7 ways to combat modern slavery in supply chains

The landscape of global supply chains is riddled with complexities that businesses often overlook, especially companies in the middle market. A handful of recent assessments conducted by RSM to assist clients with Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act—which went into effect at the start of 2024—revealed surprising insights that business leaders should understand.

The findings paint a picture of uncertainty and risk, underscoring the need for companies to adopt more rigorous measures to combat modern slavery—in particular, forced and child labor—within their supply chains. This is as important for Canada-based companies and those that do business there. The required regulatory reports must include the steps taken to prevent and/or reduce the risk of modern slavery in their supply chains. 

Findings and industry challenges

1. Lack of zero-tolerance policies and training programs: A significant concern identified across all the examined reports was the absence of "zero-tolerance" policies regarding forced or child labor among middle market companies. Companies with these provisions did not outline clear consequences for violating these policies, rendering them basically unenforceable. Additionally, there was a near-total lack of training and/or child labor awareness programs for employees. This oversight suggests a significant gap in supplier responsibility and corporate governance, leaving these companies vulnerable to unethical practices within their supply chains, most often found beyond Tier 1 suppliers.

2. Underestimation of supply chain complexity: Many companies are unaware of how rapidly their supply chains can expand. A small number of Tier 1 suppliers can balloon into a significant network at Tier 2 and become exponential by Tier 3. This rapid expansion often escapes the scrutiny of businesses, allowing forced or child labor issues to permeate unnoticed.

3. Global interconnectedness and persistent problems: In our interconnected world, the challenges of global supply chains are impossible to ignore. Countries like North Korea, Turkey and Russia, known for a high prevalence of forced labor, represent just the visible part of the problem. Delving into the myriad of products and countries at risk with proper diligence and homework reveals that few goods are truly exempt from these issues.

4. Shell companies and hidden risks: Even if Tier 1 suppliers comply with U.S. or Canadian labor laws, they can also act as shell companies importing problematic goods from regions with severe labor issues. This hidden risk highlights the need for deeper due diligence beyond just immediate suppliers.

5. High-risk industries—manufacturing and agriculture: Our analysis consistently identified manufacturing and agriculture/food-related industries as the most susceptible to forced and child labor. These sectors often rely on extensive, opaque supply chains where unethical practices can thrive undetected. With some research, however, companies can usually find an alternative source for most goods.

6. Complexity in addressing the problem: Managing and mitigating these risks is an intricate and imperfect science. Companies with extensive, inconsistent vendor matrices face even greater challenges. The inadequacy of relying solely on U.S.-restricted entity lists further complicates the issue. These lists address only a fraction of the problem, often overlooking broader, systemic issues.

The path forward for middle market companies

Given these insights, it is imperative for middle market companies to take proactive steps to gain awareness of forced and child labor in their supply chains as their first step toward eradication. Here are strategic recommendations to guide this process:

1. Implement zero-tolerance policies: Develop and enforce more comprehensive zero-tolerance policies regarding forced and child labor. Clearly communicate these policies and consequences, contractually as required, to your suppliers, vendors and contractors.

2. Enhance due diligence and transparency: Conduct thorough due diligence beyond Tier 1 suppliers. Utilize AI and advanced supply chain data analytics to trace supply chains to Tier 2 and Tier 3 levels. Require suppliers to provide detailed reports and evidence of compliance. And note that some industries, such as fashion, generally require fourth- and fifth-tier due diligence.

3. Address identified risks with practical solutions: Work closely with suppliers to address and mitigate identified risks. This may involve investing in local initiatives to improve labor conditions or transitioning to more ethical suppliers.

4. Foster a culture of accountability: Create a culture of accountability where due diligence is not just expected but verified. Regular audits, independent assessments and public reporting can reinforce this culture.

5. Establish training and awareness programs: Introduce mandatory training programs for employees and suppliers to raise awareness about forced and child labor. Educate them on identifying risks and reporting suspicious activities.

6. Collaborate on industrywide solutions: Work with industry peers to develop standardized requests and solutions for suppliers. This collective approach can reduce decision paralysis and alleviate the burden on suppliers, leading to more effective enforcement of ethical practices. Eliminating modern slavery expeditiously through sharing problematic suppliers and suitable alternatives should transcend the supply chain "secret sauce" attributed to preserving competitive advantage.

7. Leverage technology and data: Use technology to monitor and manage supply chains continuously. Artificial intelligence, blockchain and other innovative supply chain diligence tools can provide real-time insights and enhance transparency while continuously and proactively helping to manage supplier risk.

The takeaway

No business or customer wants to hear that a product was produced using forced or child labor somewhere in the supply chain. The findings from these recent modern slavery assessments revealed a reliance on misplaced trust in Tier 1 suppliers, revealing a pressing need for companies to take decisive action. The risks associated with forced and child labor in supply chains are too significant to ignore.

By implementing rigorous and enforced policies, enhancing diligence and transparency, and fostering industrywide collaboration, companies can begin to address these issues effectively.