ESG reporting: Addressing the risk of forced labour in supply chains

Charlotte: So it's twelve o'clock. We'll get started and I see lots of people have joined, which is great. So welcome, everyone, and thanks for joining us today. We've got a really interesting discussion coming up with our two panelists on the topic of ESG Reporting and Addressing the Risk of Forced Labour in Supply Chains. So a few introductions and housekeeping elements before we get started. So myself, I'm Charlotte Lombardi. I'm Manager at Millani, which is an ESG advisory firm based in Montreal. We advise both investors and corporate issuers on ESG integration strategies, across Canada, and across different industries and asset classes. Myself, I have a background in consulting and communications. I have been working with investors and corporate issuers on ESG strategies, with Millani, for the past three and a half years.

We also have Stephen Pike on the line. So Stephen is a Toronto based partner at Gowling WLG. He is co-Leader of the firm's Canadian ESG Advisory Services practice. He advises Canadian, American and global businesses on corporate law and governance, ESG, transactional operational and risk management issues and he advises businesses outside Canada on expansion in to Canada. He writes, speaks and advises frequently on ESG issues including ESG in the role of board of directors and how businesses can address the risk of forced labour and child labour in the supply chains and, in March of this year Stephen appeared as a witness, before the Standing Senate Committee on Human Rights, to give evidence regarding the Bill we will be speaking about today, Bill S-211, Canada's proposed Fighting Against Forced Labour and Child Labour in Supply Chains Act. In late 2021, Stephen addressed the all-party Parliamentary group to end human trafficking and modern slavery as well. Finally, he is co-Editor of ESG in the Boardroom: A Guide Book for Directors, published in March 2022 by the American Bar Association.

We also have Rosa van den Beemt. She is Vice-President of Stewardship and Responsible Investment at BMO Global Asset Management. Rosa is a corporate engagement practitioner with over 10 years experience in the responsible investment industry, engaging boards and management on ESG issues, including human rights. She leads BMOs stewardship strategy, which consists of corporate engagement activities, proxy voting, public policy advocacy and industry collaboration. She serves on the advisory committee for the Investor Alliance for Human Rights, which educates investors on their responsibility to respect human rights throughout the investment decision making process, and provides a platform for investors to learn from affected stakeholders and collectively engage portfolio companies on human rights impacts. She also serves on the Responsible Investment Association's Leadership Council, the Canadian Coalition for Good Governances Environmental and Social Committee and Climate Engagement Canada, CEC, Steering Committee.

So clearly we have really the right people on the line today to discuss this really important topic. So welcome, Stephen and Rosa. Before we get started, just to let you know this session will be recorded. It will be made available as well for anyone who would like to re-watch it and we'll keep around 10 to 15 minutes at the end if you do want to put questions in the Q&A box throughout the session. If we don't get to them we'll come back to you when the session is finished.

To start us off we do have a quick poll just to kind get a pulse of everyone's knowledge of this Bill. So if everyone can fill in we can get some results to the poll. What is your current knowledge of Bill S-211? No knowledge; limited knowledge; some knowledge and a deep level of knowledge. So I'll give 20 seconds or so to just give people time to put this in. Stephen and Rose feel free to kind of give any reactions once the poll starts slowing down a little bit.

Stephen: I think that, looking at the poll results, we see a vast majority with limited or no knowledge of the Bill. It's something that I'm fielding more and more inquiries on the client side. It's becoming something that is very important to so many businesses in Canada who are involved in global operations, or importing products into Canada, and exporting products out of Canada as well. I'm not surprised by the numbers but it should give you an indication that we hope that our next hour will be very informative for you.

Charlotte: Yeah, it looks like we have a majority of no knowledge at all. A few with limited knowledge and some knowledge. As you said, Stephen, hopefully this next session is going to be really, really informative for everyone on the line today. So before we do get started I'll just give some context before I hand it over to Stephen for some deep context on how this will affect companies in Canada. The purpose of the session today is to provide some perspectives on Bill S-211. If enacted this legislation would require every company listed on a Canadian stock exchange, as well as Canadian businesses over a certain threshold of assets, revenues and / or employees that produce, sell or distribute goods in Canada or elsewhere, or import into Canada goods produced outside of Canada to file and publish an annual report on the actions taken to prevent and reduce the risk of forced labour and child labour in supply chains. So laws requiring businesses to report on the risk of forced labour and supply chains have already been enacted in the UK, Australia, California and many countries in Europe. This Bill, unanimously passing its Second Reading in the House of Commons earlier this year, Bill S-211 could become law in Canada. A key part of this legislation is that it would be the boards of directors who would need to approve this report. So today we have Stephen and Rosa, giving the legal perspective and the investor perspective on what this would mean for businesses, what the implications would be, how investors are looking at this kind of information and how all of this might fit into the current ESG reporting landscape. To start us off, Stephen, could you give us a little bit more context on this proposed legislation and how it fits into what's already happening in the world.

