California Transparency in Supply Chains Act: How Are Businesses Responding?

The California Transparency in Supply Chains Act, which requires certain companies doing business in the state of California to report on their efforts to eliminate slavery and human trafficking from their supply chains, went into effect on January 1, 2012.

The law requires retailers and manufacturers with more than $100 million in annual gross receipts to conspicuously display on company websites their policies and efforts to ensure that all elements of their supply chain are compliant.

Law firm K&L Gates recently looked at the first 90 days of the law, and what businesses are doing to comply. Their key observations:

1. Businesses are generally complying with the Act:

“Companies have responded with a range of compliance approaches. Selected website disclosures in the first 90 days of the Act’s application show initial compliance trends. Those companies subject to the disclosure requirements are imposing new requirements on their suppliers.”

2. So far, businesses are reporting on ongoing efforts, not new measures:

“Companies’ disclosures to date regarding verification and audits in most cases describe existing supply chain compliance policies and practices implemented prior to the Act. These suggest in particular that use of independent third parties to provide related verification and audits is not yet standard practice across industries.”

3. Some businesses are going further, and obtaining third-party verification of their efforts:

“In a few instances, disclosing companies’ references to the Act are made in the context of well publicized plans to launch initiatives relying on independent third parties to verify and audit compliance with international and local labor and human rights standards that include prohibitions of slavery and human trafficking.”

4. Most companies are not requiring direct suppliers to actively certify compliance with the Act:

“Disclosures of companies’ requirements for direct supplier certification as called for by the Act so far is largely contained in descriptions of general qualification procedures, policies, representations and warranties required of suppliers that enter into supply agreements with the retail sellers and manufacturers.”

5. A few companies require all suppliers and vendors to comply:

“Several of the largest retailers have required all of their suppliers and vendors to certify compliance. The language and scope of the certifications have varied, but in each instance companies required to provide the certification are being forced to reevaluate their own supply chains.”

6. Internal accountability and training efforts have been limited so far:

“Disclosures of internal accountability structures and activities so far appear to refer to practices that apply generally to governance and internal controls relevant to procurement and supply operations. Disclosures regarding employees and management training emphasize subjects that are more specifically related to international, and in some cases local, labor and human rights standards that include prohibitions of slavery and human trafficking.”

7. There are still a number of open questions regarding compliance:

“Uncertainty regarding best practices for disclosure under the Act remains because of the absence of guidance or enforcement action by California’s Attorney General. Existing and proposed federal legislation in related areas should be considered in reviewing and planning compliance.”

Read the full update, California Transparency in Supply Chains Act – First 90 Days, K&L Gates LLP>>

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