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FIGHTING AGAINST FORCED LABOUR AND CHILD LABOUR IN SUPPLY CHAINS ACT

Read more about the new Act and how this could affect your business

5 Mins
Chapters




ON MAY 11, 2023, THE PARLIAMENT OF CANADA PASSED BILL S-211, ALSO KNOWN AS THE
FIGHTING AGAINST FORCED LABOUR AND CHILD LABOUR IN SUPPLY CHAINS ACT. THE ACT
WILL HAVE A DIRECT IMPACT ON YOUR BUSINESS IF YOU USE INTERNATIONAL SUPPLIERS TO
PRODUCE YOUR GOODS.


We know that legislation can be full of legal jargon and can sometimes be
difficult to understand. So, we’ve outlined key details about the legislation,
including what companies the Act applies to, when it will come into force,
specific requirements under the Act and more.



WHEN DOES THE ACT COME INTO FORCE AND WHO DOES IT AFFECT?

The Act will go into effect on January 1, 2024 and the first reports under the
Act are due by no later than May 31, 2024.

The Act applies to “entities,” which are defined to include entities listed on a
Canadian stock exchange, have a place of business in Canada, do business in
Canada or have assets in Canada. For companies not listed in Canada, they are
only deemed to be “entities” if they also meet at least two of the following
three criteria based on their consolidated financial statements for at least one
of its two most recent financial years:

 * The entity has at least $20 million in assets;
 * The entity generates at least $40 million in revenue;
 * The entity employs an average of at least 250 employees.

The Act applies to “entities” that produce, sell or distribute goods. The
definition of an entity is broad and the Act may apply to foreign entities with
a link to Canada.




WHAT ARE THE LEGAL REQUIREMENTS?

The Act includes the following requirements:

 * Entities to whom the Act applies are required to report on the measures taken
   to prevent and reduce the risks of using child labour or forced labour in
   their supply chains.
   
   
 * The entity must make the report available to the public, including by
   publishing it in a prominent place on its website. The registry itself is
   maintained by the Minister based on the entity's submission, but they do not
   submit directly to the registry. This registry will allow consumers, civil
   society organisations and other stakeholders to access information about a
   company's actions to address forced labour and child labour.

 * The Canadian government will enforce compliance with the reporting
   obligations. Failing to provide a report, providing false or misleading
   information, or failing to keep records could result in penalties and
   prosecution by the Canadian government.
   
   
 * Although the law itself does not mandate specific due diligence measures, it
   requires entities to state which steps it has taken to detect and minimize
   the risk of using child labour and forced labour in their supply chains. This
   may include conducting risk assessments, engaging with suppliers and taking
   appropriate action to address identified issues.

While the law aims to address forced labour and child labour in supply chains,
the exact requirements and regulations are yet to be fully defined. The law
emphasizes transparency and accountability, intending to create a framework that
promotes socially responsible and ethical business practices. 


WHAT ARE THE REPORTING REQUIREMENTS?

The reporting entities must submit and publish an annual report that must
identify the risks of modern slavery within their supply chains and the steps
taken to mitigate them. This will also include details as to the following:

 * Their business structure
 * Relevant due diligence policies and processes
 * Training provided to employees
 * Steps taken to address any use of modern slavery
 * Measures taken to remediate the loss of income to the most vulnerable
   families that may be affected by those steps taken to eliminate the use of
   modern slavery.

The annual report, approved by the organization’s governing body, should also
describe how the organization assesses the effectiveness of its efforts to avoid
the use of modern slavery in its operations and supply chains.

To avoid the risk of hefty penalties (up to $250,000 per violation) for
non-compliance or the reputational risk associated with inadequate disclosure,
it’s necessary for reporting entities to act quickly. 




WHY ETHICAL SOURCING AND SUPPLIER DUE DILIGENCE MUST BE A TOP PRIORITY

According to a report by the World Economic Forum, it’s estimated that
sustainable and ethical sourcing practices cut supply chain costs between 9% and
16%, while increasing revenues by up to 20% for responsible products and
boosting brand value by 15% to 30%. Plus, consumers have become more demanding
of the brands they shop with – with research showing that 83% of global
consumers are even willing to spend more on a product if they can be certain
that it’s ethically sourced.

