International estimates indicate approximately 50 million people globally are in situations of modern slavery, an umbrella term that encompasses forced labor, forced marriage, and human trafficking
Governments are increasingly focused on combating human rights abuses in international supply chains, including by requiring businesses to conduct due diligence and report on efforts to eliminate such abuses. This has created a growing need for companies to implement robust compliance programs to ensure their supply chains are free from human rights violations.
Modern slavery, forced labor, and human trafficking are interconnected concepts with significant overlap. Modern slavery is an umbrella term encompassing both forced labor, which involves work performed involuntarily under threat of penalty; and human trafficking, which entails the recruitment, transportation, and exploitation of individuals through force, fraud, or coercion.
All three concepts involve the exploitation of vulnerable people and deprivation of individual freedom. Common indicators include restricted movement, debt bondage, withholding of wages, retention of identity documents, and threats of violence or deportation. The key difference is that human trafficking specifically involves movement or recruitment of victims, while forced labor and modern slavery may occur without relocation.
Key regulatory approaches
Several jurisdictions have enacted laws requiring that companies conduct human rights due diligence or report on their efforts to address modern slavery risks in their supply chains. For example, the European Union’s Corporate Sustainability Due Diligence Directive mandates due diligence for large companies operating within the EU; while the United Kingdom, Australia, and Canada have modern slavery reporting laws that require companies to publish annual statements on their anti-slavery efforts. Also, the California Transparency in Supply Chains Act requires certain companies to disclose their efforts to eradicate slavery from their supply chains; and Japan has issued non-binding guidelines recommending human rights due diligence. The US and EU also have specific due diligence and reporting requirements related to conflict minerals.
Bans on imports is the second most common regulatory approach across jurisdictions, with these import prohibitions driving companies to conduct increased supply chain due diligence. Key national requirements include:
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- The US prohibits imports of goods made with forced labor under Section 307 of the Tariff Act of 1930. This has been strengthened by the Uyghur Forced Labor Prevention Act (UFLPA), which created a rebuttable presumption that goods mined, produced, or manufactured wholly or in part in the Xinjiang region of China or produced by an entity on the UFLPA Entity List are made with forced labor.
- Canada and Mexico implemented similar import bans under the United States-Mexico-Canada Agreement.
- The EU recently adopted a regulation prohibiting products made with forced labor from being placed on the EU market or exported.
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Key features of an effective compliance program
Corporate compliance & risk professionals who want to design an effective due diligence program to combat human rights abuses in supply chains need to understand that this effort requires a comprehensive and adaptable approach with the flexibility to align with international standards while accommodating jurisdiction-specific requirements. Key components and steps to guide these efforts include:
Policy development — Develop and integrate a human rights policy into company operations, clearly stating commitments to eradicating human rights abuses. This policy needs to align with international standards, such as the UN Guiding Principles on Business and Human Rights and those of the International Labour Organization and any additional requirements of those jurisdictions in which the company operates where there are modern slavery laws. This policy should be communicated across the organization and its supply chain partners.
Risk assessment — Conduct a thorough risk assessment across the supply chain to identify areas in which modern slavery, forced labor, or human trafficking may exist. Engage stakeholders and those with more localized knowledge in this assessment process.
Set up due diligence processes for assessment of risks — Because clear due diligence processes are needed for consistency, companies should incorporate a systematic approach to regularly assess the effectiveness of their due diligence efforts by identifying and assessing potential human rights impacts and outlining prevention and mitigation of identified risks. This formal approach also should include clear metrics and indicators to measure progress and identify areas for improvement.
Create monitoring and reporting mechanisms, including on-site auditing — Companies should prioritize the implementation of comprehensive monitoring and reporting systems by establishing a consistent reporting schedule. They also should share findings with both internal and external stakeholders, create user-friendly reporting mechanisms that allow for easy data collection and analysis, and regularly review and update these systems to adapt to changing circumstances and emerging best practices in human rights compliance. Equally, protocols for open feedback channels and grievance mechanisms also are important for an effective due diligence system. In the case of forced labor compliance, it is particularly important to engage in regular on-site auditing.
Training and awareness — Implementing regular training for employees on the policies and procedures around identifying and addressing human rights abuses is an essential operational mechanism. Equally, training and building collaboration with supply chain partners are key to pinpointing and remedying human rights breaches.
Looking beyond the horizon
Moving forward, businesses must stay informed about emerging global trends, such as increased international cooperation and evolving legislation, to proactively address human rights abuses and maintain ethical supply chain practices. Indeed, the global landscape of regulations and enforcement actions targeting human rights abuses in supply chains continues to evolve rapidly, with more jurisdictions implementing due diligence requirements, import bans, or other measures to combat modern slavery, forced labor, and human trafficking.
Staying ahead of emerging requirements and potential regulatory changes will be crucial for businesses to mitigate risks and ensure ethical, compliant supply chains in this complex regulatory environment.
For more on approaches to combat modern slavery check out Thomson Reuters Practical Law Resources here
