Background

The European Union issued this week a guidance providing concrete, practical advice on eradicating forced labor from EU companies’ supply chains. The European Commission said this guidance will bridge the time until it implements legislation on sustainable corporate governance, which is expected to introduce a requirement for EU companies to identify, prevent, mitigate, and account for sustainability impacts in their operations and supply chains. This will include effective action and enforcement mechanisms to ensure that forced labor does not find a place in the value chains of EU companies.

The new guidance states that effective due diligence is an ongoing, proactive and reactive process aimed at achieving continuous improvements. It should be commensurate with risks and appropriate to the individual company’s circumstances and context, including the specificities of the upstream tiers of the supply chain and the company’s size. It should apply not only to the possible negative impacts the company may cause or to which it could contribute as a result of its own activities, products, or services but also to the impacts linked to its business relationships, including its subsidiaries, suppliers, and contractors.

The guidance includes a number of due diligence considerations specific to forced labor regarding policies and management systems, risk factors, assessing and addressing risks, disengagement, and remediation. Among these are the following.

- Company policies should build awareness among key staff and suppliers on what constitutes forced labor; e.g., common forms, types of vulnerable workers and supply chains, and expectations of suppliers operating in higher-risk contexts.

- Country risk factors include inability to conduct in-depth risk assessments, labor and vocational programs targeted at minorities, presence of informally employed workers, etc.

- In-depth risk assessments of specific high-risk suppliers or supply chain segments should include enhancing training for staff and suppliers in high-risk areas and establishing stronger prequalification processes for suppliers.

- Actions to address forced labor risks should include credible threats and terms for disengagement if improvements are not demonstrated.

- Disengagement from a business relationship should be a last resort after failed attempts at preventing or mitigating severe impacts, when adverse impacts are irremediable, when there is no reasonable prospect of change, or when the entity causing the impact does not take immediate action to prevent or mitigate identified impacts.

- The potential adverse impacts of a decision to disengage should be considered and addressed.

Sandler, Travis & Rosenberg offers a comprehensive suite of services to help companies address forced labor concerns, including supply chain reviews, due diligence strategies, and proactive remediation. In addition, ST&R has launched a new web page offering a broad range of information on forced labor-related efforts in the U.S. and around the world. ST&R also has an on-demand webinar on forced labor and supply chain transparency available online.

For more information on any of these initiatives, please contact Amanda Levitt (at (212) 549-0148) or via email), David Olave (at (202) 730-4960 or via email), or Nicole Bivens Collinson (at (202) 730-4956 or via email).

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