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Canada’s proposed supply chain law is weak on human and environmental rights

The business community needs to get behind a stronger supply chain due diligence law

The federal government is preparing for the final vote on Bill S-211, “Fighting Against Forced Labour and Child Labour in Supply Chains Act.” The bill is, nominally, an attempt to implement human rights standards across the supply chains of Canadian companies—but critics are increasingly vocal about the shortcomings of the bill.

Bill S-211 represents a narrow interpretation of human rights due diligence (HRDD) legislation— and its focus on reporting rather than mitigative action limits its ability to address human rights abuses.

Public engagement with Canadian industry representatives suggest that corporate resistance is a primary barrier to a legislation with legitimate teeth. However, stronger supply chain legislation could in fact support business interests while preventing harm.

What is Bill S-211 and what are its weaknesses?

Bill S-211 would require corporations and government entities to file annual public reports on the measures they are undertaking to prevent and reduce the risk of child labour and forced labour in their supply chains. Critics have highlighted how the legislation narrowly focuses on child and forced labour, rather than all human rights. Human rights advocates also point out that the bill lacks incentives and accountability mechanisms to enforce remedial actions, and encourages a cut-and-run approach towards sourcing from high-risk regions.

During the March 6 House of Commons debate on the bill, several Members of Parliament opposed it for its lack of ambition—with Stéphane Bergeron of Bloc Québécois requesting “a commitment from the government that it is ready and willing to go further than just passing a bill on transparency.”

It is worth reflecting on one of the most significant barriers to passing a stronger version of mandatory HRDD—the perceived impact on businesses. Although 71 per cent of Canadian businesses and industry representatives agreed that businesses should be required to conduct due diligence in a 2019 consultation with the Government of Canada, they also expressed various concerns regarding such regulation.

Supply chains are complex, with many actors and implementers involved in the process. Companies often do not have a view of their supply chain beyond their supplier (first tier), or the business that supplies their direct supplier (second tier). This makes it difficult to investigate and control the human rights practices in the full supply chain.

The complexity of implementing due diligence processes leads to increased costs, which is a significant barrier for small and medium businesses without appropriate support. Even for larger firms, the mounting costs of compliance with such legislation in various countries is a significant burden affecting their competitiveness.

Despite facing similar challenges, businesses across the world have supported HRDD legislation for more than just ethical reasons. HRDD benefits businesses in a number of ways.

Stronger legislation creates regulatory harmony. Many countries have enacted supply chain legislations that address human rights violations more impactfully than Bill S-211 would, including Germany, France, and the European Union.. With a growing number of countries introducing supply chain standards and legal precedents, businesses benefit from legal certainty, harmonization and consistent expectations—which can be delivered by clear and enforceable supply chain legislation. Even if the Canadian bill were to pass in its current form, businesses can expect additional supply chain legislation to impact Canadian businesses. Complying with a coherent set of legal requirements—within Canada and abroad—will allow businesses to reduce overall compliance costs and will level the playing field for all Canadian businesses.

Human rights due diligence reduces legal and reputational liabilities. Industry representatives acknowledge that some labour exploitation practices are industry-wide, which suggests that liability risks are omnipresent. Canadian corporations operating in countries with lax labour norms are at particular risk. The Canadian Supreme Court has ruled that organizations that breach internationally, commonly agreed practices in business—such as using forced labour—could be subject to litigation. With such legal precedent, Canadian businesses need to take proactive and consistent steps to ensure they avoid exposure to these liabilities. With complex supply chains and various actors at play, the risk of liabilities in the supply chain increases. Effective human rights due diligence that applies to all businesses will ultimately reduce businesses’ liabilities by creating consistent standards and ensuring businesses can demonstrate the extensive measures they are taking to prevent human rights violations.

HRDD can benefit businesses economically. While businesses express concern about the economic implications of human rights due diligence legislation, they fail to acknowledge evidence of the many benefits. An OECD study found that comprehensive HRDD compliance correlates with increased stock price, reduced capital cost, and improved reputation, environmental performance and risk management practices. Another study by the European Parliament found that companies implementing environmental and social policies can increase profits by up to three per cent. There is overwhelming empirical evidence confirming that companies implementing due diligence outperform their competition. Despite this, businesses often worry about the increased costs of implementation. However, compliance costs are often highest at the beginning and steadily reduce as businesses build expertise in the routine requirements. A European study estimated that compliance costs can be as low as 0.14 per cent of revenues for small and medium businesses and 0.009 per cent of revenue for large companies.

To harness the benefits of strong human rights due diligence legislation, businesses would need implementation support. Several international standards have been translated into practical frameworks that aid in that process. These include general standards such as the United Nations Guiding Principles (2011), the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (2017), the OECD Due Diligence Guidance for Responsible Business Conduct (2018), and the UN OHCHR’s Business Peer Learning Project, which seeks to translate HRDD standards into corporate practice.

Canada can enhance similar tools to provide tangible support for businesses seeking to implement stronger HRDD standards. A common platform—including data collection and sharing tools—could also help businesses identify supply chain risks.

What Canada needs is not a box-checking exercise that places a reporting burden on businesses without the payoff of legitimately safeguarded human rights. Businesses need a clear, predictable set of mandatory standards, along with a set of tools to guide them and limit the resource-intensiveness of these activities.

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