Key takeaways from the 2024 Annual Report on forced labour and child labour in supply chains

On September 27, 2024, the 2024 Annual Report on the Fighting Against Forced Labour and Child Labour in Supply Chains Act was tabled in Parliament by Public Safety Canada. This inaugural report provides insight on the first reporting cycle under the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the “Supply Chains Act”).

About the Supply Chains Act

The Supply Chains Act came into force on January 1, 2024, after several attempts by Canada to pass a bill to combat modern slavery in supply chains. It requires certain entities and government institutions to report annually on their efforts to prevent and reduce risks of forced labour and child labour in their supply chains. The first report under the Supply Chains Act was due May 31, 2024. More information on entities’ reporting obligations under the Supply Chains Act can be found here and here.

Public Safety Canada’s report covers the first reporting period under the Supply Chains Act and contains a summary of:

• the activities of reporting entities that carry a risk of forced labour and child labour;
• the steps such reporting entities have taken to assess and manage that risk;
• the measures taken by such reporting entities to remediate any forced labour or child labour; and
• the enforcement measures taken by Public Safety Canada.

The report presents quantitative data collected through the mandatory online questionnaire completed by reporting entities prior to submitting their annual reports to Public Safety Canada. It also includes direct quotes from submitted reports, gathered through qualitative analysis of a sample of reports.

Key highlights

Overview of reports received

• Public Safety Canada received 5,795 reports by the May 31 deadline, with 5,650 from entities (97.5%) and 145 from government institutions (2.5%).
• Joint reports: 2,086 reports (36%) were filed on behalf of two or more entities belonging to the same corporate group.
• Late reports: An additional 508 reports were received after the deadline, bringing the total to 6,303 by July 31, 2024. For the purposes of the report, Public Safety Canada only considered the data collected from the 5,795 reports submitted by the deadline.

Reporting entities

• Reporting in multiple jurisdictions: 796 entities (14.1%) indicated that they were also subject to reporting requirements under the modern slavery or supply chain legislation of other jurisdictions. The most common of such jurisdictions are the United Kingdom (66.3%) and California (60.2%).
• Sector: The largest reporting sector category among entities was manufacturing (38.3%), followed closely by wholesale trade (22.3%) and retail trade (21.8%).
• Foreign entities: 18.1% of reporting entities were headquartered or principally located outside Canada.

Risks identified

• Assessing risks: 38.2% of entities confirmed having identified parts of their activities and supply chains that carry a risk of forced or child labour, while 39.4% affirmed having started the process.
• Risk areas: Common risk areas identified by entities are the raw materials or commodities used (23.2%), the sector or industry they operate in (20.9%), their direct suppliers (19.7%), the locations of their activities, operations or factories (19.2%), or the types of products sourced (18.8%).

Mitigation efforts

• Steps to prevent and reduce risks: The most common steps taken by entities in their previous financial year to reduce risks of forced labour and child labour were conducting internal risk assessments (49.8%), developing due diligence policies and processes relating to forced labour and child labour (45%), monitoring suppliers (38.5%), and developing anti-forced labour and -child labour standards and codes of conduct (37%).
• Policies and due diligence processes: The majority of entities (71.3%) reported having policies and due diligence processes related to forced labour or child labour in place.
• Training: Almost half of the entities (44.4%) provided forced labour or child labour training to their employees, with varying degrees of mandatory participation.
• Assessing effectiveness: 43.5% of entities affirmed having policies and procedures in place to assess the effectiveness of their measures in ensuring forced labour and child labour are not being used in their activities and supply chains.
• Key performance indicators used by entities to assess effectiveness include the number of cases of forced/child labour reported and solved, the number of contracts with anti-forced/child labour clauses, the number of employees taking relevant training, the age and number of hours worked per employee, and the number of suppliers that have signed a code of conduct.

Remediation measures

• Remediation measures: A small number of entities (5.6%) reported having taken remediation measures to a varying extent to address instances of forced or child labour in their activities or supply chains. Most entities (87.5%) have presumably not discovered any instances of forced or child labour, as they have indicated that the question was not applicable to them.
  • Remediation actions taken by entities include supporting victims’ workforce reintegration, implementing grievance mechanisms, issuing formal apologies and compensating affected workers, namely by directly reimbursing workers for fees paid to employment agencies.
• Remediation for loss of income: Only 1.1% of entities indicated having taken some or substantial remediation measures with respect to loss of income resulting from measures taken to eliminate the use of forced/child labour, while 91% confirmed that this question was not applicable to them.

Compliance and enforcement

• The Supply Chains Act provides for penalties and criminal liability in cases of non-compliance. Nonetheless, the report affirms that no enforcement action was taken in 2024, which is consistent with Public Safety Canada’s previous statements that the priority in this first reporting year is to raise awareness of the reporting requirements.

What’s next for businesses?

Modern slavery remains a topic of significance in Canada for the foreseeable future.

The next deadline for filing reports under the Supply Chains Act is May 31, 2025, and Public Safety Canada starts accepting the next cycle of reports from January 1, 2025 onwards.

While the Supply Chains Act only mandates an obligation to report, as opposed to an obligation of due diligence, it is in a business’ best interests to take proactive steps to be diligent and mitigate risks of forced labour and child labour within their supply chains.

Importance of due diligence

• Increased scrutiny: Businesses must be prepared for increased scrutiny of their supply chains, whether in Canada or in other countries, as jurisdictions around the world are increasingly enacting legislation to combat modern slavery. The reporting requirements under the Supply Chains Act necessitate thorough due diligence and transparency. Businesses that do business with reporting entities can expect such partners, customers and suppliers to implement increasingly robust mitigation measures.
• Reputational risk: Failure to address identified risks or to remediate identified instances of forced/child labour can lead to significant reputational damage. Businesses are encouraged to proactively engage with their supply chain partners and implement best practices to mitigate these risks.

Businesses should therefore ensure they have robust policies and procedures in place to identify, assess, and mitigate risks of forced and child labour. This can take various forms, including the following measures.

• Review and update policies: Businesses should review their current policies and due diligence processes related to forced and child labour. Updates may be necessary to align with the requirements of the Supply Chains Act.
• Enhance training programs: Consider expanding training programs to ensure all relevant employees are aware of the risks and the company's policies on forced and child labour.
• Engage with stakeholders:Proactively engage with suppliers, industry associations, and civil society groups to stay informed about best practices and emerging risks in supply chains.

If you require more information on obligations related to Canadian modern slavery legislation, we invite you to contact the authors of this article.