In a recent article featured on Sustainable Brands, KnowTheChain Project Director, Kilian Moote, shared insights based on a sample of 500 companies affected by SB 657, highlighting both lessons and recommendations. Growing desire for transparency and accountability have made it in the best interest of companies to address the forced labor abuse happening within their supply chains. Abusive labor practices in a company’s supply chain can jeopardize business performance, shareholder confidence, and consumer loyalty, making this issue more than a legal or ethical consideration – it’s a business risk not worth taking.
Based on a sample of 500 companies that KnowTheChain identified as being affected by SB 657, we highlighted three key lessons, as well as recommendations to improve future laws: improve transparency, provide clear and timely guidance, and require annual updates and an even playing field.
1. Improve transparency
Seems like a given for a transparency law, right? Not exactly. KnowTheChain was only able to identify 19 percent of the companies required to comply with SB 657. Although the law requires companies to publically disclose their efforts to eradicate labor abuses from their supplier networks, it does not require that the names of the companies subject to the law be made public. As a result, neither consumers nor investors know which businesses must comply with the law. A public list of companies subject to transparency laws should be made available.
2. Provide clear and timely guidance to businesses
47 percent of the companies identified by KnowTheChain did not disclose sufficient information as specified by the law. Why? In part, because of delayed guidance on how to comply. In order to avoid confusion on how a company should comply, future transparency laws should require enforcement agencies to release clear and timely guidance prior to the law taking effect.
3. Require annual updates and an even playing field
In California, whether or not your company is impacted by the law is based on your state tax classification, not by your assumed labor abuse risks. This criteria inevitably creates an uneven playing field for competitors who have identical supply chains but different tax classifications. The law also requires a disclosure statement only once instead of annual reporting, which better reflects the changing dynamics of supply chains.
In today’s global economy consisting of complex supply chains with overseas suppliers, it can be difficult to discover labor abuses deep within a supply chain. Companies without effective and adaptive management and risk mitigation practices may unknowingly be connected to forced labor, trafficking or other labor abuse practices through their direct and indirect suppliers.
Transparency laws and regulations such as SB 657 should provide guidance and best practices, not restrict companies by creating more red tape. Issues as complex and deep-rooted as human trafficking and forced labor demand cooperation across sectors and borders. So, whether it’s regulatory-, human rights- or business-related, we all have a stake in supply chain transparency.