Stephen: Thank you very much, Charlotte. I'd be delighted to. First, a bit of context. Emerging prominence of ESG issues on the risk register of Canadian businesses has now definitely captured the attention of investors and other stakeholders and now, more than ever, risk management efforts are focusing on 'S' issues, the social issues, which include financial, operational, legal, regulatory and reputational risks as well as brand erosion risks relating to the presence of forced labour and child labour in business operations and supply chains. So from a legislative regulatory enforcement perspective, Canada lags behind many of its Western trading and investment partners, which include the US, the UK, the EU, France, Germany, Norway, the Netherlands and Australia. However, recent developments in Canada and abroad are accelerating the pace of change and are posing new risk management operational and governance challenges for Canadian businesses, their boards of directors, their investors, their shareholders and other stakeholders. Let's take a step back for a minute and let me give you the global context in which Bill S-211 will be placed. So generally, around the world there's three tools that governments use, or have been using, to encourage businesses to deal with, require businesses to deal with forced labour and child labour in supply chains. So the first tool is mandatory reporting laws. So supply chain transparency modern slavery laws, which require companies to report on what they see in their supply chains. Whether it's the risk of forced labour child labour or how they're addressing it, but it's reporting legislation, so that's a UK Modern Slavery Act, the Australian Modern Slavery Act, the California Supply Chain Transparency Act. The second tool is quite different. It's mandatory human rights due diligence legislation. We see that in Norway, in France, with the duty of vigilance, the Dutch child labour law, the German Supply Chain Act that comes into force on July 1, 2023, for businesses with more than 3,000 employees in Germany and the proposed EU directive on corporate sustainability due diligence.

I'm going to just stop for a minute and talk about due diligence because what I see is most business people in North America, when they hear due diligence, they think of an audit or review to confirm a specific set of facts in connection with a business transaction or public disclosure document. Very different in Europe. In the EU directive on corporate sustainability due diligence, and following the UN's guiding principles on business and human rights, due diligence would include identifying, preventing, mitigating and accounting for external harm arising from adverse impacts on human rights in the businesses own operations, as well as its subsidiaries and value chains. So it's going beyond just investigating and reporting on what was found. It's actually moving down that path towards mitigation, remediation and accounting for the external harms. The EU directive also expands directors duties to include setting up and overseeing the implementation of due diligence processes and integrating due diligence processes into the corporate strategy. The EU directive is not yet law. It will take some years, I believe, to become law but certainly the movement towards human rights due diligence is a favoured choice of governments in Europe.

So I talked about modern slavery reporting legislation. I talked about human rights due diligence legislation. The third tool we see is bans or prohibitions on the importation of forced labour goods. You may or may not be aware that the US has a ban on the importation of forced labour goods, as does Canada, and one is proposed in the EU but that's, again, going to take some time to come into force and be approved. In Canada, on July 1, 2020, as part of the implementation of the successor to NAFTA, the Tariff Act was amended to prohibit the importation of goods, mined, manufactured or produced, wholly or in part, with forced labour. Those goods could no longer come into Canada, however, to date there's been no publicly announced successful seizure of forced labour goods. In the US there's a big difference and I'm going to talk about the US because we export about 319 / 320 billion dollars worth of goods to the US every year, including oil, but if you exclude oil I think it's still going to be well into the 10 figures. So very important for Canadian businesses to understand what the rules are. The US Tariff Act prohibits the importation of all goods, wares, articles and merchandise, mined, produced or manufactured, wholly or in part, in a foreign country, which includes Canada, by forced labour. So there's a ban on importation of forced labour into the US. In addition, on June 21 of this year, the Uyghur Forced Labour Protection Act came into force. This is a real game changer. It imposes a rebuttal presumption that imports of all goods, wares and merchandise, mined, produced or manufactured, wholly or in part, in the Xinjiang Uyghur Autonomous Region are deemed to be, presumed to be, made with forced labour and prohibited from entry in the US. So the only way that that presumption can be rebutted is by providing clear and convincing evidence to Customs and Border Protection that the goods are not made with forced labour. Which is a very, very high legal standard. You should know that the presumption also applies to goods that are made in, or shipped through, China or other countries that include imports from Xinjiang. So that would include goods that are coming through Canada and trans-shipped into the US.

