Monday, August 22, 2011

House Legislation Would Require Global Companies to Disclose to SEC Measures Dealing With Forced and Child Labor in Their Supply Chains

Bi-partisan House legislation would require international companies with more than $100 million in worldwide receipts to disclose in their annual report filed with the SEC any measures taken to identify and address instances of forced labor and child labor in their supply chains. The Business Transparency on Trafficking & Slavery Act, HR 2759, is sponsored by Carolyn Maloney (D-NY) and is cosponsored by Reps. Christopher Smith (R-NJ), Jackie Speier (D-CA), and Jim McGovern (D-MA).

HR 2759 finds that the United States is the world’s largest importer, and that investors, consumers, and broader civil society increasingly demand information about the human rights impact of products in the United States market

The legislation directs the SEC to, within 270 days after the date of the enactment, adopt regulations requiring companies to disclose in their annual reports any measures taken to identify and address conditions of forced and child labor within the company’s supply chain, which is defined to mean all suppliers of products, component parts of products, and raw materials used by the company in the manufacturing of it products, whether or not the company has a direct relationship with the supplier.

More specifically, the company must annually disclose in the SEC filing whether it maintains a policy to identify and eliminate risks of forced labor and child labor within its supply chain. If the company maintains such a policy, the disclosure must include the text of the policy or a substantive description of the elements of the policy. The company must also disclose if it maintains a policy prohibiting the use of corporate products, facilities, or services to maintain someone under conditions of forced and child labor.

The company must also disclose if it engages in verification of product supply chains to evaluate and address risks of forced labor and child labor. The disclosure must describe the greatest risks identified within the supply chain, and the measures taken to eliminate those risks and specify whether the verification was or was not conducted by a third party; and whether the verification process includes consultations with independent unions, or workers within workplaces, and incorporates the resulting certification or written comments from such independent union or workers.

The company must also disclose the extent it ensures that audits of suppliers are conducted to evaluate supplier compliance with company standards for eliminating forced labor and child labor in supply chains. The disclosure must specify if the verification was not an independent, unannounced audit.
The annual disclosure must also note if the company assesses supply chain management and procurement systems of suppliers in the chain to verify whether suppliers have in place appropriate systems to identify risks of forced labor and child labor within their own supply chain.

The company must disclose if it requires suppliers in its supply chain to certify that materials incorporated into the product comply with the laws regarding forced and child labor of the jurisdictions in which they are doing business
Also mandated for disclosure is whether the company maintains internal accountability standards, supply chain management and procurement systems, and procedures for employees or contractors failing to meet company standards regarding forced and child labor. The report must describe such standards and systems

The company must disclose if it provides training on forced and child labor to employees and management who have direct responsibility for supply chain management, particularly with respect to mitigating risks within the supply chains of products. Finally, the company must disclose if it ensures that recruitment practices at all suppliers comply with company standards for eliminating exploitive labor practices that contribute to forced labor and child labor, including by conducting audits of labor recruiters and disclosing the results of such audits.

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