A deadline is approaching for many Canadian businesses to file their first annual report on supply chain transparency. Reporting requirements under the Fighting Against Forced Labour and Child Labour in Supply Chains Act are due May 31, 2024.
The legislation, which came into effect on January 1, is largely a response to post-pandemic challenges that have exacerbated human rights and labour equity concerns. Over the past two years, risk factors that lead to exploitation in the global workforce have skyrocketed.
Katie Martin, director of sustainability at Avetta, a risk-management software provider, unpacked Canada’s modern anti-slavery law during a recent seminar and discussed various technologies that help identify illicit supply chain behaviours.
Across the globe, post-pandemic re-openings have created labour shortages, while climate change has also shaken up human capital in the workforce as people migrate into new regions due to extreme weather conditions and loss of land. More than 100 million are expected to migrate over the next decade, causing further economic and social disruption. This is adding new context to an already pervasive issue.
“When we critically pull back the layers of our supply chains and our businesses, a significant amount of our economies relies on slave labour and forced labour,” said Martin. “This is prompting nations to put this in a regulatory perspective to drive change.”
As mandates roll out in other countries, Canada is establishing parity on this front to keep up with business opportunities.
Companies are being urged to update their policies, procedures and supplier due diligence. To understand the multiple facets of forced labour, the International Labour Organization has identified 11 key indicators that businesses can refer to for tracking risks and sufficiently meeting reporting requirements. Further guidance on how to use the indicators is offered through an ILO e-learning tool.
What’s required under Canada’s modern anti-slavery law?
As businesses prepare their report for the Ministry of Public Safety and Emergency Preparedness, they must have it approved by an appropriate governing body with legal, binding authority, complete an online questionnaire that aligns with the report, upload the report, and then make it publicly available on their website.
“Organizations that fail to submit a satisfactory annual report or make it public, obstruct a designated official, or fail to comply with an order from the Ministry are guilty of a summary offence and liable to a fine up to $250,000,” said Martin.
Failure to act can also tarnish reputation as consumers readily scrutinize brands and create liability for directors and officers who may have participated in any offences.
“As you’re thinking about planning and submitting your questionnaire, make sure you are also aware that it does need to be executed and signed off by your governing body, whether that is your senior leadership or official board,” she cautioned. “Make sure you leave time for that as the fines are pretty significant for failing to comply.”
Who is eligible?
Eligible businesses are considered an entity under the Act’s definition. They are either listed on a Canadian stock exchange or have a place of business in Canada while meeting two of the following criteria: have a minimum of $20 million in assets, generate $40 million in revenue, and employ at least 250 people.
In addition, businesses must be involved in producing, selling and or distributing goods within Canada or abroad, import goods outside Canada, and control entities engaged in such practices.
As it currently stands, companies are to report on their efforts to prevent or mitigate the risk of forced and child labour in their supply chains. The legislation does not prescribe the specific measures that a company must take to remediate the problem. “The onus is on the business who is pulling in suppliers from high-risk regions of the world or high-risk products to prove that there is no forced labour, rather than respond to a claim of forced labour,” said Martin.
The report encompasses both internal and external data, such as relevant due diligence policies and processes and employee training, as well as how the entity assesses the effectiveness to ensure this labour type isn’t being used.
Companies with multiple legal entities can file one joint report. All entities must share the same risk profiles and controls to address risks in their supply chains. The Act also creates a prohibition on importing goods made by forced and child labour. Canada Border Services Agency will be enforcing this.
Moving towards best practices
Since the onus is on the business to determine what suppliers pose this risk, it is crucial to engage with suppliers to extract necessary external data to grasp an understanding of how they are preventing forced and child labour.
Looking internally, in their first reporting year, businesses may need third-party support from consulting groups that can help audit current processes and specific sector risks.
A business is liable once it becomes aware of forced labour, but companies often bookmark their response plans until risks are found, warns Martin. In the past, companies have immediately detached from suppliers when incidents come to light.
“While that is an approach, what we’ve come to find is that, oftentimes, the context, the societal challenges and the regulatory challenges pushing people into labour that is exploitative is only exacerbated when that connection is broken,” she said. “We have child labourers in areas of the world where, if they’re not working in this factory, they still need to be earners in a much more dangerous situation.”
Beyond compliance
Following reporting requirements entails engaging partners in preventative measures for mitigation, assessing supply chain risks and impacts, training and communicating across the supply chain, and developing a code of conduct. To assert internal controls, businesses can monitor compliance, remediate violations, conduct an independent review, and report performance and engagement.
