Supply chain laws of foreign affiliates may be applicable in Canada, Latif says
Legal departments across Canada are preparing for emerging supply chain legislations that could leave an organization exposed to risk, as the pressure rises to meet higher and higher ESG standards throughout the supply chain.
For global companies, it is prudent to be aware of developments in supply chain transparency laws around the world. At Mercedes-Benz Canada, emerging laws and regulations in the US and the EU can sometimes be applicable, for example.
“As a subsidiary of a German company, Germany’s Supply Chain Due Diligence Act applies to Mercedes-Benz Canada, so it is critical to us,” says Hina Latif, VP, general counsel & corporate secretary at Mercedes-Benz Canada and Mercedes-Benz Financial Services Canada. “Of course, the federal Fighting Against Forced Labour and Child Labour in Supply Chains Act has definitely been influenced by both the UK’s Modern Slavery Act and Australia’s Modern Slavery Act, so I think it's really valuable to have an understanding of the similarities and the differences between these acts and the Canadian legislation, to help prepare.”
Latif – who will be speaking at the ESG Summit on Oct. 12 – notes that it is also important to monitor regulatory changes in competition law and antitrust law in the context of supply chain oversight.
In preparing for Canada’s proposed modern slavery legislation, it is critical for in-house counsel to become acquainted with the seven mandatory reporting criteria, and helpful to determine whether any foreign affiliates have already had to comply with similar legislation. If so, Latif suggests considering whether that information could aid in preparing for the Canadian reporting requirements, which will come into force on January 1, 2024, requiring affected entities to file their first annual report on or before May 31, 2024.
“It’s really important to work with external stakeholders to ensure that they take a due diligence approach to evaluating the supply chain and associated human rights, and ensuring compliance measures and guidelines against child labour and forced labour are implemented,” says Latif.
In-house counsel has a critical role to play in ensuring that these measures are implemented in a transparent way by putting contractual obligations in place with pre-approved suppliers, she adds.
Any measures ultimately relating to social and environmental impact are recommended to be founded upon the corporation’s code of ethics or corporate principles, Latif says. At Mercedes-Benz, this is an integrity code, complemented by the organization’s Principles of Social Responsibility and Human Rights.
Latif notes that there is no one-size-fits-all approach.
“Social and environmental risks can vary depending on the supply chain for the sourcing of a particular product or raw material,” she says. “The corporation should have a clear understanding of the risks and risk management minimization measures that are required to be implemented for a particular supply chain, and appropriate measures should be based on that informed assessment.”
Conducting systematic reviews of compliance with supplier standards, and evaluating new suppliers with regard to sustainability topics will facilitate visibility through the supply chain, Latif adds.
When it comes to drafting contracts with business partners and third parties to ensure mutual understanding of ESG goals, Latif notes that transparency is key.
“As counsel, it is vital to understand the business’s motivation for wanting to contract with a particular supplier or business partner, as this provides context during those initial contract discussions,” Latif says. Contracts with business partners should contain supplier obligations that advance the ESG goals of the corporation, she adds.
For example, Mercedes-Benz has responsible sourcing standards for suppliers and business partners which define the requirements for working conditions, human rights and business ethics.
Latif recommends four best practices to address human rights in the supply chain:
- Prioritize understanding the supply chains – in particular those that are most critical to the business,
- Identify human rights risks, focusing on the people on the ground that are most likely to be impacted by human rights abuses,
- Take a risk-based approach in conducting a human rights impact assessment. Conduct risk assessments to identify where risk potential is the highest within the supply chain,
- Define risk measures to be taken in accordance with the level of risk that has been determined, and engage suppliers and partners in mitigating and managing this risk.