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November 18, 2011
Investors Provide Guidance for Compliance with California Transparency in Supply Chains Act
    by Robert Kropp

Companies are encouraged to go beyond compliance with law and enact policies that commit them to addressing human trafficking in their supply chains.

The California Transparency in Supply Chains Act goes into effect on January 1st, at which time companies with revenues of more than $100 million doing business in the state will be required to publish on their websites their policies addressing slavery and human trafficking in their supply chains.

"The law may have California's name in its title, but its effects will be felt far beyond the state," Julie Tanner, Assistant Director of Socially Responsible Investing at Christian Brothers Investment Services (CBIS), said. "Most major retailers and manufacturers doing business in California will need to comply, regardless of where they are headquartered."

Human trafficking is estimated to affect more than 2.4 million victims worldwide, and an estimated 3,000 companies doing business in California will be required to comply with the law.

Because the effects of human trafficking in corporate supply chains can include negative publicity, business interruptions, potential lawsuits, public protests, and loss of consumer trust—and because of its impact on long-term shareowner value—CBIS has joined with the
Interfaith Center on Corporate Responsibility (ICCR) and Calvert Investments to publish Investor Guidance for companies seeking to comply with the new law.

The law requires companies to publish information relating to verification, auditing, accountability, and training. But the Guidance encourages companies "to go beyond minimum compliance" through "programmatic commitments and public reporting that reflects a holistic human rights framework that seeks to address all forms of trafficking."

With the transparency mandated by the law, shareowners are likely to expect companies to quickly move beyond simply reporting on whether they have policies in place that address human trafficking, and act to ensure that that the practice does not occur in their supply chains. The document provides guidance to help companies do so.

A critical first step in addressing risks associated with human trafficking in supply chains is the establishment of a company-wide human rights policy, in which specific mention of all forms of human trafficking should be made. Suppliers should be required to adhere to the policy as well.

In order to effectively manage their responsibility to respect human rights, companies should establish a due diligence process in accordance with the recommendations included in Professor John Ruggie's Guiding Principles on Business and Human Rights. Ruggie recommends that companies have a human rights due-diligence process in place "to enable the remediation of any adverse human rights impacts they cause or to which they contribute. Business enterprises need to know and show that they respect human rights."

According to the Investor Guidance, companies should also conduct regular risk assessments that include dialogue with key stakeholders, verify supply chain compliance through an auditing process that incorporates remediation when human rights violations are detected, and train employees and suppliers to implement policies effectively.

Companies are also encouraged to collaborate with a wide range of stakeholders to address the complexity of human rights violations in supply chains. The Guidance points out that ICCR's Social Sustainability Resource Guide "proposes a multi-party collaborative framework for corporate-community engagement on a range of social issues, including trafficking and slavery."

"Through robust and substantive disclosure," the Guidance concludes, "Companies will be better equipped to provide all stakeholders with information regarding their efforts to eradicate slavery and human trafficking from their supply chains, and to improve the lives of victims of slavery and human trafficking."


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