To give you an idea of the extent of enforcement of the Uyghur Forced Labour Protection Act and the Tariff Act in the US, in August and September of 2022, Customs and Border Protection in the US targeted 1,452 entries, valued at more than 429 million American dollars for suspected use of forced labour in the production of the goods. So there's enhanced enforcement and this Act, Uyghur Forced Labour Protection Act, only came into force towards the end of June. So it's something to think about. Here is some comments from Undersecretary of the Department of Homeland Security in a recent interview. He said that forced labour belongs in the same breadth as the Foreign Practices Act and he said when it comes to corporate compliance programs, boards of directors need to be focused on forced labour. CEOs need to be focused on this and compliance teams certainly need to be laser focused on this. So for companies that are importing goods, or exporting goods, into the US you need to be aware of this new Act and the Tariff Act restrictions in the US.

Now let's talk about Bill S-211, that we've seen the global picture. I'll take you through how you can determine whether a business is required to file a report under Bill S-211 should it become law. So the first step is, is the business an entity for the purpose of the Bill? If it's a company that's listed on a stock exchange in Canada, it is subject to the Bill. If it's a company that has a place of business in Canada, does business in Canada or has assets in Canada, and it meets certain financial thresholds, it will be subject to Bill S-211. What are those financial thresholds? A company has to, in its last consolidated financial statement, meet at least two of the following criteria: one, at least 20 million dollars of assets on the balance sheet, at least 40 million of revenue or at least 250 employees. To give you a sense of the scope of application of Bill S-211, should it become law, there's around 2,300 companies listed on the TSX and the TSX Venture Exchange, and there's about 10,000 companies in Canada that have more than 200 employees. So get a sense that there will be a broad application. If the company is an entity under the law, so it's subject to the law, you would have to file an annual report if it produces, sells or distributes goods in Canada or elsewhere. It if imports into Canada goods produced outside of Canada, or it controls an entity that's engaged in any of those business activities. We now get down to, alright we've got a business that has to file a report, what is the report that has to be filed?

It has to report on the steps that the business has taken in 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 business, or in the production of goods imported into Canada by the business. The report has a number of mandatory things it has to include which include a description of the supply chains, description of measures taken to remediate any forced labour or child labour supply chains, the training provided to employees on forced labour and child labour and disclosure as to how the entity assesses its effectiveness in ensuring that forced labour and child labour are not being used in a business or supply chain. Okay, so that's the report. Now what happens?

Well, as Charlotte says, the report has to be approved by the governing body of the business, typically the board of directors, and it also has to be signed by a member of the board of directors. So these issues get escalated right up to the board level and engage the director's fiduciary duties to act in the best interests of the business. The report is also filed with the Minister who will post it on a Federal Government website and the business itself must post it in a prominent place on its website. If the business is a Canada Business Corporations Act corporation, they have to include it with the annual financial statements that are provided to shareholders. Bill S-211 would also apply to Federal Government departments and Crown corps and agencies. Lastly, the Bill does provide for offenses and fines up to $250,000.00 for companies that failed to prepare annual reports, failed to file it with the Minister, failed to have it approved by the board and signed by a director, or that make any false or misleading statements. There's also personal liability of directors and officers in certain circumstances. So that's a very short summary of Bill S-211 in the global context in which it is placed. Back to you, Charlotte.

Charlotte: Great. Thanks, Stephen. Really, really informative for everyone on the line who has joined to learn more about the legislation. So at Millani we do an annual study of the ESG disclosures across the S&P TSX composite every year. So I had a look to see if we could see if there's any sense of where the companies are starting to look at supply chain and disclosure around it. So we did find that this year that those have an ESG report, 58% of companies are disclosing that they do have a supply code of conduct, not necessarily disclosed within the report and it might not be meeting all of the requirements of this legislation, but the fact is that they're disclosing business supplier code of conduct or a supplier chain policy that is being disclosed on the websites. So some indication that there's some focus around this topic starting to happen. I think many people on the line will probably want to know if the Bill is enacted, how does this fit into the current ESG disclosure landscape? How might a business implement the requirements as part of current ESG disclosure reporting? So, Rosa, we'd love to hear from you as an investor. How are investors looking at this? How would investors assess this kind of information once it is disclosed?

