Understanding human rights due diligence legislation and its potential adoption in Canada

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Understanding human rights due diligence legislation and its potential adoption in Canada

Understanding human rights due diligence legislation and its potential adoption in Canada

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August 2, 2024

Since 2020, the Government of Canada has taken several steps to eradicate and reduce forced and child labour in Canadian supply chains. To date, key elements impacting Canadian businesses include a trade prohibition on goods made wholly or in part by forced or child labour and, more recently, the introduction of modern slavery reporting obligations. These steps reflect a significant global proliferation of regulations relating to modern slavery throughout Western countries over the past decade.

More recently, several countries have adopted human rights due diligence legislation. Notable examples are France's Corporate Duty of Vigilance Law and Germany's Supply Chain Due Diligence Act. The most recent development is the European Union's Corporate Sustainability Due Diligence Directive (CSDDD), which came into force on July 25, 2024. The CSDDD offers a comprehensive approach to human rights and environmental due diligence, mandating that large EU and non-EU companies conduct due diligence across their operations, subsidiaries and supply chains. The obligations under the CSDDD, which will be gradually implemented between 2027 and 2029, aim to ensure responsible business conduct through rigorous administrative supervision and civil liability.

Canada is in the process of considering similar legislation. In Budget 2023, Canada announced its "intention to introduce legislation by 2024 to eradicate forced labour from Canadian supply chains to strengthen the import ban on goods produced using forced labour." This commitment was reaffirmed in Budget 2024.

Consultations on due diligence legislation are currently underway within the government. By understanding the frameworks and requirements in France, Germany and the EU's CSDDD, Canadian businesses can gain valuable insights into what future due diligence obligations may look like in the country.

Understanding human rights due diligence legislation: Key aspects in France, Germany and the EU

Human rights due diligence involves businesses taking proactive steps to identify, prevent, mitigate and address their impacts on human rights, ensuring they do not contribute to abuses such as forced labour and child labour. Generally, diligence legislation is directly applicable to entities that meet the relevant legislation in an applicable jurisdiction. However, it also "trickles down" throughout the economy through contracts. Entities selling into jurisdictions with diligence legislation may also be indirectly impacted by such legislation. It is increasingly common for procuring entities to include human rights diligence controls and requirements within their procurement processes.

Below, we outline the key elements of due diligence legislation in France, Germany and the EU.


