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In this Achilles Ultimate Guide to Bill S-211 we take a detailed look at the Canadian Fighting Against Forced Labour and Child Labour in Supply Chain Act (previously known as Bill S-211), who it applies to, what it means to those organisations (and their suppliers) that need to comply and provide advice on how to get started.
Legislation is rapidly being introduced by countries and trading blocs to improve human rights and help address the environmental issues facing the planet. Organisations across the world are slowly being scooped up by a metaphorical regulatory net which requires them to assess the potential for human rights and environmental risks within their supply chains and report on what they are proactively doing to address them.
Across the entire end-to-end process, from finished product to the metals, minerals and other raw materials that are required to make them, companies must now demonstrate a clear understanding of the impact they are having on people and the planet.
In more and more of the world, ethical business and business as a force for good is now not only a way of differentiating or a way of meeting increasingly discerning consumer expectations, it’s a regulatory issue with financial penalties for doing it wrong.
What is the Fighting Against Forced Labour and Child Labour in Supply Chains Act?
The Fighting Against Forced Labour and Child Labour in Supply Chains Act is a law that received royal assent in Canada in May 2023. It requires companies to take responsibility for fighting against modern slavery in their supply chains and to report on their actions.
Under the Fighting Against Forced Labour and Child Labour in Supply Chain Act, companies are required to report on the actions that have been taken during the previous financial year to prevent and reduce the risk of forced labour or child labour within the supply chain. This includes government institutions involved in producing, purchasing or distributing goods in Canada or elsewhere and on entities involved in manufacturing, producing, growing, extracting or processing goods in Canada or elsewhere in importing goods manufactured, produced, grown, extracted or processed outside Canada.
The law applies to government institutions as well as companies from a wide range of industries, including energy, manufacturing, construction, clothing, and food and beverage. Failure to comply with the law can result in fines, legal action and individual prosecution of directors or officers of a company. being restricted from competing for public tenders. The Fighting Against Forced Labour and Child Labour in Supply Chain Act draws upon two human rights conventions defined by the International Labour Organisation (ILO) and is part of a growing trend towards greater corporate responsibility for human rights in global supply chains. Several other countries, including Norway, France and Germany, have also implemented similar laws in recent years.
Why is the Fighting Against Forced Labour and Child Labour in Supply Chain Act important?
The Fighting Against Forced Labour and Child Labour in Supply Chain Act is important for several reasons:
Protection of Human Rights: The law is designed to protect human rights by requiring companies to report on the actions they have taken to identify and address potential risks in their supply chains associated with forced labour and child labour. By ensuring that companies are held accountable for human rights abuses in their supply chains, the law helps to protect vulnerable workers and communities around the world.
International Norms: The law is consistent with international norms on business and human rights, including the United Nations Guiding Principles on Business and Human Rights. By aligning with these norms, the law helps to promote a common understanding of the responsibilities of companies in relation to human rights and the environment.
Overall, the Fighting Against Forced Labour and Child Labour in Supply Chain Act is important because it helps to promote responsible business practices, protect human rights and create a more just and equitable global economy.
Which organisations need to comply with the Fighting Against Forced Labour and Child Labour in Supply Chain Act?
The new legislation will be applied to government institutions and Canadian entities from the 1st of January 2024 that meet one or more of the following thresholds:
Government institutions producing, purchasing or distributing goods in Canada or elsewhere will be impacted by the legislation when it comes into force at the beginning of 2024.
Any entity (a corporation, trust, partnership or other unincorporated organisation) that’s listed on a stock exchange in Canada, has assets or a place of business in Canada, or that does business in Canada and meets at least two of the following conditions based on the entities most recent financial year:
It has at least $20 million in assets,
It has generated at least $40 million in revenue,
And it employs an average of at least 250 employees
What does the act encompass?
Risk areas covered by the Act are based on two specific ILO Fundamental Conventions, Worst Forms of Child Labour Convention (1999) and the Forced Labour Convention (1930).
Human rights: The law requires companies to report on the actions that have been taken by them to prevent and address human rights violations in their supply chains, specifically those associated with child labour or forced labour.
The law is designed to promote responsible business conduct and prevent harm to people across global supply chains. It reflects a growing recognition of the need for companies to take responsibility for their supply chains and ensure that their business practices are ethical.
What are the Fighting Against Forced Labour and Child Labour in Supply Chain Act reporting requirements?
The Fighting Against Forced Labour and Child Labour in Supply Chain Act imposes reporting requirements on entities and government institutions. The law requires entities and government institutions to file an annual report with the federal government which includes information covering:
Its structure, activities and supply chains.
Its policies and its due diligence processes in relation to forced labour and child labour.
The parts of its business and supply chains that carry a risk of forced labour or child labour being used and the steps that have been taken to assess and manage the risk.
Measures that have been taken to remediate any forced labour or child labour.