Rosa: Thank you, Charlotte, and great to be here. I would start by saying that investors would welcome this type of information. It really puts supply chain due diligence at top of mind of companies, even if they didn't consider it a material topic previously, especially at the board of director level. Of course nobody wants to be associated with or perpetuate forced labour or child labour and this is a way that we can address that. As investors we have been using this information already, in countries where companies are required to disclose, such as the UK and so we have seen similar types of disclosures, the ones that Stephen mentioned. I think as investors who are primarily concerned with assessing risk and whether a company manages its risks accordingly, including ESG risks, the way that we have been looking at this disclosure is, firstly, has there been actual compliance? So when the UK Modern Slavery Act was first introduced it turned out that about 40% of companies persistently did not comply and that obviously is a red flag to us, as investors. But then, secondly, what type of information is provided in the reporting, and how does it translate back to some of the other reporting that companies put out as it relates to their sustainability approaches and just ESG risk management in general? I think what we found in the beginning is that since it had become a legal exercise to put out these statements, a lot of companies started by publishing stock text and general statements that didn't really provide any insight into the specific risks to their sector, their regions of operations and their supply chain, nor did it really properly walk investors through the process by which they assessed and addressed the risks. We see this often also in Canada, for example, when board diversity reporting was starting to be required that companies, a broad swath of companies, would have standard text that didn't really provide specific detail to the company itself. Of course we understand that is in part to mitigate risk to the company, but it actually doesn't really meet the spirit and intent of the regulation, or the expectations of investors in broader society.

As investors we focus on the reporting of companies where it is lacking. Either through engagement with those companies or integrating expectations into, for example, funds that have higher expectations on the ESG performance. Sustainable branded funds, for example, might integrate supply chain due diligence expectations into their investment process. We're seeing this already in Europe. I of course expect as well with the ESG service providers, the data providers, will take this into account in their ratings approach and then maybe, just to take a step back about how we think this supply chain due diligence disclosure and forced labour disclosure fits into a broader human rights approach, I would say that there has been investor support, globally and also within Canada, for a more robust human rights due diligence approach. So as Stephen was mentioning, mandatory human rights due diligence rather than just providing a report that signs off on forced labour, but taking a more wholesome approach. So in 2021 there was an investor statement that was lodged, that I think had 94 investors sign on with 6 trillion in AUM, that supported the EU based mandatory human rights legislation. I think as investors we, looking at the international standards that are already set out and the guidance that is already available on how to implement your robust human rights approach, that's the UN Guiding Principles for Business and Human Rights, it was endorsed in 2011, it's really the Bible of how to approach human rights in the business context. That was also adopted in the OC guidelines for multi-national corporations and is now becoming the basis of the emerging mandatory human rights due diligence legislation in Europe and other regions. Because human rights due diligence requires companies to assess the actual and potential adverse impacts on people, so going beyond maybe risk to business to risk to people, we see this a really valuable tool of risk prevention and strengthening the social licence to operate. Also risk to people, of course, can quickly become material over time.

Then, lastly, I would say that there's now this growing concept of double materiality in the investor world. So looking at both how ESG issues impact the business as well as how businesses impact ESG, or people and planet, and as well in Europe there are growing expectations on investors through the sustainable finance disclosure regulation, SFDR, to analyze the adverse impacts that we have in our portfolios and take actions on addressing those. We are not able to do our due diligence, of course, on investee companies when investee companies don't do their own due diligence either. So I would say we're all sort in the same boat and trying to figure to this out. Ways that we have been using to sort of go beyond initial assessments of does the company have a human rights policy? Does the company have a supply chain code? Is looking at third party tools? So increasingly we found these benchmarks to be very helpful in assessing certain sectors and, also cross-sectorally, how companies are performing on human rights. So the tools that are listed here, all are grounded in the UN Guiding Principles on Business and Human Rights. So they take the expectations set out there and then rank companies on how they are performing and reporting accordingly. The CHRB, the Corporate Human Rights Benchmark, is probably the largest tool here that also covers the largest universe, and then know the chain is a benchmarking tool that looks at human rights due diligence specific to the supply chain context. The other ones listed here are definitely more sector specific. So ranking digital rights, for example, looks at the tech and telecom industries. I would say Canadian companies are not typically, there are a few Canadian companies covered in these benchmarks, but usually they're too small to be incorporated because they all have a global reach. Over to you, Charlotte.