“Every organization has some risk for forced labour,” said Martin. “If you’re in the construction sector, manufacturing sector or facilities management, it’s likely to be much higher than finance or professional services. . . and sometimes we’re surprised at how these things are pulled into our supply chain. A lot of that has to do with vending out contract work.”
Engage and educate
A first step is to engage and educate partners and stakeholders in preventative measures. This can include: helping sourcing teams to identify forced labour; training suppliers and their line managers on the ILO’s indicators and how to work with responsible recruiters and agencies; and teaching line workers to understand their rights and what to do if they see or experience forced labour.
Obtaining on-the-ground information can create a more transparent working environment. In one example, a manufacturing corporation rolled out e-learning classes in an overseas factory about workplace rights and safety and how to report instances of non-compliance.
“Within 30 days of having that compliance training completed, they saw a 50 per cent increase in the number of health and safety incoming messages they were getting through the channels they built for people to give feedback,” said Martin,
This also helps create reportable data on how companies are building a culture of safety and compliance and providing opportunities for workers to engage, which is one of the reporting requirements.
Assess risks in supply chains
Supply chains are incredibly complex and yet companies must extract data and verify that suppliers are operating in a way that protects them and the company itself.
One step is to cross-reference suppliers against relevant industry lists of entities that are presumed to be using forced labour, such as UFLPA.
When you have a sense of the high-risk suppliers, map out your supply chain—both upstream and downstream—for forced and child labour hotspots to understand where exposure points are and which suppliers require deeper due diligence, said Martin.
Investing in tech capabilities and third-party services, such as SaaS and sSCM, further conducts due diligence and executes dynamic screening at scale. Companies can also consider integrating screening into business infrastructure systems, such as CRMs.
Train and communicate across supply chain
Once high-risk suppliers are identified, they require training. Maximizing compliance can unfold through accessible training, either developed in-house or through other services. Risk mitigation can integrate into existing SCRM programming to ensure suppliers are set up for success. They should be knowledgeable about company standards, best practices, and the ILO’s forced labour indicators.
“A lot of times we already have the data or connections with our Tier 1 suppliers, those that we’re vending with directly,” said Martin. “The challenge is that those suppliers vend out labour and contracts and sometimes vend out further. That Tier 2 and beyond is where a lot of the social risks lie.”
Building relationships with Tier 1 suppliers and incorporating their mapping into due diligence processes is vital for minimizing risk.
Develop code of conduct
“Companies creating modern day slavery policies for the first time should refrain from using templates as this could leave them exposed in ways unique to their geography or offerings,” said Martin, cautioning against artificial intelligence (AI) systems like ChatGPT to maximize time. “This is an extremely high-risk space not to have direct expert human capital oversight, especially in this first year,” she noted.
Monitoring compliance and remediating violations
Subcontracting can add layers between the company and the worker and exists out of the scope of many audits, which are one control mechanism for mitigating risk. Audits are often “one piece of the puzzle” and provide only a snapshot of a specific moment. Companies can begin with audits before moving beyond this mechanism.
Change comes by working with suppliers to recognize business constraints while acting in compliance. Martin said suppliers should be empowered to address challenges and deliverables without feeling that they will lose the contract and make poor staffing decisions as a result.
Reporting performance and engagement
Besides compiling regulation-specific reports, Martin discussed incorporating broader supply chain performance data into traditional reporting.
After digesting what the data is showcasing, begin to integrate some of that data and KPIs into existing business dashboards, across other functions like procurement, health and safety and compliance training. “There is going to be a rich story coming through and an opportunity to capitalize on it,” she explained.
She further shared tips that apply to each of the 11 indicators of forced labour, for instance, copies of pay slips and digital payment systems when it comes to “withholding wages.”
Speed and scale through technology
Martin described three main tech enablers in this space that are driving value for mitigating this issue. Blockchain, IoT and AI are boosting rapid and scalable assurance and transparency.
“Blockchain is becoming a really strong tool to mitigate the risks that we have with our audit process, both in terms of how slow and labour-intensive they are and how prone to corruption or editing,” she said. Transactions recorded on blockchain cannot be altered or deleted. You can trust the efficacy of it, both while you’re reviewing it and when your auditors are going through that process as well, which can reduce the risk of fraudulent activity.”
Through AI, free-form text and unstructured practices help identify forced labour patterns. Data mining tracks illicit behaviours. Supply chain management software such as Forced Labor Risk Determination & Mitigation (FRDM) uses machine learning to measure forced labour risks at each level of production in real time.
“In this year one, there’s not an expectation to get to Tier 2 and Tier 3 but you should have that on your data map for 2025 submission. I think there will be requirements for that since we know that’s where a lot of the risk is.”
The feature image was generated with AI.
