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Keeping the “S” in ESG: Human Rights & Supply Chain

Companies in the manufacturing industry must continue to keep a close eye on the “S” in ESG.  One key aspect of the “social” component of ESG involves respecting human rights in supply chains. Indeed, manufacturers are facing heightened expectations—from government enforcement agencies, consumers, and other stakeholders—to ensure that their supply chains don’t include any products made using forced or child labor. This trend is accelerating and forward-thinking manufacturers should be focused on this issue.

Compliance and Reputational Risks

Both enforcement agencies and consumers are increasingly focused on manufacturers’ supply chains.  Manufacturers must understand that human-rights-enforcement frameworks increasingly have real teeth.  As we’ve detailed here, both the United States and the European Union either have or in the process of adopting real enforcement mechanisms to protect against the importation of goods made using forced labor. In 2023, we expect heightened enforcement in the U.S. of the Uyghur Forced Labor Prevention Act.   As a sign of things to come, Germany’s Supply Chain Due Diligence Act and Norway’s recent Transparency Act impose affirmative human-rights-due-diligence obligations on companies and create an enforcement structure with severe penalties for non-compliance.

As important, manufacturers will face tangible reputational risks if forced-labor issues are exposed in their supply chains.  When Joe Rogan is talking about forced labor in supply chains, you can bet the subject has become of mainstream significance.  As transparency in supply chains increases and issues are exposed (whether by government seizuresconsumer-focused-compliance-assessment tools, or media exposure), media and consumers have more data at their fingertips.  And, according to one recent survey, that information matters: 60% of consumers have said that they would switch products if they knew human trafficking or forced labor was used to create it.  So the consumer base—and, hence, the bottom line—will become more acutely at risk for manufacturers who fail to properly assess their supply chains.

Managing Risk in Your Supply Chain

These paradigms highlight an important fact: It’s not good enough to just check the compliance boxes to show stakeholders that your company is socially responsible.  So what should manufacturers do to address this risk?  It’s important to start with an understanding of your supply chain and an assessment of its human-rights risks.  You are expected to know what goes into your products and where it comes from.  And for components sourced in high-risk countries and that emerge from high-risk industries, you are expected to take reasonable steps to ensure that you have vetted your suppliers (and their suppliers and their suppliers’ suppliers and so on . . .), that you have made sure they understand your compliance expectations and are contractually obligated to comply, and that you monitor and audit them to ensure they are in compliance.

© 2023 Foley & Lardner LLPNational Law Review, Volume XIII, Number 89

About this Author

David W. Simon, Foley Lardner, Government Matters, FCPA Attorney

David W. Simon is a litigation attorney who devotes much of his practice to helping corporate clients avoid and manage crises that potentially give rise to government enforcement actions. He provides compliance advice, conducts internal investigations, defends companies against enforcement actions, and represents companies in litigation.

The Foreign Corrupt Practices Act (FCPA) is a principal focus of Mr. Simon’s practice. He also has extensive experience representing clients in antitrust matters and in defending False Claims Act investigations...

Olivia Singelmann Government Enforcement Attorney

Olivia Singelmann is an associate and litigation attorney with Foley & Lardner LLP. She is a member of the firm’s Government Enforcement Defense & Investigations, Business Litigation & Dispute Resolution, and Securities Enforcement & Litigation Practices.

Olivia’s practice includes litigation matters, with a focus on representing clients in investigations and/or enforcement proceedings by the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and the Public Company Accounting Oversight Board (PCAOB). Olivia has experience representing...

David J. Wenthold Associate Wisconsin Foley & Lardner LLP

David Wenthold is an associate in the Litigation Department with Foley & Lardner LLP. David is based in the Milwaukee office, where he is a member of the Business Litigation & Dispute Resolution Practice Group. David was a summer associate at Foley. After law school, he served as a law clerk for two judges: Judge N. Randy Smith (United States Court of Appeals for the Ninth Circuit) and Judge Benjamin Beaton (United States District Court for the Western District of Kentucky). And while in law school, David served as a law clerk for the Wisconsin Institute for Law...