Over 6 years ago now, I posted a blog GRC Tuesdays: Combating Modern Slavery—It’s More Than Compliance, It’s Ethics! mentioning that many countries across the globe were reviewing their response to exploitation in supply chains with parliamentary debates on new regulations coming into addition/replacement to what was already in place such as Dodd-Frank Act’s in the United States that rules on conflict mineral disclosure, the UK’s Modern Slavery Act, Netherlands’ Child Labour Due Diligence Law and France’s law imposing due diligence to prevent human rights abuses in supply chains.
This topic is becoming more and more prominent and forced labour is an integral part of “Erosion of human rights”, one of the key risks cited by the World Economic Forum in its Global Risks Report 2024 published earlier this year:
When discussing Environmental, Social, Governance (ESG) concerns with organizations, there are divergence in points of view of what needs to be done to implement the right processes – especially when it relates to reporting on metrics. There are even divergences on whether regulators around the globe will effectively enforce all the proposed legislations. But there is one ESG topic where I see a consensus: combatting forced labour is a necessity. Regardless of the industry or geography. And it seems that the recourse to legislation I had hinted to 6 years ago is now adding further pressure.
What is forced labour?
When defining forced labour, most regulatory bodies refer to the definition by the International Labour Organization from its June 1930 Forced Labour Convention: “forced or compulsory labour shall mean all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily”.
Further to that, the International Labour Organization has developed indicators that individually or in conjunction, can indicate a forced labour situation:
- Abuse of vulnerability
- Deception
- Restriction of movement
- Isolation
- Physical and sexual violence
- Intimidation and threats
- Retention of identity documents
- Withholding of wages
- Debt **bleep**
- Abusive working and living conditions
- Excessive overtime
Why should you care?
Let’s start with the obvious: it’s ethics!
As stated by the US Customs and Border Protection (CBP) quite eloquently: “Forced labor is a violation of basic human rights” and “Eradicating the use of forced labor is a moral imperative”.
As a matter of fact, the CBP has been tasked not only with identifying products made by forced labour and preventing them from entering the United States, they are also engaging on stopping them from being made in the first place.
And the United States are not the only country focusing on this matter. As listed in introduction, some European countries already had national legislation. But, on 23 February 2022, realizing that “voluntary action does not appear to have resulted in large scale improvement across sectors”, the European Commission adopted a proposal for a Directive on corporate sustainability due diligence with the aim “to foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in companies’ operations and corporate governance”. The intent here is to provide a harmonised legal framework in the European Union, creating legal certainty and level playing field.
These rules that are expected to come into force around 2027 and fines for breaching the rules could be as much as 5% of a company’s global turnover.
And more geographies are following suit especially since “Decent work and economic growth” is one of UN Sustainable Development Goals (#8) with a dedicated target to “Take immediate and effective measures to eradicate forced labour, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labour”.
What can you do about it?
Eradicating forced labour won’t be achieved by individual organizations all by themselves, of course. And there is no single bullet (or tool) that will solve the issue on day 1 and ensure the company is compliant with the various regulations.
But there are steps that organizations can take. And technology and data traceability play a significant role in supporting anti-forced labour compliance. By providing monitoring capabilities and traceability of transactions, technology increases transparency of the supply chain as highlighted by KPMG in a dedicated webinar: Forced Labor Compliance Using SAP GTS
During this session, Frances Xing – Managing Director, Trade & Customs, Global Trade Technology, KPMG US, Laura Clawson – Senior Manager, Tax, Core ESG Team, KPMG US and Olesia Melnyk – Manager, Tax, Trade and Customs, KPMG US illustrated how SAP Global Trade Services could be leveraged to support compliance with anti-forced labour regulations, with a special focus on the Uyghur Forced Labor Prevention Act (UFLPA):
In summary, during the webcast, the KPMG thought leaders highlighted a few use cases including:
- Utilizing sanctioned party list screening functionality to screen customers, suppliers, and other parties
- Leveraging preference supplier solicitation functionality to effectively solicit and manage supplier solicitations for documentation and evidence required by Customs authorities
- Screening transactions against forced labour indicators (HTS classification, country of origin, others)
- Building robust reports to make an informed decision on forced labour blocked transactions
What about you, how does your company prepare for these regulatory requirements? I look forward to reading your thoughts and comments either on this blog or on Twitter @TFrenehard
And if you are interested in learning more about SAP solutions for Governance, Risk, and Compliance, feel free to fill-in the demo request form!
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