consolidated annual turnover, based on the government’s feasibility study parameters — and will apply to all entities “carrying on business” in Hong Kong, including companies listed on the Main Board and GEM.

Crucially, the Hong Kong bill is anticipated to go beyond the UK model in two respects. First, it will likely require board-level approval and director sign-off, mirroring the Australian requirement that the statement be approved by the principal governing body and signed by a director. Second, it will mandate that the statement be lodged with a central registry maintained by the Companies Registry, rather than merely published on the entity’s website as under the UK Act. The HKEX’s 2024 consultation on ESG reporting under Appendix C2 already recommends that issuers disclose whether they have a modern slavery policy, and 72% of respondents to the consultation supported making such disclosure mandatory.

The HKEX’s Role as a De Facto Enforcer

Even before the standalone ordinance takes effect, the HKEX is tightening its ESG disclosure requirements in a manner that effectively compels listed companies to address modern slavery. The 2024 amendments to Listing Rules Appendix C2, effective for financial years commencing on or after 1 January 2025, introduce a new mandatory disclosure requirement under Aspect B5 (Supply Chain Management): issuers must now disclose “the number and percentage of suppliers that have been assessed for environmental and social risks, including modern slavery risks.” The HKEX’s 2024 review of ESG disclosures found that only 34% of Main Board issuers currently disclose any modern slavery-related information, and of those, fewer than 12% provide quantitative data on supplier assessments.

For IPO applicants, the HKEX’s Listing Decision LD143-2023 explicitly states that the Exchange will scrutinise an applicant’s ESG governance framework as part of its suitability assessment under Listing Rule 8.04. The decision notes that “a failure to demonstrate adequate systems to identify and mitigate modern slavery risks in supply chains may raise concerns about the applicant’s ability to comply with applicable laws and regulations.” This means that an IPO candidate without a modern slavery statement or equivalent due diligence process risks an adverse listing determination, regardless of the bill’s legislative timeline.

Structuring the Modern Slavery Statement for IPO Candidates

For companies preparing for a Main Board or GEM listing, the modern slavery statement is not a standalone document but an integral component of the prospectus disclosures under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) and the HKEX’s Listing Rules. The statement must be drafted with the same rigour as the business section of the prospectus, as the SFC and HKEX will review it for consistency with the applicant’s risk factors, business model description, and corporate governance disclosures.

Mandatory Content Under the Proposed Framework

Based on the government’s feasibility study and the international precedents, a compliant modern slavery statement for a Hong Kong-listed entity should address the following six elements, which align with the HKEX’s 2024 ESG reporting guidance and the anticipated statutory requirements:

1. Organisational structure, business, and supply chains: A clear description of the entity’s structure, including subsidiaries and joint ventures, with explicit identification of high-risk jurisdictions. For a company with PRC-based manufacturing operations, this would require naming specific provinces (e.g., Guangdong, Zhejiang) and the tiers of subcontractors involved.

2. Policies and governance: The statement must detail the board-level committee responsible for modern slavery oversight, referencing the terms of reference and meeting frequency. The HKEX’s 2024 guidance recommends that this committee be the same body overseeing ESG risks under Listing Rule 13.92.

3. Risk assessment and due diligence processes: This section must describe the methodology for identifying modern slavery risks, including the criteria used to classify suppliers by risk level. The HKMA’s 2024 Supervisory Policy Manual (SP-1.2, paragraph 4.3) requires authorised institutions to “conduct enhanced due diligence on clients and transactions involving sectors or geographies with a higher prevalence of modern slavery,” and listed companies should adopt analogous standards.

4. Remediation actions: If the entity has identified any incidents of modern slavery, the statement must describe the remedial measures taken and the outcomes. For IPO candidates with no prior incidents, a negative statement is acceptable, but it must be accompanied by a commitment to remediate within a defined timeframe if incidents are discovered.

5. Effectiveness assessment: The statement must include a self-assessment of the effectiveness of the entity’s modern slavery response, using quantitative metrics such as the number of supplier audits conducted, the percentage of suppliers with corrective action plans, and the number of workers trained on modern slavery awareness.

