Canada: Anti-Forced Labor Supply Chain Law Takes Effect
From January 1, 2024, Canada’s Forced and Child Labour in Supply Chains Act (the “Act”) requires in-scope companies to publish board-approved reports on their efforts to prevent and mitigate forced labor and child labor throughout their supply chains. The publication deadline is May 31, starting this year.
Under the Act, an “entity” is defined as a corporation, trust, partnership or other unincorporated organization that: (i) is listed on a stock exchange in Canada; or (ii) has a place of business, has assets or does business in Canada and satisfies two out of three conditions: (a) has at least C$20 million in assets, (b) generates at least C$40 million in revenue annually or (c) has at least 250 employees.
The Act requires the annual reports to be filed by “any entity (a) producing, selling or distributing goods in Canada or elsewhere; (b) importing into Canada goods produced outside of Canada; or (c) controlling an entity engaged in any activity described in paragraph (a) or (b).” Therefore, a foreign company parent with a Canadian subsidiary required to report would also need to provide a report, either separately or jointly with its Canadian subsidiary.
The report must include information on:
- the entity’s policies and due diligence processes regarding forced and child labor;
- the aspects of the entity’s business and supply chain that carry a risk of forced or child labor and the steps the entity has taken to mitigate that risk;
- measures taken by the entity to remediate any forced or child labor abuses; and
- measures taken by the entity to remediate the loss of income to vulnerable families that results from the elimination of these labor abuses and training provided to employees on these issues.
If a covered entity fails to publish such reports or publishes a misleading report, the company and its officers will be subject to fines not exceeding C$250,000 (or about US$186,000, currently).
Forced and Child Labour in Supply Chains Act
U.S.: Business Groups Sue California to Block Recent Climate Disclosure Laws
On January 30, 2024, the U.S. Chamber of Commerce, American Farm Bureau Federation, California Chamber of Commerce and other plaintiffs filed a lawsuit in federal court against the California Air and Resources Board seeking to overturn climate disclosure laws enacted by California in October of last year: the Climate Corporate Data Accountability Act (the “CCDAA”) and the Climate-Related Financial Risk Act (the “CRFRA”). Debevoise’s summary review of the CCDAA and the CRFRA can be found here.
The CCDAA requires annual public disclosure, on a phased-in basis starting in 2026, of Scopes 1, 2 and 3 GHG emissions by groups doing business in California with total annual group revenues exceeding $1 billion. The CRFRA, on the other hand, requires such groups doing business in California with annual revenues of $500 million or more to publish reports every other year disclosing the climate-related financial risks and mitigation and adaptation measures they have adopted in regard to the disclosed risks.
The lawsuit did not challenge the Voluntary Carbon Market Disclosures Act (the “VCMDA”), also signed into law last October and which went into effect on January 1.
The plaintiffs argue that the laws violate the U.S. Constitution’s prohibition against compelled speech, are a violation of the Commerce Clause by attempting to regulate greenhouse gas emissions across states’ borders and are precluded by the federal Clean Air Act.
U.S.: Barclays Banned from Texas Bond Market Due to ESG Policies, State AG Determines
On January 26, 2024, the Texas Attorney General announced that Texas would prohibit Barclays from participating as an underwriter in the state’s municipal bond market, since the bank did not fully respond to requests for information related to its ESG policies.
Barclays was one of several banks that received a request in November 2023 for information on ESG commitments. The Attorney General’s letter raised concerns related to Barclays’ participation in the Net Zero Banking Alliance. According to the Texas Attorney General, Barclays indicated in a January 23, 2024 letter that it was “unable to respond at this time to [the Attorney General’s] questions” and acknowledged that “its failure to respond may prevent Barclays from [contracting with] Texas governmental entities until such time as they are able to submit their response.” Shortly thereafter, the Attorney General’s office published a letter and press release classifying Barclays as a potential “fossil fuel boycotter” and banning the bank from participating in Texas’ municipal bond market until further notice.
This development is one of a number of recent actions taken by U.S. states seeking to enforce newly enacted “anti-ESG” bills, with Texas having previously targeted asset managers for divestment due to alleged “boycotting” of the fossil fuel or firearms industries. Attorney General Paxton supported the move as part of the state’s commitment to preventing taxpayer funds from supporting companies “whose ‘ESG’ policies harm Texans or key Texas industries.”
Debevoise’s tracker of state-level ESG laws and regulations can be found here and the firm’s tracker of ESG-related investigations by federal and state authorities can be found here.
Texas Attorney General Press Release
Texas Attorney General Rescission Letter
Global: International Ethics Standards Board for Accountants Proposes Revised Ethics Framework
On January 29, 2024, the International Ethics Standards Board for Accountants (the “IESBA”) proposed changes to its ethics standards and auditing processes, in an effort to prevent greenwashing. As mandatory EU disclosure rules take effect, auditors will review disclosed sustainability information for accuracy and quality, which, according to the IESBA, makes new ethics standards “especially relevant.”
The IESBA released two proposals: “International Ethics Standards for Sustainability Assurance” (the “IESSA”), which outlines acceptable conduct and ethics provisions for sustainability assurance experts and professional accountants, and “Using the Work of an External Expert,” which provides guidelines for such persons to follow in evaluating the capabilities of external experts whose work they wish to rely on. These proposals follow last year’s release of proposed standards for sustainability reporting assurance by the International Auditing and Assurance Standards Board (the “IAASB”). According to the IESBA, the new proposals released in January were developed in coordination with the IAASB.
In a statement released with the proposals, Gabriela Figueiredo Dias, Chair of the IESBA, said: “[A]ll users of sustainability disclosures have a vested interest in ensuring ethical choices by the preparers and assurers of such information. These proposed standards will serve as a cornerstone of ethical behavior with far-reaching benefits.”
The IESSA proposal is open for consultation until May 10, while the consultation period for the “Using the Work of an External Expert” proposal will end on April 30.
IESBA Press Release
“Using the Work of an External Expert” Proposal