The Uyghur Dilemma: Examining the Intersection of ESG and Forced Labor Prevention
The issue of forced labor in the Uyghur region of China has become a global concern, prompting various countries to take action. In the United States, the Uyghur Forced Labor Prevention Act (UFLPA) was implemented in June 2022, creating a rebuttable presumption that goods produced or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region were made with forced labor. This act affects various industries, including agriculture, fashion, and silica-based products, among others.
This article explores the intersection of ESG (Environmental, Social, and Governance) and forced labor prevention, with a focus on the UFLPA, and examines how this act emphasizes the overlap between the “Environmental” and “Social” components of ESG, highlighting the need for compliance teams to create innovative approaches to address these issues.
The Complexity of Sustainability and ESG
Sustainability and ESG are complex concepts that encompass both social and governance components. The Uyghur Forced Labor Prevention Act (UFLPA), which came into effect on June 21, 2022, creates a presumption that goods manufactured, produced, or mined wholly or partially in the Xinjiang Uyghur Autonomous Region in China are made with forced labor. This includes labor from persecuted minorities in other areas of China, making such goods ineligible for entry into the United States.
What is Covered by the Act
The Uyghur Forced Labor Prevention Act does not have a minimum threshold for the amount of imported materials that are considered acceptable. The act applies to all companies, regardless of size or sector, and downstream products that incorporate region-produced goods as components. It also applies to companies on the entity list, regardless of where the products were manufactured or from where they were shipped.
Enforcement priorities include high-priority sectors such as agriculture, fashion, and silica-based products. The region accounts for 25% of the world’s tomatoes, 20% of the world’s cotton production, and 45% of the world’s polysilicon. The enforcement priority for silica-based products is based on the fact that silica is used to make aluminum alloys, silicones, and polysilicon, which are used in various goods such as buildings, automobiles, petroleum, concrete, glass, ceramics, sealants, electronics, and solar panels.
Enforcement
The enforcement timelines are tight, necessitating early efforts well before the time begins to run against the importer. CBP has five business days to decide whether to detain goods at the port of entry. If there is no determination within five days, the goods are considered detained. At that point, the importer has just 30 days to challenge the detainment, including obtaining any necessary documentation to support importation.
To avoid detained goods, companies will need to provide due diligence information, supply chain information, supply chain management details, and evidence that goods originating in China were not the result of forced labor.
Direct supplier evaluations, in the form of independent third-party audits, are just part of the due diligence process under the act and are likely much more complicated audits than supply chain review for sustainability purposes, i.e., Scope 3 reporting.
Risks Associated with the Act
In addition to disrupting supply chains, the requirements of the act also pose risks related to government reporting. Companies often pledge to steer clear of child or forced labor as part of their sustainability goals and share progress updates on a voluntary basis outside of regulatory or compliance-related filings. However, such initiatives are typically handled separately, and in many cases, they aren’t managed by the same teams responsible for ensuring regulatory compliance.
Therefore, it is increasingly important to pinpoint the areas of utmost importance across the entire corporate structure. This can be achieved by identifying stakeholders, conducting listening sessions, and reaching an agreement at the senior management level regarding the issues that are essential for the company’s success, including profitability.
Once those key areas have been identified, corporate policy and procedures can be established.
Compliance and Sustainability
The U.S. Uyghur Forced Labor Prevention Act highlights the overlap between sustainability and pure compliance. The risk associated with noncompliance with the act is significant from a pure compliance standpoint and could disrupt an entire supply chain.
The act requires companies to provide due diligence and supply chain information to avoid detained goods, which creates a need for new policies and procedures with measurable metrics.
Mitigating risks associated with the act involves identifying key areas of interest and establishing corporate policies and procedures to avoid conflicting sustainability efforts and regulatory requirements.
Compliance activities will result in stronger social practices and enhance sustainability efforts, ultimately resulting in a positive impact on both compliance and sustainability.
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