6. Training and capacity building: The statement should disclose the number of employees trained, the training frequency, and whether training extends to suppliers. The HKEX’s 2024 ESG review noted that only 18% of issuers provide modern slavery training to procurement staff, a gap that the Exchange expects to be addressed.

Integration with the Prospectus and ESG Report

For an IPO candidate, the modern slavery statement should be published as a standalone document on the company’s website at the time of listing, and its key elements must be cross-referenced in the prospectus’s risk factors section and the corporate governance report. The SFC’s 2023 thematic review of IPO prospectuses found that 41% of applicants failed to adequately disclose supply chain risks related to forced labour, and the SFC has since issued a circular (SFC/IS/2023/12) reminding sponsors that such omissions may constitute a breach of the Code of Conduct for Persons Licensed by or Registered with the SFC (Chapter 17, paragraph 17.6).

The statement should also be aligned with the issuer’s ESG report, which under the HKEX’s 2024 amendments must now be published within four months of the financial year-end for Main Board issuers (Listing Rule 13.91). The ESG report’s supply chain management section (Aspect B5) should contain a direct reference to the modern slavery statement, and the metrics disclosed in the statement should be consistent with those in the ESG report. Companies should note that the HKEX’s 2024 consultation proposes moving to mandatory assurance for certain ESG data points from 2026, and modern slavery disclosures are expected to be included in the initial scope.

Practical Implementation for Listing Candidates

The preparation of a modern slavery statement is not a compliance exercise that can be completed in the weeks before the listing hearing. It requires a systematic build-up of policies, processes, and documentation over the 12-18 months preceding the listing application, integrated with the sponsor’s due diligence workstream and the company secretarial timeline.

Establishing the Governance Framework

The first step is to constitute a board-level ESG committee, or assign modern slavery oversight to an existing committee such as the audit committee or risk committee. The committee’s terms of reference should explicitly include modern slavery risk oversight, and the committee should meet at least quarterly during the pre-listing period to review the due diligence progress. The HKEX’s 2024 guidance under Listing Rule 13.92 recommends that the committee include at least one independent non-executive director with relevant experience, and the prospectus should disclose the committee’s composition and meeting attendance.

The company secretary plays a critical role in documenting the committee’s deliberations and ensuring that the modern slavery statement is approved by the board at least 60 days before the listing hearing. This timeline allows sufficient time for the sponsor and legal counsel to review the statement for consistency with the prospectus disclosures and for the SFC to raise any queries during the vetting process.

Conducting Supply Chain Due Diligence

The sponsor’s due diligence workstream must include a modern slavery risk assessment covering all material suppliers, defined as those representing more than 5% of the issuer’s cost of goods sold or those located in jurisdictions identified as high-risk by the US Department of Labor’s List of Goods Produced by Child Labor or Forced Labor (2024 edition). The assessment should include on-site audits for the top 20 suppliers by spend, with a minimum of 10% of suppliers in high-risk jurisdictions audited annually.

The HKMA’s 2024 Supervisory Policy Manual (SP-1.2, paragraph 5.1) provides a useful framework for this assessment, requiring institutions to “identify, assess, and monitor modern slavery risks in their lending and investment portfolios using a risk-based approach.” Listed companies should adopt a similar methodology, using publicly available databases such as the Global Slavery Index (2023) and the Walk Free Foundation’s country risk ratings to calibrate their risk assessments.

Drafting and Reviewing the Statement

The modern slavery statement should be drafted by the company’s legal counsel with input from the sponsor and the ESG committee. The statement must be factually accurate, and all claims about supplier audits, training numbers, and remediation actions must be supported by documentary evidence that can be produced to the SFC or HKEX upon request. The SFC’s 2023 circular on ESG disclosures (SFC/IS/2023/15) warns that “unsubstantiated claims in ESG-related statements may constitute misleading statements under the Securities and Futures Ordinance (Cap. 571, Section 277).”

