The California Transparency in Supply Chains Act: What you need to know

Compliance professionals discussing the California Transparency in Supply Chain Act

Understanding the California Transparency in Supply Chains Act and who it applies to

The core purpose of the CTSCA is to ensure transparency regarding efforts to eradicate slavery and human trafficking from the direct supply chains of tangible goods offered for sale within the state. By requiring companies to disclose these efforts, the CTSCA aims to empower consumers to support businesses aligned with their values.

The California Transparency in Supply Chains Act applies to large retailers and manufacturers doing business in the State of California. To be subject to this law, a company must meet the following criteria:

Why the CTSCA is more important than ever

The shifting landscape of regulations around modern slavery underscores a global push for corporate responsibility, transparency and the prevention of human rights violations. The California Transparency in Supply Chains Act is only the tip of the iceberg regarding supply chain and modern slavery regulations.

The EU has a number of extensive directives, including the upcoming Corporate Sustainability Due Diligence Directive (CSDDD) and the already implemented Corporate Sustainability Reporting Directive (CSRD), which establish rigorous standards for due diligence and reporting, holding companies worldwide accountable.

Additionally, initiatives such as the Uyghur Forced Labor Prevention Act, Canada's Fighting Against Forced and Child Labour in Supply Chains Act, and Australia’s Modern Slavery Act emphasize the international community's resolve to eliminate modern slavery and uphold human rights in corporate operations and global supply chains.

While it’s clear that modern slavery is a top priority for legislatures, the heightened consumer and investor awareness of labor rights issues is also growing, fueled by media coverage and the risks associated with ambiguity in supply chains. Consumers are more likely to use their purchasing power to support brands that demonstrate ethical practices rather than those associated with human rights violations, and investors support the same.

It's clear that businesses are now expected to proactively address labor rights issues. Staying informed and adapting to these trends can help navigate the evolving landscape and contribute to sustainable and ethical supply chains.

Key components and requirements of the CTSCA

The California Transparency in Supply Chains Act focuses on three key areas: disclosure of supplier verification practices, disclosure of supplier certification and audits and disclosure of internal accountability standards and training.

  1. Supplier verification practices: The Act requires businesses to disclose the steps they take to verify that their suppliers are not engaging in slavery or human trafficking. This includes verifying that suppliers have policies and procedures in place to prevent these issues, and that they are conducting regular audits of their suppliers to ensure compliance. Businesses must also disclose the results of these audits, including any instances of non-compliance.
  2. Supplier certification and audits: The Act requires businesses to obtain certification from their suppliers that they are not engaging in slavery or human trafficking. This certification must be based on an independent audit of the supplier's operations. Businesses must also disclose the results of these audits, including any instances of non-compliance.
  3. Internal accountability standards and training: The Act requires businesses to establish internal accountability standards and training programs to ensure that their employees are aware of and comply with the Act's requirements. This includes training on how to identify and report potential instances of slavery or human trafficking in the supply chain. Businesses must also disclose the details of these accountability standards and training programs.

The CTSCA mandates that companies engage in due diligence to identify and mitigate risks associated with slavery and human trafficking. Collaboration with suppliers to ensure compliance is crucial, with transparency serving as a cornerstone of compliance efforts.

How to comply with the CTSCA: 6 actionable steps

Complying with the California Transparency in Supply Chains Act requires companies to take several important steps to combat human trafficking and slavery in their supply chains. These steps include:

  1. Map your supply chain: Starting with existing supplier lists, gather your initial information. Work with procurement teams to identify your suppliers, as well as their suppliers. Consolidate this information into a single source and create a detailed global map that shows the flow of materials, information and money, and note the relationships between entities within your supply chain.
  2. Provide required disclosures: Companies must provide transparent and comprehensive information about their efforts to eliminate slavery and human trafficking from their supply chains. This includes disclosing the measures they have implemented, such as verification processes, audits, certifications and supplier compliance programs.
  3. Perform supplier audits: Regular audits should be conducted to assess suppliers' compliance with anti-trafficking and anti-slavery policies. These audits help identify any potential risks or violations within the supply chain. By thoroughly examining supplier practices, companies can ensure that their partners are committed to ethical standards.
  4. Create a supplier certification process: Start by identifying the specific criteria that suppliers need to meet and define the minimum acceptable standard the supplier must fulfill for certification. Consider using methods such as questionnaires, scorecards, site visits or third-party standard certifications to evaluate and assess suppliers, then regularly review and update their certifications.
  5. Establish internal accountability: Internal accountability standards are crucial. Companies should have policies in place that hold employees and contractors accountable for non-compliance with anti-trafficking and anti-slavery measures. This includes clear guidelines, reporting mechanisms and consequences for violations.
  6. Conduct employee training: Companies should provide training to employees involved in supply chain management to raise awareness about the risks of human trafficking and slavery. By educating employees on how to identify and address these issues, companies can empower their workforce to actively contribute to the prevention and elimination of such practices.

Technology can simplify the process of complying with the California Supply Chain Act

Organizations disclosing information about their supply chains not only showcase responsible business practices but also align with consumer preferences for supporting companies that prioritize ethical considerations. By assessing and addressing risks related to forced labor, human trafficking and slavery, businesses can mitigate legal and reputational consequences while fostering improved supplier relationships through collaboration and communication.

Moreover, companies that prioritize ethical supply chains gain a competitive advantage by differentiating themselves from competitors in the marketplace. Consumers increasingly seek products from responsible and transparent sources, making ethical practices a key driver of purchasing decisions.

GRC technology can streamline the processes involved in complying with regulations like the California Transparency in Supply Chains Act, offering training modules designed to enhance the capabilities of compliance teams in identifying slavery or trafficking issues within their organization and among their third-party partners. Additionally, third-party risk management software can conduct ongoing scans to detect modern slavery infractions and provides continuous monitoring of sanctions and watchlists to ensure compliance and mitigate risks effectively.