2012: California Transparency in Supply Chains Act comes into effect

January 3, 2012 EcoVadis

HUMAN TRAFFICKING

The Act was originally adopted by the State of California in 2010 and it requires impacted companies to disclose their efforts, if any, to ensure their direct supply chains are free from slave labor and human trafficking. According to UNODC (United Nations Office on Drugs and Crime), human trafficking:
involves an act of recruiting, transporting, transferring, harboring or receiving a person through a use of force, coercion or other means, for the purpose of exploiting them.

In fall 2007, Gap Inc. discovered that an embroidery subcontractor of one of their suppliers in India had engaged in child trafficking. Subsequently the American company took comprehensive measures to prevent such issues, including extensive supply chain tracking and awareness raising, but the company image and reputation had undoubtedly been damaged by this case. Such modern slavery dilemmas are exactly what the California Transparency in Supply Chains Act aims to elude.

THE REALITY

According to ILO, 2.4 million humans are estimated to be trapped in forced labor as a result of human trafficking. Many sectors are vulnerable to human trafficking and slavery cases, including electronics, apparel, hospitality, and agriculture, among others.

In 2009, the US Department of Labor published a report which identified 122 goods from 58 countries globally that are made by forced or child labor. This alarming report which included real-life, poignant examples coupled with pressure from NGO’s have led to action to link businesses to the issues of human trafficking and slavery. As slavery and human trafficking are crimes, exist globally and are difficult to uncover, companies have to act ‘beforehand’ to diminish their likeliness of occurrence.

WHAT NOW?

Companies required to comply with the California Transparency in Supply Chains Act are those who file California state taxes as retailers or manufacturers, conduct business in California, and earn more than $100M in worldwide gross receipts. Under the Act, these companies are required to publicly disclose measures implemented to eradicate modern slavery from their supply chains on an annual basis.

Specifically, companies must indicate to which extent they:
Verify and evaluate human trafficking and slavery risks in supply chain, with third party verification
Conduct unannounced and verified audits of suppliers to evaluate compliance with company standards
Maintain internal accountability standards and procedures for employees and contractors failing to meet the company standards regarding slavery and human trafficking
Provide employees which are responsible for supply chain management (i.e. Chief Procurement Officers, procurement professionals, etc.) training on human trafficking and slavery, aiming to mitigate risks within the value chain of products
Certify materials in the supply chain to ensure they are in compliance with the law regarding human trafficking of the country or countries in which they are doing business

Essentially, the Act requires companies to disclose their efforts, if any. It is therefore possible for a company to declare that they are not concerned by human trafficking and slavery and thus they will not have to implement policies or measures to address such issues.

However, companies must take caution in declaring exemption from the regulation. Even if the consequences of the Act are yet to be seen, consumers’ awareness is rising regarding respect of human rights along supply chains and NGOs are pushing hard for accountability on the topic. Some companies have already begun to disclose on their website how compliance with the Act is achieved, examples include Hewlett-Packard and General Electric.

WHAT NEXT?

For now, California is leading the way on this subject in the US as no other states have followed suit. However, on a federal level, Congresswoman Carolyn Maloney has introduced a similar bill on August 1st, 2011, the ‘Business Transparency on Trafficking and Slavery Act’. The bill is currently being considered by the House Committee on Financial Services.

Companies have the opportunity to take advantage from this Act to establish thorough policies and processes to eliminate human trafficking and slavery from their supply chains. Conducting supplier sustainability assessments and leveraging or partnering with third parties is and will become increasingly essential for companies.

One solution is the EcoVadis Supplier Performance (SP) platform which allows companies to assess the environmental and social performance of suppliers on a global basis and can support companies in the fight against modern slavery. The methodology specifically includes criteria on child and forced labor.

On a grander scope, there is a systemic shift happening in the world of sustainable procurement. This is why EcoVadis has coupled expertise on both Corporate Social Responsibility and sustainable procurement strategy to provide tools on the leading edge of movement in CSR including: CSR suppliers assessments, corrective action plans, supply chain risk mapping and buyer training.


This article was written by Hélène Kadjar, which holds a double degree in Law from University Panthéon-Sorbonne and Complutense Univeristy of Madrid, as well as a Masters in Sustainable Development from Catholic Institute of Paris. She currently works for EcoVadis as a CSR Analyst.

Photograph by purplepick under a Creative Commons license

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