Investors Release New Guide to the California Transparency in Supply Chains Act

In less than two months, on January 1, 2012, the California Transparency in Supply Chains Act will go into effect. Companies impacted by the legislation will be required to disclose their efforts, if any, to ensure that their direct supply chains are free from slavery and human trafficking.

As discussed in previous posts, the legislation applies to retail sellers and manufacturers doing business in California that have annual worldwide gross receipts exceeding one hundred million dollars.

Today, a group of investors released a best practices guide for companies seeking to comply with the California legislation. The guide, Effective Supply Chain Accountability: Investor Guidance on Implementation of The California Transparency in Supply Chains Act and Beyond, was released by the Interfaith Center on Corporate Responsibility, Christian Brothers Investment Services, and Calvert Investments

Beyond making the minimum disclosures required by the legislation, the guide urges companies to implement a comprehensive approach to the management of human rights risks in their supply chains. Specifically, the authors call on companies to develop a comprehensive management approach to human rights-related risks that includes the following elements:

  • A human rights policy;
  • Human rights due diligence;
  • Human rights risk assessments;
  • Verification and traceability mechanisms;
  • Training/capacity building;
  • Collaboration; and
  • Disclosure/transparency. 

This guidance is responsive to the expectations of key corporate stakeholders, including shareholders, legislators, and consumers, who are increasingly demanding that companies identify and manage the human rights impacts of their operations, including human trafficking.  As the guide states,   

[g]iven the enactment and proposal of similar laws protecting human rights, including Section 1502 of the Dodd-Frank Act and HR 2759, the Business Transparency on Trafficking & Slavery Act, it has become clear that human rights risks within business value chains are becoming more widely acknowledged. As such, it is imperative that companies take active steps to combat human trafficking within their direct operations as well as supply chains to ensure that they are not complicit in human rights abuses.

In a press release accompanying the guide, David Schilling, Program Director for Human Rights at the Interfaith Center on Corporate Responsibility, observed that

We believe that additional legislation, at both the state and the federal levels, addressing these egregious human rights violations in company supply chains is inevitable.  The California Supply Chain Act may be the first law of its kind in the nation, but it will most certainly not be the last.

We believe that stakeholder expectations regarding the corporate responsibility to respect human rights will be increasingly embedded in state, national, and international legislative and regulatory frameworks. This "convergence of expectations" is a trend reflected by the California legislation and the advice provided in the new guide is intended to assist companies in meeting both current and future compliance requirements.

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