Are You Prepared for Canada’s Modern Slavery Act? Understanding Your Supply Chain Risks

Supply chain managers have a responsibility to understand their company’s supply chain risks and communicate those risks to effectively manage them. Forced labor is a growing concern around the world, with 27.6 million people, including 3.3 million children, trapped in forced labor. Canadian companies need to be aware of who and what they’re using to create their products and supplies to avoid these risks.

The federal government’s new Fighting Against Forced Labour and Child Labour in Supply Chains Act, formerly known as Bill S-211, imposes disclosure requirements for government institutions and many companies with connections to Canada. Non-compliance can result in financial penalties, criminal prosecution, and the possibility of being named and shamed by non-governmental organizations. Despite these risks, most entities are unprepared to meet these new requirements.

Under the new rules, organizations that make, buy, or sell physical goods must publish a report each financial year that discloses the steps they’ve taken to prevent and reduce the risk that forced labor or child labor is used in their operations and supply chains. This report must be approved by their board and published prominently on their website. Additionally, a director must attest in writing that the report is true, accurate, and complete.

Entities that met at least two of the following conditions in at least one of their two most recent financial years are covered by the new rules:

  • Had at least $20 million in assets
  • Generated at least $40 million in revenue
  • Employed an average of at least 250 employees

Obligated entities must file their reporting by May 31, 2024. Those that don’t—or can’t—comply risk reputational damage and substantial financial penalties of $250,000 per offense. Importantly, individual C-suite executives, directors, and employees could face the same financial penalties and criminal prosecution.

To protect their business, obligated entities can take the following five no-regrets moves:

  1. Analyze the risk of modern slavery and human rights violations across the multiple tiers of their organization’s supply chains.
  2. Identify the human resources gaps in their systems and processes, and then educate and train all stakeholders, including directors, customers, employees, suppliers, and investors.
  3. Strengthen the “S” in their environmental, social, and governance (ESG) story by sharing their commitments, the actions they’ve already taken, and what they plan to do next to improve human rights in their supply chain.
  4. Develop new policies specific to modern slavery or enhance existing policies to reduce management risk and reflect their entity’s values.
  5. Develop worst-case scenarios and identify areas of improvement to mitigate that risk.

Overall, supply chain managers need to be proactive in understanding and managing the risks of forced labor in their supply chains. By taking action now, obligated entities can meet the new requirements and strengthen their ESG story while avoiding reputational damage and financial penalties.

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