Canada's proposed An Act to enact Fighting Against Forced Labour and Child Labour in Supply Chains Act and to Amend the Tariff Act ("Bill S-211"), which would require ESG reporting on forced labour and child labour in supply chains, has moved even closer to becoming law.
What is the status of Bill S-211
Following its consideration of Bill S-211, the House of Commons Standing Committee on Foreign Affairs and International Development issued its Eighth Report on Bill S-211 on November 28, 2022 and Bill S-211 was reported to the House of Commons on November 30, 2022 without amendment.
Bill S-211 can now move to Third Reading and final approval in the House of Commons.
Who is subject To Bill S-211?
An "entity" (a corporation or a trust, partnership or other unincorporated organization) that meets one of the two following thresholds will be subject to Bill S-211:
- It is listed on a stock exchange in Canada, or
- has a place of business in Canada, does business in Canada or has assets in Canada, and
- 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:
- Has at least CAD$20 million in assets.
- Has generated at least CAD$40 million in revenue.
- Has an average of at least 250 employees.
Who has to file annual reports under Bill S-211?
An entity subject to Bill S-211 that (a) produces, sells or distributes goods in Canada or elsewhere, (b) imports goods into Canada that are made outside of Canada, or (c) controls an entity that is engaged in any of the activities described in (a) or (b) above must file an annual report under Bill S-211 ("Supply Chain Risk Report").
What must be included in the Supply Chain Risk Report?
Under the proposed legislation, every reporting entity must, on or before May 31 of each year, file a Supply Chain Risk Report with the federal government. The 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 entity, or of goods imported into Canada by the entity.
In addition, the Supply Chain Risk Report must also include the following information in respect of the reporting entity:
- its structure, activities and supply chains;
- its policies and its due diligence processes in relation to forced labour and child labour;
- the parts of its business and supply chains that carry a risk of forced labour or child labour being used and the steps it has taken to assess and manage that risk;
- any measures taken to remediate any forced labour or child labour;
- any measures taken to remediate the loss of income to the most vulnerable families that results from any measure taken to eliminate the use of forced labour or child labour in its activities and supply chains;
- the training provided to employees on forced labour and child labour; and
- how the entity assesses its effectiveness in ensuring that forced labour and child labour are not being used in its business and supply chains.
What is the role of the board of directors?
The Supply Chain Risk Report must be approved by the governing body of the reporting entity and signed by one or more members of the governing body. For example, if the entity is a corporation, the Supply Chain Risk Report must be approved by the board of directors and signed by one or more directors. By requiring the approval of the Supply Chain Risk Report by the board of directors, the legislation effectively escalates the issue of forced labour and child labour in the entity's operations and supply chains to the reporting entity's most senior leadership.
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, 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 as a mere "tick the box" compliance exercise.
In addition, the directors 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 with respect to reputation and brand erosion, supply chain instability, regulatory compliance and litigation – that adverse human rights impacts in a business and its supply chains can give rise to.
Are the reports available to the public?
Supply Chain Risk Reports will be made publicly available. Supply Chain Risk Reports filed with the federal government will be posted on an electronic registry that it will maintain. In addition, the Supply Chain Risk Report must be posted by the reporting entity in a prominent place on its website. If the reporting entity is federally incorporated, it must also provide the Supply Chain Risk Report to shareholders along with the reporting entity's annual financial statements.
To meet the demands of this challenging environment, boards of directors need to be fully prepared and equipped 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 risk management strategies,. Otherwise, reputational, financial, brand erosion, litigation, regulatory and other business and legal risks will be unmanaged and unmitigated.
Are there penalties for not filing a Supply Chain Risk Report?
Bill S-211 provides for a number of offences related to the Supply Chain Risk Report. These include:
- failing to file a report
- failing to have it approved by the board of directors
- failing to have it signed by a director
- failing to send the report to shareholders with the annual financial statements (for federally incorporated corporations), and
- knowingly making a false or misleading statement in the Supply Chain Risk Report.
Directors and officers who direct, authorize, assent to, acquiesce or participate in the commission of an offence may be personally liable.
How should a board of directors prepare for Bill S-211?
If Bill S-211 is passed, 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.
Does Bill S-211 ban the importation of goods made with child labour?
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. If passed, Bill S-211 could be the very first ban on the importation of child labour-made goods in the world.
How we can help you
Learn more about our Canadian ESG Advisory services and how Gowling WLG can help you with:
- Supplier Codes of Conduct
- Directors Duties and Board Education/Training
- Updating Supply Contracts
- Supply Chain Mapping and Due Diligence
- Stakeholder Identification and Engagement
- ESG Governance and Reporting
- ESG Regulatory and Litigation
- Class Action Defence
For further information, contact the author Stephen Pike at stephen.pike@gowlingwIg.com.
Watch Stephen's latest webinar on Addressing the risk of forced labour in supply chains and Forced Labour and Child Labour in Supply Chains or read the first 15 parts of our Guide to addressing modern slavery in your business and supply chain for Canadian directors: