Now Is The Time For Canadian Companies To “do Diligence” On Their Supply Chains – Corporate/Commercial Law

A guide to addressing modern slavery in your business
and supply chain for Canadian directors and CEOs – Part
eight

Now that Canada has banned the importation of goods made with
forced labour, potential supply chain risks have increased for many
Canadian businesses in terms of both probability and severity. As
we’ve seen so often during the COVID-19 pandemic, global supply
chains can be extremely challenging to map, to monitor and to
manage.

Yesterday is not soon enough for Canadian companies to start
mapping their supply chains and to enhance their assessment of the
risks that there may be forced labour, child labour and human-
trafficked labour (collectively, “modern slavery”) in
their supply chains. Boards of directors, as part of their risk
oversight responsibilities, should (but may not yet) be well aware
of the financial, operational, legal, regulatory, customer,
investor, and brand-erosion risks relating to the presence of
modern slavery in Canadian businesses and their supply chains,
especially risks that may lurk beyond first-tier suppliers.

Once supply chains are mapped, businesses must then carry out
due diligence to effectively identify, prioritize, prevent,
mitigate and account for adverse impacts associated with the
businesses’ operations, products and services.

Modern Slavery Disclosure Legislation

Last month, Senator Julie Miville-Dechêne introduced Bill
S-216 into the Senate, which if passed would enact the proposed
Modern Slavery Act. The Bill proposes mandatory annual
disclosure by businesses in Canada of the steps that the business
has taken to prevent and reduce the risk that forced labour or
child labour is used in any step in the production of its goods in
Canada or abroad or in the goods that the business imports into
Canada. Bill S-216 also includes an amendment to the Canada Customs
Tariff to prohibit the importation of forced labour- and child
labour-made goods.

Even though Canada has still not yet enacted modern slavery
disclosure or supply chain transparency laws (as has been done, for
example, in California, the United Kingdom and Australia), many
Canadian businesses are already carrying out supply chain due
diligence to accurately inform the company of what is going on in
its businesses and supply chains. This critical information is
essential in order to respond to increasingly detailed and
comprehensive reporting requirements of asset managers, investors
and other stakeholders, as well as to enhance and to support their
brands and corporate purpose. Due diligence results are also used
to meet statutory reporting obligations under modern slavery
disclosure laws in jurisdictions outside of Canada.

U.S. Import Restrictions

Exporting to the U.S.? In the United States, there is a ban on
the importation of goods made with forced labour, indentured
or prison labour. While there is no statutorily mandated due
diligence, the U.S. Customs and Border Protection Service
Commercial Enforcement Division has published a forced labor Supply
Chain Due Diligence Fact Sheet recommending that businesses should
carry out supply chain due diligence. The CPB Fact Sheet states
“to combat the risks of child and forced labor in your
operations and global supply chains, you should have a
comprehensive and transparent social compliance system in
place”. Lack of insight and knowledge of supply chains creates
risk of detention at the U.S. border of goods suspected of being
made with forced labour.

Mandatory Due Diligence Legislation

Outside of Canada, several of Canada’s trading partners have
enacted mandatory human rights due diligence legislation, and more
legislation is on the way. For example, France, with its “duty
of vigilance” law and the Netherlands with its child labour
law, require companies to carry out mandatory due diligence on
their supply chains. Under the French duty of vigilance law,
companies to which the law applies must establish a vigilance plan
that includes not only due diligence measures designed to identify
risks and prevent harm to human rights and fundamental freedoms,
human health and safety and the environment, but also to disclose
actions to mitigate risks or prevent serious harm. The vigilance
plan and a report on its implementation must be made public.

