The Canadian Modern Slavery Act, also known as An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff, was passed on May 11, 2023 as a way to ensure companies are maintaining ethical supply chains.
With an estimated 27.6 million individuals trapped in forced labor, coupled with increased human rights legislation throughout Europe and the US, Canada is one of the most recent countries to commit to holding companies accountable for their role in an egregious human rights concern.
While some claim the law does not go far enough in stopping the use of forced labor, it does provide a critical foundation for more stringent requirements in the near future. The law will take effect on January 1, 2024 and requires that an annual report is filed by the relevant entities detailing their due diligence efforts in identifying, addressing and preventing forced labor in their supply chains.
Who It Impacts
Unlike several other related laws, the regulation immediately impacts most multinational corporations that operate in Canada, in addition to Canadian government institutions that produce, purchase or distribute goods anywhere in the world.
Private sector companies are also obligated to comply if they are a Canadian-linked entity that produces or distributes goods throughout the world, imports goods into Canada, or even controls an entity that engages in either of those activities.
In addition, they would have to meet at least two of the following criteria:
- have at least $20 million in assets
- have generated at least $40 million in revenue
- employ an average of 250 employees or more
A “Canadian-linked” entity does not just refer to companies based in Canada, but one that is listed on a Canadian stock exchange, has a place of business and/or conducts business in Canada, or has assets in Canada.
Requirements of Impacted Firms (& Penalties)
Before May 31 of each year, affected companies must submit a publicly available report to the Minister of Public Safety and Emergency Preparedness that outlines the steps the firm took in order to ensure that forced labor – which includes child and prison labor – was not used in any part of the firm’s production, importation, or distribution processes for any of their goods or services.
The report must also include additional information about the entity, including:
- overall structure, activities, and supply chains of the firm
- policies and due diligence procedures relating to forced labor
- activities and parts of the firm’s supply chains that specifically carry a risk of forced labor and the particular steps the company has taken to evaluate and mitigate those risks
- all measures to remediate forced labor, as well as the loss of income to those most impacted by measures used to eliminate the use of forced labor
- employee training on forced labor, including child labor
- assessment process in how the entity ensures that forced labor is not used in its business or supply chains
While the act technically takes effect on January 1, 2024, the first report that companies must submit must be on or before May 31, 2024. The report must be placed prominently on the company website, and national corporations must provide a copy to their shareholders alongside annual financial statements.
If a company does not comply, the law allows officials to enter and search the entity’s property and remove any materials for further examination. Individuals and entities are also liable to a fine of up to $250,000 for non-compliance, which could be a result of an unsatisfactory annual report, failure to make it public, or obstructing or failing to comply with an order from the Minister.
Similar Legislation in the US and EU
Over the past couple of years, other countries throughout North America and Europe have passed strict laws that mandate that multinational companies conduct stronger due diligence around ethical and environmental concerns. Historically, firms have skirted responsibility for ESG-related issues in their supply chain by professing ignorance or uncertainty on suppliers beyond Tier 1. But a new wave of laws are requiring that large firms and corporations better understand their full value chain in the first of many steps towards reducing the proliferation of unsustainable and unethical practices.
Uyghur Forced Labor Prevention Act
More commonly referred to as the UFLPA, this forced labor law went into effect in June 2022 in the United States as a way to combat the importation and consumption of goods made from forced labor by the Uyghurs, an ethnic minority subjected to oppressive conditions in China. Corporations such as Uniqlo have already faced repercussions from US Customs, an enforcement arm of the new regulation.
German Supply Chain Due Diligence Act
This act requires that companies conduct a risk analysis of their entire supply chain and undertake preventative measures to ensure suppliers – including indirect suppliers – comply with environmental and human rights standards. The law compels businesses to examine and be accountable for the entire supply chain lifecycle, from the production of raw materials to the delivery of products and services to end consumers. While it initially applies to German-based companies only, corporations doing business in the country must eventually follow suit.
Norwegian Transparency Act
Starting in July 2022, the legislation has required that companies doing business in Norway (both foreign and domestic) adhere to human rights due diligence based on the OECD Guidelines (Organisation for Economic Co-operation and Development) and transparently communicate those efforts to consumers. This includes due diligence in their operations, supply chains, and the use and disposal of their products and services. While many supply chain due diligence laws require compliance from large firms, the Norwegian Transparency Act applies to a much wider range of companies, including those with only 50 full time employees.