Charlotte: I think this is really helpful to get an idea of the tools that are already out there and things that investors are looking at. You mentioned engagement and due diligence with companies, what kind of questions are you asking? What's kind of top of mind when you go and try and understand how companies are mitigating those risks?

Rosa: Yeah, this really depends on where the companies are at in their journey.

Charlotte: Okay.

Rosa: I think the question that we'd usually start with is, do you actually understand your supply chain? Have you mapped your supply chain and what tiers of suppliers does that include? Then what type of expectations do you have of suppliers to adhere to international human rights and labour standards? Like the UN Guiding Principles and the ILO.

Charlotte: Hmhmm.

Rosa: Then if we go a little bit deeper is, how do you actually check that they are adhering to this? Like Stephen already alluded to, audits are a starting point but they're not adequate to assess egregious human rights risks in the supply chain, or rule out any forced labour. That's not what audits are meant for so are there any additional measures that you have in place, or that you could put in place, to assess potential risks? So really going deeper to understand process. Then of course, is there responsibility throughout the organization? Is there responsibility at the top for some of these issues? Then if we go even a step further, when companies do have a process in place for this, are you able to disclose the results of your human rights due diligence processes, or audit results, and the actions you've taken to address potential issues? Then I think the final step, and this is really where it's sort of best practices emerging is, can you provide information about your both grievance mechanisms and your approach to providing remedy? So that would really be disclosure on if a group of people has been impacted by your business activities, how have you been working with them to provide remedy, and what does that group of people, do they also feel like the issue has been addressed?

Charlotte: Okay. So some great kind of tangible actions that companies can be doing in order to explain how this risk is being mitigated. So we've heard about the tools and the due diligence around the risk and how it's being managed and mitigated, but on the other side there are positive stories as well, from how companies are putting things in place and how positive actions are coming out of this. So in the prep for our session Stephen shared a few really interesting stories that we wanted to share with you today. So, Stephen, over to you. We've got a few examples. Some kind of opportunities and the positive sides of things to talk about.

Stephen: Thank you. One of the things I wanted to just mention before I get into these examples, to just supplement a bit onto what Rosa has said which is, one of the things that we see in terms of ESG reporting, a focus on forced labour and child labour is there's a big differential between what is being talked about, if not implemented, in terms of ESG reporting on 'E' issues, looking at for example, the SCC proposal of 460 pages of detailed, granular reporting on climate change issues, compared to the absence of any supply chain reporting in the US except in California, and I think that gap is going to be shrunk over the next few years. Also with respect to the board's role, to what extent is a board properly overseeing, governing human rights supply chain risks that are likely to have an impact on a business and its financial performance over short term, medium term and long term? I think the 'G' needs to be engaged as well, and in terms of what Rosa's comments are, it's got to be top down from the board level and the board has to incorporate into its business decision making, not only dealing with risks of forced labour and child labour in supply chains, but also looking at opportunities for enhancing the business's success and long term value. So while Bill S-211, going back to Bill S-211, is focused on risk many businesses are finding success and competitive advantage in effective management of these risks and outstanding reporting on a voluntary basis of issues and matters that are of concern in their supply chain. They may be posting lists of factories where their goods are produced. They may be posting gender information with respect to the genders of employees in those factories. They may be posting lists of smelters of which certain components are being produced. I'm sure if I could turn the webinar over to all of you participants you'd have great stories about the reporting on a voluntary basis that you're doing and what you're providing to your investors.

