Supply Chain Due Diligence Requirements Coming to Canada

Canadian businesses and government institutions, take notice: supply chain due diligence requirements are coming to Canada.

The recent Fall Economic Statement outlined the government’s intent to introduce legislation aimed at creating a new supply chain due diligence regime in Canada. A new oversight agency is expected to be created to encourage ongoing compliance with the proposed legislation.

In addition, the government is planning for legislative amendments to bolster Canada’s ban on imports of goods produced with forced labour. It’s expected that the onus will increasingly be on importers to demonstrate their supply chains exclude human rights risks.

Enhancing Transparency and Enabling Due Diligence

Supply chain transparency and due diligence, while complimentary, serve different purposes. Transparency is about sharing information about an organization’s activities with stakeholders, providing them with visibility on supply chain activities, including human rights risks.

For example, Canada’s current Modern Slavery Act is meant to enhance transparency among in-scope entities for disclosing the steps they’ve taken to identify, assess and mitigate child and forced labour risks in their supply chains and business activities. The Act is not meant to impose due diligence measures.

Supply chain due diligence, on the other hand, is a systematic process that carefully examines and evaluates an organization’s supply chain operations to identify, assess and mitigate supply chain risks. Due diligence requirements are driven by many factors, including a company’s position within its supply chain. Downstream companies selling products, for example, or companies located in regions with stricter due diligence regulations prioritize due diligence for legal compliance. Growing stakeholder expectations are also driving due diligence requirements for companies, as investors and customers are increasingly demanding ethical practices.

In July of this year, the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) went into force. In contrast to Canada’s Modern Slavery Act, this Directive imposes due diligence obligations on large companies operating in the EU.

The above announcements signal that Canadian regulatory winds will begin to shift, as the focus moves from reporting risks, to enacting due diligence requirements.

These measures, taken together with Canada’s existing Modern Slavery Act, will raise the bar for Canadian organizations in how they manage human rights risks along their supply chains.

Embedding Risk-Based Due Diligence in Your Supply Chain

Embedding due diligence processes in your supply chain is an iterative process. Fortunately, many Canadian organizations have already taken steps to identify and map their human rights risks within their supply chains as part of reporting obligations under Canada’s Modern Slavery Act.

The OECD Due Diligence Guidance for Responsible Business Conduct (“OECD Due Diligence Guidance”) provides a five-step framework for companies to integrate risk management practices into their operations. The framework underpins many emerging due diligence regulations around the world and has been widely adopted by companies globally. The graphic and list below summarize the key steps in developing your company’s due diligence processes and supporting measures.

OECD Due Diligence Guidelines

1. Embedding Responsible Business Conduct (“RBC”) into Policies and Management Systems

• Develop and update policies on forced and child labour aligned with OECD guidelines and train your employees and suppliers.
• Establish an appropriate governance structure where senior management has oversight of RBC policies and relevant departments are engaged.

2. Identify and Assess Adverse Impacts

• Map your supply chain for specific materials/products at risk of forced or child labour[1], referencing NGO and government databases.
• Collect and analyze data from suppliers on labour/recruitment practices and working conditions.
• Prioritize risks based on severity and likelihood.

[1] Examples of NGO and government databases - US Department of Labor, List of Goods Produced by Child Labor or Forced Labor

3. Cease, Prevent or Mitigate Adverse Impacts

• Develop detailed plans for ending high-risk activities that are difficult to stop due to legal or operational challenges.
• Train relevant employees and suppliers on risk prevention and mitigation specific to their roles.
• Consult directly with affected stakeholders to create and implement action plans.
• Use contractual and commercial leverage to prompt business partners to prevent or address adverse impacts.

4. Track Implementation and Results

• Conduct regular internal or third-party reviews that assess the effectiveness of due diligence actions.
• Consult impacted groups such as workers and their unions to collect opinions on actual or potential human rights impacts.
• Participate in relevant industry initiatives that align with due diligence objectives, encouraging periodic review of their alignment to the OECD Due Diligence Guidance.
• Integrate feedback into tracking activities.

5. Communicate How Impacts Are Addressed

• Publicly report on due diligence efforts including actions taken over the report period to identify, prioritize, and mitigate risks. Further information about expected improvements and goals for the next year should also be provided.

Conclusion

The above announcements reiterate Canada’s commitment to eradicating forced and child labour in global supply chains. Canada’s evolving regulatory framework is moving beyond reporting obligations under Canada’s Modern Slavery Act, and Canadian businesses and government institutions alike need to be better prepared for this rising tide of supply chain scrutiny.

Taking steps now to build your due diligence management systems will help you stay ahead of incoming due diligence requirements in Canada, while strengthening you reporting obligations under the Act, and seek to effectively manage your human rights risks along your supply chain.

Contact us to see how we can help solve your responsible sourcing challenges.