How Companies Can Comply with California's Transparency in Supply Chains Act

On January 1, 2012, the California Transparency in Supply Chains Act (SB 657) will go into effect which will require companies impacted by the law to disclose their efforts to ensure their direct supply chains are free from slave labor and human trafficking. In anticipation of the law, the Interfaith Center on Corporate Responsibility (ICCR), Christian Brothers Investment Services (CBIS) and Calvert Investments recently released a guide for companies on complying with the California legislation. The information a company supplies under the law, according to the guide, must indicate the extent to which a company:

• Verifies supply chains to evaluate and address risks of human trafficking and slavery, including if the verification was conducted by a third party
• Conducts unannounced and verified audits of suppliers for trafficking and slavery in supply chains to evaluate compliance with company standards
• Maintains internal accountability standards and procedures for employees or contractors failing to meet company standards regarding slavery and trafficking
• Trains employees and management with direct responsibility for supply chain management, to mitigate risks within the supply chains of products
• Certifies that materials incorporated into the product comply with the laws regarding human trafficking of the country or countries in which they are doing business

Key components of companies’ disclosures under the law include, according to the guide: human rights policy, due diligence, human rights risk assessments, verification and traceability, training/capacity building, collaboration, and disclosure/transparency. The first step a company needs to take, the guide urges, is to develop a corporate-wide human rights policy. The policy should specifically mention human trafficking and forced labor, including child labor. It should also define trafficking within their policies, preferably referencing the UN Protocol to Prevent, Suppress, and Punish Trafficking in Persons, Especially Women and Children. Suppliers should be made aware of the policy. Companies need to develop a “holistic and long term human rights” due diligence process. According to Professor John Ruggie, the former Special Representative to the UN Secretary General for Business and Human Rights, human rights due diligence includes four basic elements:

1. A statement of policy articulating the company’s commitment to respect human rights
2. Periodic assessments of actual and potential human rights impacts of company activities and relationships
3. Integrating these commitments and assessment into internal control and oversight systems
4. Tracking as well as reporting performance

Law will impact the nation The law, according to Julie Tanner, Assistant Director of Socially Responsible Investing at CBIS, will impact more than just California, but the “business world.” Tanner added, “The law may have California’s name in its title, but its effects will be felt far beyond the state.  Most major retailers and manufacturers doing business in California will need to comply, regardless of where they are headquartered.” David Schilling, Program Director for Human Rights at the ICCR, thinks that a federal law is inevitable. “The California Supply Chain Act may be the first law of its kind in the nation, but it will most certainly not be the last,” Schilling said. Photo: Flickr user, ironchefbalara