That being said, let's look at a couple examples of how some really interesting businesses have, with a corporate purpose, have transcended these risks completely. Here's a couple examples. On the left you'll see a chocolate bar, from Tony's Chocolonely, which is a Dutch company founded by a Dutch journalist, and it's corporate purpose is to make the whole chocolate industry slave free and they have provided in pay above market for cocoa. They want to bring farmers out of a position where they're unable to earn a fair wage or a living wage and support their families. So they're paying above market and you can see below the chocolate bar they're doing a co-branded product with Ben & Jerry's called A Chocolatey Love A-Fair, of course fair meaning fair wages, and it's attracting a lot of attention. So that's one example of a company that is transcending the supply chain risks. Then in the middle of the slide you'll see Equifruit, which is a Montreal based importer of bananas, and it is a fair trade certified supplier of bananas and is now making its way into food chains and retailers across Canada. It provides, again, providing fair trade living wage to the farmers that are growing the bananas. Then on the right hand side you'll see a couple of sweatshirts for the Noah brand and that's a designer and retailer in the US, in New York and LA and Tokyo, London, etcetera, and what you'll see below, a reference to the Canadian flag. They have a story about how when they sourced these sweatshirts they got two suppliers in Canada that supply the sweatshirts and when the minimum wage went up, 22.4%, they were faced with decisions to make. Do they move their production off-shore to a low wage jurisdiction so that they can maintain the same level of profit, perhaps in a jurisdiction where there's forced labour or child labour, or do they do something different? And what they did is they raised the prices of the products because they believe that their customers would pay more if they understood where the money was going to, and they wanted to support the fact that they were paying whatever the legal minimum wage was, and if it went up they didn't want to put that burden onto the workers. They wanted to put the burden on to their consumers because they believed in their brand equity. The reason I mention this is that they've been producing in Canada. So this is a Canadian issue as well when you see that near-shoring or friend-shoring, as we've read about quite recently, that can happen and in a positive way and here's a company that made a decision that it wouldn't be the workers who would be paying the penalty for wages. It would be the customers who would believe in the brand who are willing to pay more. Back to you, Charlotte.

Charlotte: Thanks, Stephen. So great to hear some positive stories and how some of these decisions are impacting business and operations, day to day. Rosa, you also had some kind of examples and details on what you've been seeing in your role in Stewardship at BMO Global Asset Management. Can you tell us about some of the things you've been seeing in terms of tangible actions?

Rosa: Yeah, of course. I think that at BMO GAM we really see human rights as the next climate in ESG. We've seen that shareholder proposals in the US on human rights practices have increased year over year. In 2022 there were about 16 and that was an increase from 6. The average shareholder support for those proposals is about 30% but we do see each year also majority support for at least one human rights related shareholder proposal, which is quite significant seeing as mostly the only shareholder proposals on the issue that have been getting majority support have been climate related. This has been a trend for a couple of years now. We think this is only going to increase. In Canada we've seen this past proxy season also some shareholder proposals on supply chain due diligence, labour topics and Indigenous reconciliation. The latter also being majority supported and I would say that, as part of the Investor Alliance for Human Rights which launched in 2018, membership has grown to over 200 investors, globally, spanning 19 countries and it's about 12 trillion US AUM, that we have collectively. We've been engaging companies on some of the supply chain issues, collaboratively, so the weaker supply chain forced labour issues. Typically these were very difficult conversations with global companies and in some cases companies shared with us that actually these issues have been flagged to them a couple of years prior and they have been sort of quietly trying to reshore and rebuild up their supply chain elsewhere. In some cases other companies, it was the first that they had heard of it, which also spoke maybe to the robustness of some of their processes. But it's been at least largely successful in the sense that we've been having some really good conversations with companies, and the idea is also not to name and shame, but just to really help companies shore up their human rights due diligence processes and understand their supply chains better so that they can make a move if they need to in advance.

Maybe to go back to some examples of successes that we've seen, I think one great example is the Uzbeki cotton supply chain. It took 12 years to resolve but essentially the issue was that people, including children, were forced to help pick cotton to meet goals during the harvest season in Uzbekistan. There was a really big campaign around trying to eradicate forced labour at the international level. So the Cotton Campaign it was called, it was a combination of companies, companies buying cotton from the region as well as investors, NGOs and they called for boycotting cotton from the region. But then this year, I think it was March or May, the campaign finally advised for the boycott to be lifted and there was no more evidence of forced labour found. So it has been tremendous effort but eventually the region is safe again to buy from. Maybe another example of success is that investors have been engaging big tech companies as well in their approach to human rights and sort of doing due diligence on their supply chain. Amazon actually produced a human rights impact assessment report. They did a human rights impact assessment on their devices. So Kindle, Ring, Echo all the way from raw materials to manufacturing assembly and return across multiple suppliers, tiers, and sourcing regions. They used the UN Guiding Principles as a framework. They reported on that and I think that's a really helpful report to see how you can conduct really specific assessments of like a part of your products or supply chain.

Charlotte: Okay, perfect. So great to hear some actual kind of positive action for the coming out of all this work that is being done. I love what you said earlier, Rosa, on we see human rights as the next climate change. There's definitely lots of engagement around the topic and I'm sure many people would agree with that statement. So we are coming up a little bit to time so we have heard a lot today about the Bill, the legislation, what the implications would be, what investors are looking for, but to round it all up I would love to hear from both of you, what are the kind of few really key points you think the audience should takeaway from this session today? So, Stephen, we'll go back to you first as we've just heard from Rosa. So, Stephen first and then to Rosa.