And, in my view, two recent initiatives – the Swiss Responsible
Business Initiative and the proposed EU legislation requiring
mandatory human rights and environmental due diligence –
merit detailed consideration and discussion. Both of these
illustrate an approach that could have the potential to
dramatically shift the liability paradigm for businesses
(especially Canadian businesses as seen through the eyes of a
Canadian court) through both the undertaking of mandatory due
diligence reviews and the introduction of a presumptive and legally
enforceable duty of care. In my opinion, although referred to by
many as “due diligence” legislation, both expressed an
intention to create new legal duties and, consequently,
responsibilities and legal risks for businesses. Taken as a whole,
these proposed laws transcend how the term “due
diligence” might be understood by many Canadian
businesses.

EU Mandatory Human Rights and Environmental Due Diligence
Legislation

While proposed legislation has not been drafted or made
available for reference and comment, it appears that the favoured
option (that which was expected to deliver the most significant
human rights impacts) would be “mandatory due diligence as a
legal duty of care”.

According to the report making the recommendation, it would
entail a new mandatory due diligence requirement at the EU level
which would require companies to carry out due diligence in order
to identify, prevent, mitigate and account for actual or potential
human rights and environmental impacts in their own operations and
supply or value chains, as a legal duty or standard of care.

This recommendation is very much aligned with the United Nations
Guiding Principles (UNGP) on Business and Human Rights, especially
Principle 17. Among the issues for businesses to consider are those
suggested by the commentary on UNGP Principle 17 as to the scope of
liability and the duty of care:

“Conducting appropriate human rights due diligence should
help business enterprises address the risk of legal claims against
them by showing that they took every reasonable step to avoid
involvement with an alleged human rights abuse. However, business
enterprises conducting such due diligence should not assume that,
by itself, this will automatically and fully absolve them from
liability for causing or contributing to human rights
abuses”.

On the radar for businesses will be the scope, granularity and
standards of the required due diligence review, as well as the
implications of the proposed legal duty and standard of care.

Swiss Responsible Business Initiative

The Responsible Business Initiative was voted on by Swiss voters
on November 29, 2020 and failed to achieve the double majority
required for approval. While it garnered 50.7% of the popular vote,
it failed to receive approval from a majority of Switzerland’s
cantons. The proposed law would have required Swiss businesses to
carry out an appropriate due diligence process to identify actual
and potential impacts on internationally recognized human rights
(e.g., UN Guiding Principles on Business and Human Rights) and the
environment, to take measures to prevent violations, to cease
existing violations and to account for the actions taken.

Under the proposal, Swiss businesses would be liable for their
own adverse human rights impacts and environmental misconduct and
those of controlled companies unless they can prove that (i) they
have taken all due care to prevent such adverse impacts or (ii) the
adverse impacts would have occurred even if the requisite care had
been taken. This would have imposed a reverse onus on businesses
subject to the proposal – essentially a reversal of the
customary burden of proof, and resulting in the creation of new
legal obligations on businesses.

Although it failed to achieve approval, the Swiss Responsible
Business Initiative illustrates the direction in which mandatory
modern slavery/human rights due diligence legislation is
headed.

Right now, Canadian businesses need to “do” diligence
on their supply chains to be able to report accurately to
shareholders, investors and other stakeholders and to effectively
manage supply chain risks that are increasing every day.

For further information, please read the first seven parts of
our GUIDE TO ADDRESSING MODERN SLAVERY IN YOUR BUSINESS AND SUPPLY
CHAIN FOR CANADIAN DIRECTORS or contact the author Stephen Pike at Stephen.Pike@gowlingwlg.com.

Part 1: Introduction to modern slavery issues in
businesses and supply chains in Canada

Part 2: Will Canada take legislative and regulatory action
and how will it impact Canadian businesses?

Part 3: Modern slavery and the shifting paradigm of
corporate purpose and directors’ duties

Part 4: In the fight against modern slavery, COVID-19
presents a rare opportunity for Canadian businesses to get it
right

Part 5: Modern slavery rules are coming to
Canada

Part 6: Canada bans imports of forced labour goods: Now
what?

Part 7: Will the Third Time be the Charm: Modern Slavery
Legislation Introduced Again in Canada’s
Parliament

“Read the original article on GowlingWLG.com“.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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