Corporate Sustainability Due Diligence Directive
On June 1, 2023, the European Parliament officially adopted an amended version of the Corporate Sustainability Due Diligence Directive. The directive requires firms to not only monitor and report on forced labor concerns, but a wide range of ESG-related topics, including environmental sustainability, anti-corruption, and diversity efforts as well. Failure to comply can result in removing the companies’ goods from the market and/or a fine of at least 5% of total revenue for EU companies. Non-EU firms may also be subject to a ban from public procurement in the EU.
What Procurement & Compliance Professionals Should Know & Plan For
Whether or not your company conducts business in Canada, it’s evident that countries around the world are enacting stricter regulations surrounding not just forced labor, but environmental sustainability and other ethical concerns. In order to adapt to this changing landscape, procurement, supply chain and compliance professionals must have a deep understanding of their value chain and be proactive in how they’re obtaining valuable insights and data on their supplier networks.
Don’t solely rely on supplier surveys for ESG data.
While supplier surveys provide useful insights, most vendors have an incentive to portray themselves in a positive light and won’t initiate communication when they are embroiled in an ethical or environmental dilemma. And simply reporting on suppliers’ survey responses won’t be considered sufficient due diligence by new regulatory standards. Procurement, supply chain and compliance leaders must invest in real-time supplier intelligence that offers objective insights on the ESG performance of top vendors.
Plan for stricter regulations across North America and Europe.
The United Kingdom and France adopted modern slavery and ethical supply chain-focused legislation in 2015 and 2017, respectively, but it only took a few years for experts to realize it wasn’t enough. Even with the passage of Canada’s Modern Slavery Act and the German Supply Chain Act, for example, leaders are already highlighting where the laws fall short and how efforts to hold firms even more accountable are underway. While many of these current laws are focused on reporting requirements, the next step will most likely include more proactive action on the part of private sector firms.
Break down silos between procurement, compliance and supply chain teams.
Procurement, supply chain, and compliance departments often work closely together, but because each department focuses on a certain set of risk domains, information silos still abound. Having a centralized platform that tracks risk important for all teams is the first step towards a truly comprehensive risk management approach.
How Supplier Intelligence Platforms Help Companies Comply With Canada’s Modern Slavery Act
Using a centralized platform that tracks supplier risk beyond Tier 1 across a variety of categories – including ESG, finance, cybersecurity, and operations – not only helps companies understand their entire value chain, but it also makes reporting requirements more accurate, transparent, and seamless.
N-tier mapping: It’s impossible to know how ethical or environmentally conscious your Tier 2 and 3 suppliers are if you don’t even know who they are. With n-tier mapping capabilities, you can get a full picture of your entire supply chain down to raw materials.
Real-time, customized alerts: Suppliers won’t reach out to let you know if they are in the news or being sued for ethical misconduct, and it’s virtually impossible to maintain Google Alerts on thousands of suppliers. That’s where using real-time notifications becomes imperative. Customized alerts strengthen risk monitoring efforts by providing teams with expanded visibility into the vendors that are most critical to compliance and ESG efforts.
Reporting & Case Management: Documenting due diligence efforts is a key component of the new Canadian legislation. By using a platform with case management functionality, procurement and compliance teams can inform colleagues about human rights or environmental risks, outline and assign a plan of action and track the progress of any risk mitigation initiatives.
Digestible but detailed ESG scores: There are hundreds of data points that a single, numerical ESG score should consist of, but no procurement or compliance team has the ability nor time to analyze every factor that was a part of the calculation. Make sure your supplier intelligence platform provides your team with an intuitive ESG score for each vendor, while also allowing users to expand on the granular process of how the score was composed if needed.
Reliable and specialized data sources: Underneath all of these critical platform capabilities must lie reliable data that is aggregated and analyzed from various sources, so that your risk monitoring and compliance efforts are as objective and accurate as possible.
Multinational firms are becoming more responsible for ensuring that their entire supply chain – even beyond Tier 1 suppliers – is ethical and sustainable. Make sure you’re prepared by investing in the tools and resources you need to fulfill current reporting requirements and more robust obligations in the near future.
Learn more about mitigating risk with a comprehensive supplier intelligence platform.