Stephen A. Pike
Partner
Co-head - Canadian ESG Advisory Services Practice
Article
A guide to addressing forced labour and child labour in your business and supply chain
Part 18
14
This article was originally published on May 8, 2023 and has been updated to reflect that Bill S-211 received Royal Assent on May 11, 2023.
Canada's Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to Amend the Customs Tariff, which requires ESG reporting on the risks of forced labour and child labour in supply chains will come into force on Jan. 1, 2024. Bill S-211 was passed at Third Reading in the House of Commons on May 3, 2023 and received Royal Assent on May 11, 2023 and has now become an act of Parliament and part of the law of Canada.
This guide will help you address forced labour and child labour in your business and supply chain.
If your business is a corporation, a trust, a partnership or other unincorporated organization that meets at least one of the two following criteria (A or B), it will be subject to Bill S-211:
A. It is listed on a stock exchange in Canada.
B. (i) Has a place of business in Canada, does business in Canada or has assets in Canada and
(ii) Based on its consolidated financial statements, meets at least two of the following conditions for at least one of its two most recent financial years:
A business subject to Bill S-211 is an "Entity."
An Entity must file an annual report (referred to herein as a "Supply Chain Risk Report") if it meets any of the following criteria:
An Entity that is required to prepare, file and post a Supply Chain Risk Report is referred to herein as a "Reporting Entity."
Every Reporting Entity must file a Supply Chain Risk Report with the federal Minister of Public Safety and Emergency Preparedness on or before May 31 of each calendar year. The Supply Chain Risk Report must set out the steps the Reporting Entity has taken during its previous financial year to prevent and reduce the risk that forced labour or child labour is used at any step of the production of goods in Canada or elsewhere by the Reporting Entity, or of goods imported into Canada by the Reporting Entity.
A Reporting Entity's first Supply Chain Risk Report must be filed with the federal Minister of Public Safety and Emergency Preparedness and posted by the Reporting Entity in a prominent place on its website before May 31, 2024.
For example, if Bill S-211 comes into force on Jan. 1, 2024, and assuming that the Reporting Entity's most recent financial year end will be Dec. 31, 2023, the Reporting Entity's first Supply Chain Risk Report will cover the period Jan. 1, 2023 to Dec. 31, 2023.
In addition, the Supply Chain Risk Report must also include the following information in respect of the Reporting Entity:
Bill S-211 requires that the Supply Chain Risk Report be approved by the Reporting Entity's board of directors (if it is a corporation or, if not, then the governing body of the Reporting Entity). To evidence such approval, it must be signed by one or more directors (or, if not a corporation, one or more members of the governing body). By requiring the approval of the Supply Chain Risk Report by the board of directors, the legislation effectively escalates the issue of risks of forced labour and child labour in the operations and supply chains of the Reporting Entity's to the level of its most senior leaders and puts it on the agenda of your board of directors.
In their consideration and approval of the Supply Chain Risk Report, the directors will have a fiduciary duty to act honestly, in good faith, and in the best interests of the reporting entity, as well as to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Further, when acting with a view to the best interests of the Reporting Entity, the directors may consider the interests of stakeholders when exercising their fiduciary duties.
Accordingly, boards of directors should not consider the annual Supply Chain Risk Report to be a mere "tick the box" compliance exercise.
In addition, the directors hold responsibility to exercise oversight of how management is addressing the risk of forced labour and child labour in the entity's operations and supply chains. This is a critical board role given the wide variety of risks including reputational risk, financial and credit risk, brand erosion risk, litigation risk, regulatory compliance risk, supply chain instability risk and activist investors that adverse human rights impacts in a business and its supply chains can give rise to.
All Supply Chain Risk Reports will be made publicly available.
To meet the demands of this challenging environment, boards of directors need to be fully prepared, equipped and committed to oversee both how their businesses are managing the risks of forced labour and child labour in their operations and supply chains, and how their businesses are addressing these risks in their corporate and enterprise risk management strategies. Otherwise, these business and legal risks will be unmanaged and unmitigated.
Bill S-211 provides for a number of offences related to the Supply Chain Risk Report. These include:
Directors and officers who direct, authorize, assent to, acquiesce or participate in the commission of an offence may also be personally liable.
The Supply Chain Risk Report will ultimately be the responsibility of the board of directors. Accordingly, planning must begin at the board level to ensure that management is appropriately and effectively tasked and resourced to carry out the necessary due diligence to identify, assess and address the risks of forced labour and child labour in the Reporting Entity's operations and supply chains.
Businesses should be mapping their supply chains and conducting risk-based due diligence to trace and verify the sourcing of inputs in its supply chains and to assess whether forced labour or child labour has been or is being used at any tier of the supply chain – from raw materials to finished goods.
On July 1, 2020, as part of its implementation of the United States-Mexico Canada Agreement, Canada amended its Customs Tariff to prohibit the importation of goods mined, manufactured or produced wholly or in part by forced labour. Bill S-211 would amend the Customs Tariff to also prohibit the importation of goods mined, manufactured or produced wholly or in part by child labour.
Bill S-211 will be the very first ban anywhere on the importation of all child labour-made goods.
On March 28, 2023, as part of Budget 2023, and in the Debate at Third Reading of Bill S-211 on April 26, 2023, the Canadian federal government announced that it would introduce legislation in 2024 to eradicate forced labour from Canadian supply chains and to strengthen the prohibition on the importation of goods produced by forced labour.
It is possible that such future legislation could be closer to the United Nations Guiding Principles on Business and Human Rights-based European legislative tool of choice -- mandatory human rights due diligence legislation that would to require businesses to identify, prevent, mitigate and be accountable for the adverse impacts on human rights of their operations and supply chains.
Learn more about our Canadian ESG Advisory services and how Gowling WLG can provide advice on:
For further information, contact the author Stephen Pike at stephen.pike@gowlingwIg.com.
For further information, watch Stephen's latest webinar on Forced Labour and Child Labour in Supply Chains or read the first 17 parts of our Guide to addressing forced labour and child labour in your business and supply chain:
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