Spotlight on...California law on supply chain transparency
Apparel retailers and brands are already closely scrutinised on corporate social responsibility issues across their supply chains - but a new law coming into force in January adds another dimension to the accountability of large retailers and manufacturers trading with the US state of California.
In just five months time, on 1 January 2012, the California Transparency in Supply Chains Act will go into effect. This will require large retailers and manufacturers doing business in the US state to disclose their efforts to eradicate slavery and human trafficking from their product supply chains.
Companies impacted by the legislation will include apparel and footwear retailers and manufacturers with annual worldwide gross receipts of more than US$100m - who must make the required disclosures on the home page of their corporate websites.
An estimated 3,200 companies worldwide will be affected by the new law, which must address five areas: third-party supply chain verification, independent and unannounced supplier audits, supplier certification of legal compliance, internal accountability standards, and staff training on forced labour and human trafficking.
"The California law will have a wide reach," trade expert Brenda Jacobs, an attorney at Sidley Austin LLP, tells just-style.
The state advertises itself as the tenth largest economy in the world - so as well as the 3,200 retailers and manufacturers who will be required to post or link the disclosure, the reach into the consumer goods supply chain will be very significant.
"That is because retailers will be seeking from their suppliers further and specific assurances with respect to slavery and human trafficking, including certifications, as well as the right to verify those assurances and certifications so that they can truthfully state that yes, they take each of the steps about which disclosure is required," Jacobs explains.
As a result, the new law has a cascading effect that goes far beyond California, to the global supply chain.
"This is not just about writing a statement for a website; it is also about re-writing contracts between buyers and vendors to impose greater responsibilities on the supply chain and possibly more unannounced inspections, including perhaps more work for third party inspectors," Jacobs adds.
Five points of disclosure
The California Transparency in Supply Chains Act requires each covered company to disclose, at a minimum, whether and to what extent it does five things:
- Engages in verification of product supply chains to evaluate and address the risks of slavery and human trafficking - and if so, whether any verification is conducted by a third party;
- Conducts audits of suppliers to evaluate their compliance with the company's standards regarding slavery and human trafficking - and if so, whether those audits are independent and unannounced;
- Requires direct suppliers to certify that the materials incorporated into the product comply with the laws regarding slavery and human trafficking in the country or countries in which they do business;
- Maintains internal accountability standards and procedures for employees or contractors or suppliers that fail to meet company standards with respect to slavery and human trafficking; and
- Provides training on slavery and human trafficking for employees and management who have direct responsibility for supply chain management, and training on mitigating the risks within the supply chain.
While many companies will already doing this, the new law puts them under even greater pressure to document it.
And given the length and depth of the apparel supply chain, companies who are subject to the California law should already be working on what the statements or links on their websites will say - and ensuring that agreements with suppliers are consistent with those planned statements.
Jacobs notes that the only "punishment" for failing to post a statement online is an injunction by the California attorney general compelling a company to make the disclosure.
"But the public relations consequences are what is really at issue here," she adds. "No company wants to post or link a disclosure that says it is not addressing the possibility of slavery and human trafficking in its supply chain.
"Nor does any company want to publicly say it is doing something if that statement can be contradicted."
It's also fair to assume that NGOs will be closely monitoring websites/links and publicising the fact that some companies disclose what steps they are not taking or that they are not using third party validators.
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