COVID-19 has had a devastating impact on businesses. Severe supply chain disruptions have brought many businesses to a halt, leading companies to focus on persevering and recovery in the aftermath of the pandemic. This shift in focus has come at the cost of social issues for many businesses.
Sometimes seen as going over and above business requirements, there is now a risk corporate action on social issues like modern slavery, labor exploitation and responsible sourcing will be overlooked as mitigating losses caused by the pandemic becomes a priority. However, regulatory bodies have warned that the pandemic is not an excuse for non-compliance with regulations or due diligence mandates that are in place to identify, address and prevent human and labor rights issues in supply chains. In fact, these issues continue to receive priority attention from regulatory bodies.
Withhold Release Orders
In May 2020, U.S. Customs and Border Protection (CBP) issued two new withhold release orders (WRO) against merchandise that was flagged as potentially being manufactured in part or in whole using forced labor. The first WRO was issued on May 1, 2020, against hair products manufactured by Hetian Haolin Hair Accessories Co. Ltd., a company operating in the Xinjiang region of China. The second WRO was issued on May 11, 2020, against merchandise made wholly or in part with seafood harvested by the Yu Long No. 2, a flagged Taiwanese fishing vessel.
The issuance of WROs in the midst of the COVID-19 pandemic is a clear signal from the CBP that companies cannot use the pandemic as an excuse to grow lax on their due diligence responsibilities, and they must continue to take action to identify and prevent forced labor in their supply chains. In fact, the CBP urges businesses to maintain vigilance against forced labor of any kind and to continue to perform due diligence to ensure products are sourced ethically and safely.
In the press release for the second WRO, Brenda Smith, Executive Assistant Commissioner of the CBP’s Office of Trade, underscored the importance of due diligence. “It is critical that members of the trade community closely inspect their supply chains to ensure that American businesses and consumers can trust that the products they purchase are safely and ethically sourced, without the use of forced labor of any kind.”
Delays in Modern Day Slavery Reporting
On April 20, 2020, the UK Home Office published the Guidance on Modern slavery reporting during the coronavirus (COVID-19) pandemic. This guidance acknowledges the challenges that the pandemic presents to businesses and their ability to publish their modern slavery statements within the usual reporting deadlines, granting a six-month extension to those that need to delay publication. However, businesses must provide reasons for their delay, such as reduced staff capacity that resulted from necessary furloughs or layoffs.
In addition to outlining the reasons for reporting delays, companies must also report on the actions that they took during the period of the pandemic. The guidance also states that as the pandemic poses new and increased modern slavery risks, businesses should revise their risk assessments to identify how workers may be particularly vulnerable during the crisis period. Lastly, the guidance states that businesses should use their next statement to demonstrate how they monitored their risks during this period and adapted their activities and priorities in response.
On April 28, 2020, following the UK Home Office guidance, the Australian government issued its own guidance with respect to the Australian Modern Slavery Act. In it, the government granted a three-month extension to reporting entities to give them additional time to assess changing modern slavery risks linked to the coronavirus pandemic and help ensure they are able to comply with their legislative obligations.
This Australian guidance followed a prior guidance in which the Australian Border Force (ABF) reiterated that reporting requirements will continue and encouraged entities to consider how sudden changes to supply chains, including factory shutdowns, workforce reductions and order cancellations can disproportionately affect some workers and increase their exposure to modern slavery and other forms of exploitation. Further, companies are encouraged to consider enhanced risks in the pandemic environment, and take several key steps including:
- Maintaining strong supplier relationships.
- Ensuring open communication with suppliers and stakeholders.
- Building stakeholder collaboration.
- Considering the implementation of best practice guidance to support decent work in supply chains.
Are you in scope of the European Union Conflict Minerals Regulation? Learn more in our European Union Conflict Mineral Handbook.
Beyond Conflict Minerals
In the current global landscape, it is understandable that companies are seeing reduced response rates from their suppliers. Some companies may be on furlough, others may have limited access to purchase receipts and are unable to respond to information requests. As a result, conflict minerals disclosures are just one part of corporate social responsibility (CSR) programs that have been impacted.
Despite the challenges, industry leaders across verticals are using this time to build awareness around the pending changes in due diligence expectations that the European Union (EU) Conflict Minerals Regulation (CMR) will create. While the majority of these organizations will be voluntary reporters to the EU CMR, they are still committing to it with the understanding that selectively addressing issues undermines the value of CSR programs.
With the potential for new areas of the globe to be deemed conflict affected and high risk, companies need to think more strategically, especially around responsible minerals sourcing. Although the pandemic has interrupted efforts in some segments, expectations are clear. Companies will be pushed to expand their CSR programs by stakeholders and customers, and will feel the pressure of meeting and exceeding their peers’ activity. It is expected that this pressure will come into full force at the end of the year.
Modern Slavery Reporting Is Still Important
Despite extensions in place to account for delays resulting from COVID-19, the reporting requirements under existing and upcoming regulations combating modern slavery and other CSR issues have not changed. Indeed, they have been enhanced to focus on the treatment of workers in our current global context. It is clear that while moving forward and navigating the return to business as usual, CSR must continue to be a priority for businesses. Cutting costs in reporting programs may have financial and legal implications and cause long-term damage to reputation.
The Assent Compliance Platform provides companies with regulatory expertise and Managed Services that go above and beyond a standard software offering. That’s why Assent has the market-leading human rights due diligence solution.
For more information about how Assent can help you support CSR initiatives throughout your supply chain, talk to our experts.