The measures taken to remediate the loss of income to vulnerable families that results from measures that have been taken to eliminate the use of forced labour or child labour in its activities and supply chains.
The training that has been provided to employees on forced labour and child labour.
The monitoring of the effectiveness of activities in ensuring that forced labour and child labour are not being used in its business and supply chains.Reports must be signed and approved by the entity or government institution prior to their submission to the Minister on or before the 31st of May annually.
In addition to submitting the annual report, government institutions and entities must make the report available to the public, including publishing in a prominent place on its website. For federal corporations under the Canada Business Corporations Act or any other Act of Parliament, the report must also be provided to shareholders, along with annual financial statements.
What happens if a company fails to comply with the Act?
Entities or government institutions that fall under the requirements of the Act will be responsible for ensuring that they have submitted an appropriate annual report on or before the 31st of May each year.
Failure to comply, or by submitting false or misleading information may result in financial or legal penalties depending on the nature of the non-compliance. The Act currently advises that consequences may include:
Fines of not more than $250,000.
Prosecution of directors, officers etc. of the entity of government institution
Prosecution of an employee, agent or mandatory of the entity or government institution
Beyond the legislative penalties that may be brought against the entity or government institution, there are also other significant implications when failing to comply including damage to brand reputation and the financial impact of a loss of consumer or shareholder confidence. It can take a very long time to build up positive brand recognition, however, it does not take long to seriously damage it.
What are the benefits of compliance?
Overall, complying with the Fighting Against Forced Labour and Child Labour in Supply Chain Act can bring significant benefits to organizations, including improved reputation, reduced risk, increased efficiency, competitive advantage, and long-term sustainability.
Improved Reputation: Complying with the law can help improve an organization’s reputation as a responsible and ethical business. By taking steps to prevent human rights abuses in their supply chains, organizations can enhance their brand image and increase customer loyalty.
Reduced Risk: Compliance with the law can help reduce the risk of legal action, fines, and reputational damage. By identifying and addressing potential risks in their supply chains, organizations can minimize the likelihood of human rights abuses occurring and mitigate any negative impacts.
Increased Efficiency: Compliance with the law can help increase the efficiency of supply chain management. By implementing due diligence measures and monitoring suppliers, organizations can identify areas for improvement and optimize their supply chain operations.
Competitive Advantage: Compliance with the law can provide a competitive advantage by demonstrating a commitment to responsible business practices. This can help organizations attract and retain customers, investors, and employees who prioritize ethical business practices.
Long-Term Sustainability: Compliance with the law can contribute to the long-term sustainability of an organization’s operations. By taking steps to prevent exploitation and ensure the health and safety of workers, organizations can promote the well-being of their employees and the communities in which they operate.
What is involved in taking a risk-based approach to supply chain due diligence?
A risk-based approach is a fundamental principle of human rights due diligence. It’s almost impossible for organisations to scrutinise their entire supply chain to identify issues. A risk-based approach enables companies to identify the industries, geographical locations or specific suppliers that present the greatest risk. This insight provides businesses with the opportunity to work more closely with suppliers to improve human rights and environmental processes. Risk-based thinking has been used in many disciplines and is specifically referred to within the OECD Guidance for Responsible Business Conduct,
The key steps to a risk-based approach to supply chain management are:
Identify and Prioritize Risks: The first step is to identify potential risks in the supply chain, such as forced labour, child labour, environmental pollution, or animal welfare violations. Companies should prioritize risks based on their severity and likelihood of occurring.
Conduct Due Diligence: Once risks are identified, companies should conduct appropriate levels of due diligence on their suppliers to assess their compliance with relevant laws and standards. This may include conducting audits, site visits, or engaging with stakeholders.
Mitigate Risks: Companies must take steps to mitigate identified risks in their supply chains. This may involve communicating and collaborating with suppliers to address non-compliance, terminating relationships with non-compliant suppliers, or providing training and capacity building.
Monitor and Review: Companies should continuously monitor their supply chains for potential risks and review their risk management processes to ensure they are effective. This may involve regular supplier audits or conducting risk assessments in response to changing circumstances.
Reporting: Companies must report on their due diligence processes and outcomes, including the identification and mitigation of risks. The law requires companies to provide public reports on their compliance with the law.
Overall, by taking a risk-based approach, companies can identify and address potential risks in their supply chains, promote responsible business conduct, and ensure compliance with Canadian and international human rights legislation. This approach helps companies to minimize potential harm to the people in their supply chains and promote sustainable business practices.
How to get started on the path to compliance with the Fighting Against Forced Labour and Child Labour in Supply Chain Act?
Getting started with the Fighting Against Forced Labour and Child Labour in Supply Chain Act can be a complex process, but there are several steps that companies can take to begin their compliance journey:
Develop a Due Diligence Policy: Companies should develop a due diligence policy that outlines the processes and measures they will take to mitigate risks in their supply chains. This policy should be aligned with the requirements of the law and should be communicated to all relevant stakeholders.