Stephen: Well, I think two things. One, a major takeaway has to be from what Rosa's been saying and some of my comments which is, don't wait for Bill S-211. You should be mapping your supply chain now and understanding what's going on in your supply chain. Who are the participants and what are they doing in terms of ensuring that there's no adverse human rights impact. So number one, don't wait. You should've started yesterday. That's number one. Number two would be looking, in terms of what's coming, there's going to be more legislation, globally. There's going to be more enforcement. There's going to be more disclosure. There's going to be more scrutiny from stakeholders but there's also going to be more opportunities for businesses to deliver long term value by effectively managing this risk, and by taking advantage of opportunities for advancement in the marketplace, and to drive competitive advantage in terms of dealing with these risks. The third thing I would just say, in terms of reporting, say what you do but do what you say, and there should be no gap in terms of ensuring that you're providing fulsome and accurate reporting on your supply chains and human rights issues in your supply chains.

Charlotte: Some great advice there. Don't wait. There's more coming. Say what you do, do what you say. Thanks, Stephen.

Rosa: Yeah, I would fully agree with everything Stephen just said. I think investors, as I mentioned, we are supportive of more legislation and enforcement as well as more disclosure. We recognize, of course, that it is not easy and that especially for smaller companies it might take resources. I think investors understand that as well. We're always open to having conversations. In terms of what is coming up I do want to flag that the UN Principles for Responsible Investment, the UNPRI which is the largest investor platform for responsible investors globally, is starting a new human rights related engagement collaboration. So this is really hoping to model the success of the Climate Action 100+ engagement, that is focused solely on climate, that was supported by multiple initiatives and associations such as the PRI, but it's taking that and then applying it to human rights and how prepared companies are to implement the UN Guiding Principles for Business and Human Rights. I think they are starting with the mining sector, globally. There will also be some Canadian companies that will be engaged but then they will move basically sector by sector over the coming years. So heads up for that. Then I also wanted to plug that we will becoming out, BMO GAM, with a report in the next few months on how prepared Canadian companies are for oncoming human rights due diligence expectations. So stay tuned for that.

Charlotte: Okay, great. So definitely one to look out for, for the audience. So thanks. I think those are really great pieces of advice from both of you. Be prepared. Investors are really supporting this and there's more coming, basically, from lots of different angles. So before we go to the Q&A, I think we have a few questions already, and a few hands up. We wanted to just get a pulse of now everyone's listened to everything Stephen and Rosa have shared today, how prepared is your business for this legislation? Not prepared at all, somewhat prepared, quite prepared or very prepared. Again, any reactions from Stephen and Rosa as we get the results coming in.

Rosa: I am kind of encouraged by the amount of somewhat prepared answers. I think that's great.

Charlotte: Yeah, definitely the majority somewhat prepared. So compared to our first poll I think probably a positive result when people didn't know anything about, or the majority of people, did not know much about this Bill. Stephen, any responses to the second poll? We've got 56% somewhat prepared.

Stephen: I would say the same as Rosa said. It's gratifying to see that companies are somewhat prepared. They've started. They're aware of the issues and moving in the right direction.

Charlotte: Hmhmm. Great. I think that's a great summary of the session today. So we do have 10 minutes left for Q&A. We've got lots and lots of questions that have come in. So I'll just ask them, and Rosa and Stephen, either of you that want to jump in can do. Is the scope of application covering, even if a company's goods are purchased in Canada and then sold in Canada so there's no importation, would this still apply? Stephen, you're muted.

Stephen: Just trying to find that question.

Charlotte: So it was the second one that came in, from JJ.

Stephen: Purchased in Canada and sold. No importing done. In terms of the application, the Act does provide for a question about goods produced in Canada. So I'm going to give you the section reference so you can see. If goods are produced or selling or distributing goods in Canada, or elsewhere, and then the report must be made if you're, with respect to goods produced in Canada, so the question would be in terms of those goods, is the company just buying them and then distributing them or is the company manufacturing them as well?

Charlotte: Okay, maybe if that person who asked the question wants to follow up with more details.

Stephen: Hmhmm.

Charlotte: We can get back to them.

Stephen: Yeah. They can feel free to contact me directly. I'd be happy to have a discussion about it.

Charlotte: Okay. So we'll go to the next one just to see if they come back with any clarifications on the question. We have another one. Are any businesses exempt from the Bill? Such as charities.