Aspect	France's Corporate Duty of Vigilance Law	Germany's Supply Chain Due Diligence Act	The EU's Corporate Sustainability Due Diligence Directive (CSDDD)
Scope and Applicability	Applies to entities with over 5,000 employees headquartered in France or 10,000 worldwide, including those headquartered abroad.	Applies to entities with 3,000 employees, lowering to 1,000 in 2024, including affiliated enterprises.	Applies to entities with over 1,000 employees and a net worldwide turnover exceeding EUR 450 million.
Vigilance/Risk Management Plans	Requires entities to adopt a vigilance plan with risk mapping, regular assessments, preventive measures, alert mechanisms and monitoring schemes, to be developed with stakeholders, including trade unions. Parent company ensures compliance across subsidiaries.	Requires entities to adopt a risk management system with designated responsibility, regular risk analyses/mapping (including both direct and indirect suppliers) and a policy statement. Integrates human rights considerations into business processes, procurement strategies and training, with regular reviews and updates.	Requires entities to adopt/ integrate due diligence into policies, including risk mapping for identifying and assessing impacts, implementing preventive measures and continuous monitoring. Codes of conduct for employees, subsidiaries and business partners must be regularly updated. Additionally, the due diligence policy should be revised at least every 24 months or following significant changes.
Appointment of Human Rights Officer	There is no explicit requirement to appoint a human rights officer under the Corporate Duty of Vigilance Law.	Entities must designate responsible persons to oversee due diligence compliance, monitor processes and manage human rights and environmental risks. This includes appointing a human rights officer and establishing an integrated risk management system.	There is no explicit requirement to appoint a human rights officer under the CSDDD. Third-country companies must appoint an authorised representative within the EU.
Indirect Suppliers	Requires entities to identify, assess and monitor of risks related to indirect suppliers with whom there is an established commercial relationship. Preventive measures, as well as reporting and monitoring mechanisms must be applied to these suppliers.	Requires entities to address risks associated with indirect suppliers when there are indications of potential violations. All indirect suppliers that are essential for products or services must be considered. This involves conducting a risk analysis, implementing preventive measures, developing a prevention or minimization plan and updating the policy statement as necessary.	Requires entities to include indirect business partners in their due diligence processes. This involves identifying, assessing, preventing and mitigating adverse impacts throughout the supply chain, with continuous monitoring and stakeholder engagement. Entities must suspend relationships if severe impacts cannot be mitigated.
Policy Statements	The policy statement (diligence policy) must be publicly disclosed, and an implementation report must be included in the company's annual report.	Must include a human rights strategy, identified risks and expectations for employees and suppliers. Issued by senior management and regularly updated to reflect changes in the risk situation.	Must include integration into policies, risk mapping, preventive measures, continuous monitoring and regular updates. Publicly communicate due diligence efforts through an annual statement on the company website.
Preventive Measures	Requires entities to engage in risk mapping, regular assessments, appropriate preventive actions, alert mechanisms and monitoring schemes. Preventive measures must be developed in partnership with trade union representatives and included in the vigilance plan.	Requires entities to implement preventive measures within company operations and with direct suppliers. This includes developing procurement strategies, providing training, implementing risk-based controls and obtaining contractual assurances from suppliers to comply with human rights and environmental expectations.	Requires entities to integrate due diligence into policies and risk management systems, identify and assess potential impacts, implement preventive measures and continuously monitor their effectiveness. Regular updates to the code of conduct and due diligence policy are also mandated, along with obtaining contractual assurances from business partners to adhere to the company's code of conduct.
Remedial Action	Entities must compensate for damages that proper vigilance could have prevented.	Entities must take immediate action to prevent, end, or minimize violations and develop strategies with timelines if violations cannot be immediately ended.	Entities must take measures to cease or minimize adverse impacts and provide remediation for affected individuals.
Liability and Enforcement	Entities can be held liable for damages resulting from inadequate vigilance plans, with possible financial penalties. Legal action can also enforce obligations and mandate plan implementation under financial penalty.	Entities can be held liable for significant fines and exclusion from public procurement contracts. Empowers the Federal Office for Economic Affairs and Export Control (BAFA) to monitor compliance and enforce penalties.	Enforcement can include administrative supervision, injunctive orders and civil liability for intentional or negligent failures, with fines up to 5% of net worldwide turnover. Member States must designate independent, well-resourced public authorities to monitor and enforce the directive. These authorities can conduct investigations, require information and ensure compliance.
Reporting and Documentation	Entities must publicly disclose vigilance plans and their implementation in the annual report.	Entities must provide continuous documentation and annual reporting to BAFA on due diligence activities.	Entities must report on due diligence activities, update policies at least every 24 months, and make documentation publicly available.
Complaints Procedure	Entities must establish risk reporting mechanisms with trade unions. Any person with a legitimate interest can file complaints if entities fail to comply with their vigilance plan, including stakeholders involved in the company's vigilance plan, such as trade union representatives. Judges can mandate implementation and impose civil liabilities for non-compliance. Victims must prove company fault and damage causation, but the law aids in demonstrating the company's duty to prevent harm.	Entities must establish an accessible internal and external complaints procedure for reporting human rights and environmental risks and violations. Complaints can be filed by affected individuals, employees, trade unions and NGOs. Ensure impartiality, confidentiality and protection against retaliation. Publicly disclose the procedure and review its effectiveness annually.	Entities must establish a fair, transparent and accessible complaints procedure for affected individuals, legitimate representatives, trade unions and NGOs. Ensure confidentiality and protection against retaliation. Provide follow-up and reasoning for complaint outcomes, including potential remediation measures.

Conclusion

Examining the human rights due diligence legislation in France, Germany and the EU can give Canadian businesses valuable insights into what future due diligence obligations may look like in Canada to the extent it is adopted. Further, Canadian companies selling into the EU, France and Germany should be aware of these developments as certifications, attestations or company policies may be requested as a matter of evolving procurement practices.

For more information on this topic, please contact Sean Stephenson.

The author would like to thank summer student Nikki Bhatia for her contributions to this insight.