The implications of working with a supplier that uses child labour or forced
labour are far reaching. According to a report from aid agency World Vision
Canada, there has been a 30% increase in imports linked to labour exploitation
over the past five years. What’s even more troubling is that there are 79
million children working in dirty, dangerous and degrading jobs globally. These
stats are certainly a key reason for why the Parliament of Canada passed the
Fighting Against Forced Labour and Child Labour in Supply Chains Act.


Steve Carpenter, Country Manager for Canada at Creditsafe, knows from first-hand
experience that most Canadian businesses aren’t aware of the Act, all that it
entails and the consequences of not complying with the Act.


> It’s not uncommon for this type of legislation to be passed by the Parliament
> of Canada without much public fanfare or buzz, leading to it falling below the
> radar for the businesses that it impacts. But it’s an important piece of
> legislation that every Canadian business should not just be aware of, but also
> create specific protocols and systems internally to protect the integrity of
> its supply chain. As you prepare for compliance, the most important thing to
> remember is that due diligence cannot and should not be a nice-to-have; it
> must be a top priority. Not prioritizing ethical sourcing and supplier due
> diligence could have serious consequences. Not only could you lose the loyalty
> and repeat sales of your customers, but your brand reputation could take a
> huge hit with negative publicity and plummeting stock prices, on top of the
> hefty government fines and prosecution you could face if you don’t comply with
> the Fighting Against Forced Labour and Child Labour in Supply Chains Act.
> 
> --------------------------------------------------------------------------------
> 
> Steve Carpenter
> Country Manager - Creditsafe Canada

You may be thinking: ‘How can we as a company be both socially responsible to
comply with this Act and still be profitable?’ It’s not an either-or scenario.
Both are possible.

Patagonia is a prime example of how a purpose-driven, sustainable company can
drive revenue growth and profitability. Touted as the world’s most responsible
company, Patagonia monitors all its processes, including every step of the
manufacturing process with the goal of minimizing its environmental and social
impact. The clothing brand is also a certified B Corporation, having met or
exceeded stringent criteria consistently and earning an ‘outstanding’ score in
each of the last five years.

Best of all, Patagonia hasn’t had to sacrifice profits to be socially
responsible. The brand has an estimated value of $3 billion. It sells more than
$1 billion in outdoor clothing and gear and brings in $100 million in revenue a
year. 


HOW CREDITSAFE CAN HELP YOUR BUSINESS COMPLY WITH THE ACT



You can use Creditsafe Protect to prevent and reduce the risk of using forced
labour and child labour in your supply chain. Below are some of the ways
Creditsafe can help:

 * Screen your international suppliers for compliance violations: Don’t assume
   all suppliers have the same mindset and approach to corporate social
   responsibility (CSR) and ethical sourcing as you do. And don’t just take
   their word for it. Do your research and let the data tell you for certain.
   Remember, it’s not just about how responsible and ethical you are. What your
   suppliers do, how they treat their workers and what activities they engage in
   all have repercussions for your own business – from damaging your reputation
   to reducing customer trust and loyalty to negatively impacting sales and
   revenue growth.
   
   
 * Build compliance workflows into your decision process with suppliers: If you
   work with multiple international suppliers, then you’ll want to automate the
   decision process. Vetting every single supplier will take a lot of time and
   could lead to things falling through the cracks. For example, you might miss
   that an international supplier uses child labor or slave labor. Both are
   inexcusable practices. Liability under the Act flows from a failure to make
   an annual report (or giving false/misleading information in such a report).
   That’s why it’s important to build compliance rules and decision models to
   make the right decision quickly. Plus, you can standardize the criteria you
   use for every supplier. By using the same rules and criteria for every
   supplier, you’ll make your business more transparent and less likely to be
   accused of playing favorites with certain suppliers over others.
   
   
 * Create a digital audit trail to meet the reporting requirements under the
   Act: Because the Act has very stringent reporting requirements, it will be
   important that you are able to provide written proof that compliance checks
   have been run and that there are no offenses or fines related to child labour
   and forced labour. 

> With reporting being a key requirement of the Act, Creditsafe Protect will be
> exactly the solution you need to create a digital audit trail to prove
> compliance and avoid hefty fines (up to $250,000 per violation). Our built-in
> audit logs make it easy for you to provide the necessary written proof as part
> of the Act’s reporting requirements. Plus, you can see historical activity for
> the suppliers you’re working with, which means that you can stay up to date on
> the activities of your suppliers and monitor compliance with the Act in
> real-time.
> 
> --------------------------------------------------------------------------------
> 
> Steve Carpenter
> Country Manager - Creditsafe Canada


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