Stephen: Well the answer would be that if the charity is a corporation then it would be potentially subject to the Act, depending on its activities. So if it was a charity, and is a not for profit corporation, then it is a corporation and if it's importing goods into Canada then it would be subject to the Act and required to file reports.

Charlotte: Okay. Great, thank you. So an interesting one. Are governments, where this legislation exists, so where there's already existing legislation, being held to the same level of disclosure and compliance with respect to forced and child labour on supply chains? So the same level of, sorry, losing my words a bit here. The same level that companies are being held to. So are governments getting the same level of scrutiny?

Stephen: Rosa, do you want to answer that one?

Rosa: I mean, from the investor perspective I know that there is an increasing attempt by investors to examine government bonds in a way that looks at potential human rights risks, as well as climate risks, and just ESG risks in general. I'm not an expert on that side of things, as I mostly work on Stewardship on the equity side, but I wouldn't say that the same standard exists as of yet, unfortunately, but that there is movement towards it and that there is increasing attention by the investor community on also how to better assess government bonds.

Charlotte: Okay. Great. Thanks, Rosa. We have a question here, what advice do you have for small or medium sized organizations, whose relative bargaining power does not enable the organizations to make demands on their suppliers to respond to specifications? What advice would you give them?

Stephen: I think it is a challenge, greater challenge, for small and medium enterprises to comply with legislation. I agree they may not have the bargaining power with suppliers but the goal is the same which is, is it appropriate to be dealing with suppliers where you are concerned that they are using forced labour or child labour in the production of goods. So the reporting has to be in the due diligence that companies will be doing, in terms of looking at their supply chains, will have to be commensurate with the risk profile of their supply chains. It'll depend on what the goods are, what countries they're being manufactured in, what are the input, what are the raw materials that are being used. But in laws like the modern slavery legislation they will be, if they're within the financial thresholds, again going back to 20 million in assets, 40 million in revenue, or more than 250 employees, they're going to be of a certain size that was identified to try and exempt, at this point, exempt smaller and medium sized enterprises that wouldn't have the resources to provide the report in the same way that larger companies with more resources could. But I don't think that's not an excuse to use forced labour or child labour.

Charlotte: Yeah. No. Agreed.

Rosa: If I can maybe add something. I think about the role that industry associations could play as well here. Maybe there can be support at that level for smaller businesses. I think it is often the larger companies that have the better resources, and that can pull sort of the rest of the industry along, but how can there be sort of sharing of the burden on some of these things? It's just a thought. I'm not saying that I have the answer but I think it's been often a way that sort of the burden can be lifted of smaller businesses when supply chains are shared, because although supply chains are very complex, sometimes there are multiple buyers of the same supplier and it might be all coming from the same sector. So just putting that out there that maybe there can be some industry level of support for smaller businesses.

Charlotte: Yeah. A somewhat related question, we've probably got time for one or two more, does the Bill require reporting on more than just the first tier of suppliers? Are there any nuances around the company in size or industry? Different company supply chains look very different according to if it's a larger or smaller one. Will it look at different versus a small manufacturing company or marketing firm with 250 employees? It's going to look very different to a large textiles company. So is there going to be any nuance between that kind of different layers of suppliers?

Stephen: First of all, the Act doesn't identify specific tiers that have to be reported on.

Charlotte: Okay.

Stephen: So it talks about the supply chain generally. So that's number one and then number two, I think it's going to be self-selection, if you will, by businesses who are filing the report as to what they feel they can say in their reports. It has to be accurate but they have to be in a position to determine where in their supply chain the risks are, if any, and then be able to report on what they found. So it's not prescriptive sort of at a granular level.

Charlotte: Okay. Thanks, Stephen. Just one last question. A few people have been asking, what's the estimated timeframe for the adoption of the Bill, if it is enacted?

Stephen: That's a great question. The Bill now is in the hands of the Standing Committee on Foreign Affairs and International Development in the House of Commons and the Standing Committee has not published any information as to its schedule for completing its work. So I really can't answer that question.

Charlotte: Wait and see. Okay. Well thank you so much, Stephen. Thank you, Rosa. This has been a really, really great discussion. We do have lots of other questions so we'll try to get back to everyone who didn't get their questions answered. So thanks to Gowling and thanks to my team at Millani as well for preparation in this webinar. Thanks again, Rosa. Thank you, Stephen.

Stephen: You're welcome.

Rosa: Thanks so much for having us.

Stephen: It's been a pleasure. Have a great day, everybody.