Companies given May 31, 2024, deadline for mapping supply chain
While they are mostly aware of Canada’s new anti-slavery and anti-child labour legislation, many businesses are concerned about meeting the tight timeline for their reporting requirements, according to a recent survey from KPMG.
While 82 percent of the small and medium-sized businesses who responded to the survey said they are aware of the Fighting Against Forced Labour and Child Labour in Supply Chains Act, 58 percent are concerned about meeting the reporting timeline, and 56 percent are worried about whether they can map out their entire supply chain. KPMG’s survey polled business owners and executives at 700 small and medium-sized Canadian businesses.
The new law received Royal Assent in May and is in force Jan. 1, 2024. Companies and certain government institutions are required to review and assess working conditions in their extended supply chains to produce their first annual report by May 31, 2024.
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The survey indicates buy-in and understanding from companies but apprehension about the challenges in reporting on forced and child labour, says Jillian Frank, a partner at KPMG Law and national ESG legal services lead for KPMG in Canada. Sixty-three percent of respondents said they have a “good understanding” of how the law’s requirements relate to their business. But Frank’s experience indicates the reporting difficulty is based on several factors, she says.
“Supply chains are often highly complex, and the labour practices that the Act addresses involve serious human rights violations that are deliberately hidden by those who are engaging in them,” says Frank. “Accurately tracing and preventing the risks of forced labour and child labour takes significant time and resources, and a long-term commitment to work with suppliers to improve labour conditions.”
Companies have only had since May to assess their broader supply chains and contemplate how they will report their findings, and many of these organizations are massive, she says. Frank says this takes significant time and resources, and they have had to build this capability on a “very tight timeline.”
While companies will know their direct suppliers, there is typically less visibility on their suppliers’ suppliers and where those suppliers buy their goods, says Frank.
“They may not even be entitled to that information where they're working with a distributor that keeps that information confidential, for example.”
The law requires organizations to report on the steps they are executing to mitigate the risks of child and forced labour in their extended supply chain. They must report on the steps they have taken to remediate the lost income in a community that may have been impacted by their mitigation of forced and child labour. They also must report on training provided to employees and describe how they measure the effectiveness of their due diligence processes.
Frank says the organizations will file their reports in a registry that the federal government is developing. The registry will be publicly available and searchable. Organizations also must post their report on their public-facing website, she says.
Failure to file a report or misstatements in a report will attract a fine of up to $250,000. Frank says liability extends to the company, the board of directors, and senior management.
Fifty-nine percent of the respondents said they already have programs to monitor human rights risks in their supply chains. But KPMG’s survey said 62 percent are worried that “the significant complexity and scope of the assessments required by the new legislation will bring additional business expenses at a time when they are already facing numerous cost pressures.” And 56 percent said they were concerned that importing goods into Canada would carry increased trade and customs risks, with mined, manufactured, or produced goods being seized at the border.
Sixty-three percent of the respondents have begun reviewing gaps between their supply chain management systems and the new legal requirements. Sixty-four percent already have regular risk assessments in this area.
Frank says that 53 percent of respondents said they were worried about exposure to reputational risk as a result of their reporting means that businesses are paying attention to the legislation.
“We're hearing loud and clear from a lot of organizations that this is a holistic, multifunctional project,” she says. “The ability to work together to understand across the business what the different risks are is going to be critical for most of these organizations to build that capability.”