Assess Your Supply Chain: The first step is to assess your supply chain to identify potential risks related to forced labour and child labour. This includes identifying suppliers and subcontractors and evaluating their adherence to international standards and regulations.
Implement Due Diligence Measures: Companies should implement due diligence measures to identify and mitigate risks in their supply chains. This includes conducting risk assessments and audits engaging with suppliers to ensure compliance and implementing risk mitigation measures where necessary.
Monitor and Evaluate Performance: Companies should monitor and evaluate the performance of their due diligence measures to ensure that they are effective in mitigating risks in their supply chains. This includes tracking supplier performance and conducting regular risk assessments.
Publish Annual Reports: Companies should publish annual reports on their compliance with the due diligence obligations under the law. These reports should include a description of due diligence processes, identified risks, risk mitigation measures, supplier engagement, remedy measures, verification measures, grievance mechanisms, transparency, and management approach.
Engage with Stakeholders: Companies should engage with stakeholders, including customers, investors, civil society organizations, and affected communities, to understand their concerns and expectations related to supply chain due diligence.
Seek External Support: Companies can seek external support from consultants, auditors, and other experts to help them comply with the requirements of the law.
In summary, getting started with the Fighting Against Forced Labour and Child Labour in Supply Chain Act requires a broad approach to be truly effective. An approach that should include developing due diligence processes, assessing the supply chain, implementing due diligence measures, monitoring and evaluating performance, publishing annual reports, engaging with stakeholders, and seeking external support where necessary.
Challenges of achieving compliance with the Fighting Against Forced Labour and Child Labour in Supply Chain Act
Organisations working towards and achieving compliance with the Fighting Against Forced Labour and Child Labour in Supply Chain Act face several challenges. These include:
Supply Chain Complexity: Many companies have complex and extensive supply chains, with numerous tiers of suppliers. Identifying and assessing risks throughout the entire supply chain can be challenging and resource-intensive. The complexity can also be compounded by the global nature of supply chains, some operating in hard to reach or hard to access countries.
Data collection: Data required to comply goes beyond regular operational boundaries. Data sources with questionable provenance, accuracy and interpretation often become primary sources of information which undermine the basis for the reporting. Data may also be in multiple data formats and there is often an absence of systems to record data in a methodical way that can be used to demonstrate a risk-based approach.
Veracity of data: Web-scraped or AI generated data from sources of unknown provenance lacks the scrutiny necessary to fully understand the risks. Organisations rarely have the resources to undertake credible data checking or independent verification required to report with confidence.
Lack of Transparency: Many suppliers may be unwilling or unable to provide full transparency into their operations, making it difficult to identify and address risks.
Limited Capacity: Many buyers may lack the resources to undertake such intensive and sustained supply chain management including data collection from numerous disparate sources or sufficiently credible levels of data checking and verification of their suppliers. Likewise, suppliers may lack the capacity or resources to implement the necessary improvements to comply with the law.
Cost of Compliance: Complying with the law can be expensive, especially for small and medium-sized companies. The cost of conducting due diligence, monitoring suppliers, and implementing risk mitigation measures can be significant.
Knowing what is enough: Understanding what is required to satisfy the regulators and ensure compliance. For more on this read our useful Blog: When is enough, enough?
Legal Liability: Non-compliance with the law can result in legal liability, including fines and legal action. This can create additional risk for companies, particularly if they are unable to identify and address potential risks in their supply chains.
Coordination with Suppliers: Collaboration with suppliers is essential to implement due diligence processes effectively and as transparently as possible. However, engaging with suppliers can be challenging, especially if they are in different countries with different cultural and legal frameworks.
Time Constraints: Companies may struggle to implement effective due diligence processes within the required timeframe. The law requires companies to implement due diligence processes within a specific timeframe, and non-compliance can result in legal liability.
The Fighting Against Forced Labour and Child Labour in Supply Chain Act is a significant development in Canada’s approach to supply chain regulation. This law requires companies to report on the actions they have undertaken throughout their supply chains to prevent human rights abuses. It applies to both government institutions and entities, including those based outside of Canada, and can result in fines for non-compliance.
The passing of this law marks an important step towards a more responsible global economy. As other countries consider similar legislation, it is likely that supply chain transparency and accountability will become increasingly important in the global marketplace. Embarking on a journey of improved supply chain due diligence now will likely reduce future disruption when other nations or industries adopt increased levels of due diligence on the supply chain.
The Fighting Against Forced Labour and Child Labour in Supply Chain Act is a positive development that has the potential to create a more ethical supply chain ecosystem. By prioritizing the well-being of workers, communities, and the environment, companies can build a stronger and more resilient global economy for the future.