On September 30, California Governor Arnold Schwarzenegger signed The California Transparency in Supply Chains Act of 2010 into law. The legislation will require companies to disclose their efforts to ensure that their supply chains are free from slavery and human trafficking.
The legislation will go into effect on January 1, 2012 and applies to retail sellers and manufacturers doing business in California that have annual gross receipts exceeding one hundred million dollars.
Once the legislation goes into effect, companies will be required to disclose what actions they are taking, if any, to:
- Evaluate and address the risks of human trafficking and slavery in their product supply chains. These disclosures must state if companies are not using third parties to verify the risks in their supply chains.
- Require their direct suppliers to certify that the materials incorporated into company products comply with laws regarding slavery and human trafficking in the countries in which they are doing business.
- Conduct audits of their suppliers to evaluate compliance with company standards on trafficking and slavery. These disclosures must state whether independent, unannounced audits are conducted.
- Maintain accountability standards and procedures for employees or contractors that fail to meet corporate standards regarding slavery and human trafficking.
- Provide employees and managers, who have direct responsibility with supply chain management, with training on the mitigation of human trafficking and slavery risks.
Companies are required to make these disclosures on their websites. If a company does not have a website, the information must be made available in writing within 30 days of a consumer request for the disclosure. The exclusive remedy for failure to comply with the law is an action brought by the Attorney General of California for injunctive relief.
A coalition of institutional investors, faith-based investors, and research firms had urged Governor Schwarzenegger to sign the legislation, which was passed by California’s Senate and Assembly in July. Rev. David M. Schilling, program director for human rights at the Interfaith Center on Corporate Responsibility, recently observed that the legislation’s requirements are in line with the recommendations of the U.N. Special Representative for Business and Human Rights, specifically with regard to corporate implementation of human rights due diligence processes (.pdf).
Initial estimates suggest that the legislation will impact approximately 3,200 companies. That said, as was noted by the legislation’s supporters, many companies are already disclosing detailed information about the human rights risks associated with their supply chains. The intent of the legislation is to provide consumers with the information they need to make purchasing decisions with the elimination of slavery and human trafficking in mind. The language of the bill specifically cites a September 2009 report by the U.S. Department of Labor (.pdf) that lists 122 goods from 58 countries that the Department of Labor has reason to believe were produced with either forced labor or child labor, and states that "[a]bsent publicly available disclosures, consumers are at a disadvantage in being able to distinguish companies on the merits of their efforts to supply products free from the taint of slavery and trafficking."
The legislation does not require companies to take specific actions other than the disclosure of what, if any, efforts are being made to address the risks of slavery and human trafficking in their direct supply chains. Ultimately, the impact of the legislation will depend on both consumer behavior and the extent to which advocates, including investors, are able to use the required disclosures to pressure companies to monitor, and mitigate, the human rights risks in their supply chains.