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.
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.
The Fighting Against Forced Labour and Child Labour in Supply Chain Act is important for several reasons:
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.
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:
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).
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.
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:
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.
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:
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.
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.
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:
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.
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:
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.
Organisations working towards and achieving compliance with the Fighting Against Forced Labour and Child Labour in Supply Chain Act face several challenges. These include:
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.