Legislation update: March 2022

Countries around the world continue introducing legislation that aims to drive supply chain transparency and sustainability. Here we share our summary of the latest laws, and developments to watch out for in 2022.

Responsible business legislation has continued to grow over the past few years, with over 30 pieces of legislation being proposed since the start of the COVID-19 pandemic. These laws aim to support businesses to manage environmental, social and governance (ESG) issues, and include the introduction of reporting requirements and sanctions for businesses that do not comply.

Several laws came into force in 2021, while others will continue to develop throughout 2022. Please contact us if you would like to learn more about these laws, and how Sedex can help your business comply with them.

Legislation highlights include:

• The European Commission has published draft legislation that will require some companies in the European Union to conduct social and environmental due diligence in their supply chain. Timelines are yet to be determined.
• Norway’s Transparency Act, The Netherlands’ Child Labour Due Diligence Act and Switzerland’s Responsible Business Initiative come into force in 2022, with Germany’s Supply Chain Due Diligence Act taking effect in 2023.
• Spain, Luxembourg, Belgium and Austria are discussing and developing due diligence laws.
• The US has introduced a new import ban, while Canada continues discussions on corporate responsibility laws.
• The Philippines is set to adopt a corporate responsibility law.
• Changes to Australia’s New South Wales Modern Slavery Act has cancelled business reporting requirements.

Draft European due diligence legislation published after delay

The draft of the highly anticipated European Union (EU) mandatory human rights and environmental due diligence legislation (mHREDD) was published in February 2022, after delays in 2021. The draft proposal sets out the responsibility for companies to manage the social and environmental impacts of their operations and supply chain.

Companies in the scope of the legislation will have to identify risks, prevent negative impacts in their supply chains and operations, provide remedy where necessary, and report on their progress. If and when the legislative proposal is passed by the European Parliament and EU Council, Member States will have two years to translate it into national laws. Read more here.

National laws progress across Europe

Alongside the draft EU-wide legislation, national legislation on supply chain due diligence continues to progress in European countries.

Some laws come into effect this year. Norway’s Transparency Act comes into force in July and applies to certain domestic and foreign companies operating or selling in Norway. Businesses will have to conduct due diligence on their operations and supply chains – assessing, managing, and remediating risks to workers.

Two laws focus on tackling specific supply chain issues. The Netherlands’ Child Labour Due Diligence Law requires any company providing goods and services in the country to report on child labour risks in their supply chains. Similarly, Switzerland has adopted legislation on corporate transparency and due diligence regarding child labour, and minerals and metals from conflict zones. We expect both laws to come into force this year.

Other European countries including Spain, Luxembourg, Belgium and Austria have discussed or progressed legislation in the past year – developments will likely continue throughout 2022.

To prepare for any of the laws mentioned here, businesses can start by mapping their supply chains through each supplier tier. This will create greater visibility of their own and suppliers’ operations and help with understanding the existing risks to workers and the environment.

Import bans and developing legislation in US and Canada

In December 2021 the US introduced the Uyghur Forced Labor Prevention Act, in response to reports of forced labour amongst the Uyghur population in Xinjiang, China. Australia and the EU have also announced plans for a similar import ban, which are still under discussion in these countries’ governments.

The US Act seeks to prevent any goods made with forced labour in the region from entering the country. It applies to any organisation importing items into the US and will be enforced from June 2022[i]. Any company wanting to import goods from Xinjiang into the US can only do so if they provide that the goods were produced without forced labour.

In November 2021 Canada’s Parliament rejected a proposed Modern Slavery Act. However, the country may propose an amended version later this year – and it hasn’t stopped the government taking targeted action in the meantime (see below). In Mexico, there is no new development on a proposed General Law of Corporate Responsibility and Due Diligence since a draft was introduced for discussion in 2020.

Both Canada and the US have recently acted against certain Malaysian disposable glove manufacturers over reports of forced labour used in production. The US has issued forced labour import bans against four Malaysian glove makers in the last six months[iii], while Canada terminated a multi-million-dollar contract with one of these four in January.

The US-Mexico-Canada Agreement introduced more comprehensive requirements for businesses around labour standards when it came into force in 2020. This trade agreement has contributed to, and will continue driving, these countries’ actions to increase businesses’ supply chain transparency and responsible sourcing.

These laws make it more important than ever for companies operating in, or importing into, North America to have full visibility of the suppliers, people and working conditions in their supply chains. Regularly assessing supply chain work sites will help to identify and manage the ethical risks that these governments’ activities target.

Philippines close to passing a Corporate Social Responsibility Act

The Philippines is likely to adopt a Corporate Social Responsibility Act in 2022, as the proposal continues its progress in the country’s Parliament. The law is to encourage domestic and foreign companies operating in the Philippines to engage in sustainability activities in the country – such as funding charitable, environmental, or worker welfare programmes.

Although these activities would be voluntary, participating businesses are promised financial incentives, public recognition and awards, and support from local government.

This development echoes existing legislation in South Asia, such as India’s Companies Act, and is part of the growth in legislation in countries more often sourced from than exported to. This growth could prompt many businesses in sourcing countries to start looking at the ethical issues in their own operations and supply chains.

Australian state’s updated Modern Slavery Act repeals business reporting requirements

In Australia, the New South Wales (NSW) Modern Slavery Act came into force on 1 January 2022. The drafted Act originally included reporting requirements for businesses with an annual turnover above AUD$5o million, under the risk of heavy penalties. However, the passed Act was amended to align more with the Commonwealth’s Modern Slavery Act 2018.

While the NSW Act now has few requirements for businesses, state-owned organisations not yet reporting under the Commonwealth Act are now legally required to produce modern slavery statements. However, the Act also increases the power of state authorities to investigate suspected instances of modern slavery, which could interfere with business activities.

Organisations now required to report must have comprehensive modern slavery due diligence in place. Companies supplying state-owned organisations should prepare for information requests on their operations and their own due diligence approaches.

The developments here show that different countries have different requirements for businesses, yet they have a common foundation: there is an increasing drive globally for companies to proactively operate an ethical, sustainable supply chain and manage ESG issues.

How Sedex can help

Understanding supply chain legislation, using responsible business practices, and managing the ethical risks in a supply chain are daunting tasks for any company.

Sedex can support your business to identify which legislation applies to you, actions to take and understand the high priority ethical risks in your supply chain. Get in touch to find out more.

[i] Source: Gibson, Dunn & Crutcher LLP, see section VI

[ii] HR 1155 Uyghur Forced Labor Prevention Act, Section 4, subsection (b)

[iii] See the US Customs and Border Protection’s list of Withhold Release Orders