The statement should be reviewed by the sponsor’s compliance team for consistency with the prospectus, and by the company’s external auditor for consistency with the financial statements. If the issuer has obtained any third-party certifications, such as SA8000 or ISO 45001, these should be disclosed in the statement with the certification body’s name and the scope of certification.

Cross-Border Considerations for PRC-Connected Issuers

For companies with operations in the People’s Republic of China — which constitute approximately 80% of HKEX Main Board listings by market capitalisation as of 31 December 2024 — the modern slavery statement raises unique challenges related to PRC labour law compliance and the cross-border flow of information.

PRC Labour Law and the Definition of Forced Labour

The PRC Labour Law (1994, as amended) and the PRC Labour Contract Law (2007, as amended) prohibit forced labour, but the definition and enforcement mechanisms differ from international standards. The International Labour Organization’s Forced Labour Convention (No. 29) defines forced labour as “all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily,” while PRC law focuses on the prohibition of “illegally detaining persons for the purpose of forcing them to work” (Criminal Law, Article 244). This distinction means that practices such as excessive overtime, retention of identity documents, and mandatory deposit payments — which may constitute forced labour indicators under international standards — are not necessarily illegal under PRC law but must still be disclosed in the modern slavery statement.

The HKEX’s 2024 ESG reporting guidance explicitly requires issuers to disclose “the number and nature of incidents of forced labour or child labour identified in the supply chain,” regardless of whether those incidents constitute a breach of local law. This means that a PRC-connected issuer must report any practices that meet the ILO’s definition of forced labour, even if those practices are legal under PRC law. The statement should clearly distinguish between legal compliance and alignment with international standards, and the issuer should describe the steps taken to address any gaps.

Cross-Border Data Transfer and the PRC Personal Information Protection Law

The collection of worker data for modern slavery due diligence — including personal information such as names, ages, and employment histories — triggers the PRC Personal Information Protection Law (PIPL, 2021). Article 38 of the PIPL requires that any cross-border transfer of personal information be subject to a standard contract with the recipient, a security assessment by the Cyberspace Administration of China (CAC), or certification by a recognised body. For a Hong Kong-listed company with PRC subsidiaries, the transfer of worker data from the PRC to the Hong Kong parent for inclusion in the modern slavery statement may require a PIPL-compliant data processing agreement and, if the data volume exceeds 1 million individuals or involves sensitive personal information, a CAC security assessment.

The HKMA’s 2024 circular on data governance (HKMA/B1/2024/18) reminds authorised institutions to “ensure that any cross-border data transfer for ESG reporting purposes complies with applicable data protection laws,” and this principle applies equally to listed companies. The modern slavery statement should disclose the data protection measures in place, including the legal basis for any cross-border transfers and the safeguards implemented to protect worker privacy.

Closing Actionable Takeaways

1. IPO candidates must establish a board-level ESG committee with explicit modern slavery oversight terms of reference at least 12 months before the listing hearing, and the committee should meet quarterly to review supply chain due diligence progress.
2. The modern slavery statement must be drafted as a standalone document approved by the board at least 60 days before the listing hearing, with all claims supported by documentary evidence that can be produced to the SFC upon request under the Securities and Futures Ordinance (Cap. 571, Section 277).
3. Supply chain due diligence must cover all material suppliers (≥5% of cost of goods sold or located in high-risk jurisdictions), with on-site audits for the top 20 suppliers and a minimum 10% annual audit rate for high-risk suppliers, using the HKMA’s 2024 Supervisory Policy Manual (SP-1.2) as a reference framework.
4. PRC-connected issuers must address the gap between PRC labour law and ILO forced labour definitions, disclosing any practices that meet ILO indicators even if legal under PRC law, and must implement PIPL-compliant data transfer mechanisms for cross-border worker data flows.
5. The modern slavery statement must be cross-referenced with the prospectus risk factors section and the ESG report under Listing Rules Appendix C2 (Aspect B5), and all metrics must be consistent across all three documents to avoid misleading statement liability.