From Exploration to Operations: Canada's Forced Labour and Child Labour in Supply Chains Act and Considerations for the Mining Sector

February 09, 2024

Written By Sander Grieve and Sharon Singh

By now, most Canadian mining companies ought to be aware of the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Act) which came into force on January 1, 2024. The Act imposes a reporting obligation on certain government institutions and private-sector entities that have a nexus to Canada and engage in certain activities. The first reporting deadline is quickly approaching, with the first reports due by May 31, 2024 (and by May 31 of every year thereafter). For covered entities incorporated under the Canada Business Corporations Act or any other Act of Parliament, the reporting deadline may be sooner, as the Act requires that such companies provide the report to each shareholder, along with its annual financial statements.

For many companies with mining operations in Canada, determining whether they are required to report under the Act is relatively straightforward. However, the application of the Act becomes ambiguous in other mining-related contexts, including those involving exploration companies, royalty and streaming companies, Canadian companies with overseas assets or companies with limited interests in Canada.

While the guidance issued so far by Public Safety Canada clarifies certain matters, including suggested length of the report and the means of reporting, it has yet to address frequently encountered situations with differing interpretations. The analysis in such situations often relies on highly fact-specific considerations, including contractual obligations. However, the lack of guidance or clarity is likely to result in underreporting, or overreporting, the latter being less problematic.

Applicability of the Act

The Act imposes an annual reporting obligation on corporations, trusts, partnerships and other unincorporated organizations that:

1. meet the definition of an "entity" set out in Section 2 of the Act; and
2. engage in the kinds of activities described in Section 9 of the Act.

Under Section 2, an "entity" is defined as a corporation, trust, partnership or other unincorporated organization that:

a) is listed on Canadian stock exchanges; or

b) has a place of business in Canada, does business in Canada or has assets in Canada and meets at least two of the following conditions for at least one of its two most recent financial years:

i) has at least $20 million in assets;

ii) generated at least $40 million in revenue; or

iii) employed an average of at least 250 employees.

Section 9 stipulates that an entity is required to report if it:

a) produces, sells or distributes goods in Canada or elsewhere;

b) imports into Canada goods produced outside Canada; or

c) controls an entity engaged in any activity described in paragraph (a) or (b), with control defined broadly as any direct or indirect control or common control "in any manner".

Report Requirements

The Act requires an entity to report the steps it took in the previous financial year to prevent and reduce the risk of child or forced labour in any part of the entity’s supply chain. The report must also include certain prescribed information. See our previous blogs for further details relating to the reporting requirements, issued guidance, and other important requirements under the Act: Much-Anticipated Guidance Released on Canada's Forced Labour Reporting Requirements for further details, Canada Introduces Mandatory Forced Labour Prevention Reporting Legislation and What Canada's New Forced Labour Reporting Law (Bill S-211) Means for Businesses.

Reports must receive approval from the governing body of the reporting entity, such as a board of directors, evidence of which must be included through the signature of at least one member of the governing body for each entity covered by the report. The guidance requires that the attestation included in the report should use the following format:

“In accordance with the requirements of the Act, and in particular section 11 thereof, I attest that I have reviewed the information contained in the report for the entity or entities listed above. Based on my knowledge, and having exercised reasonable diligence, I attest that the information in the report is true, accurate and complete in all material respects for the purposes of the Act, for the reporting year listed above.”

Considerations

Important factors to determine whether a mining company is required to report include:

• confirming the appropriate entity (or entities) within the group that qualifies as a reporting entity under the Act;
• for entities involved in exploration, reviewing imports, and confirming the scope of exploration, to confirm whether the entity satisfies the reporting thresholds; and
• confirming whether the parent entity of any producing subsidiary is potentially distributing or selling goods under intra-company or third-party contractual arrangements.

While resources may be spent on confirming whether an entity is obligated to report, the focus for many mining companies ought to shift towards enhancing the quality of their reporting and diligence. A practical, risk-based approach which assesses the reporting entity’s areas of significant risks is essential as it allows for an effective utilization of resources to create and implement processes to address such risks.

The reports issued under the Act, or the absence of such reports, will undoubtedly undergo scrutiny from the public, NGOs, investors and proxy advisors. Ensuring the accuracy of reports and demonstrating continuous improvements in human rights due diligence over time will be crucial.

As the current federal government is also considering due diligence-based legislation, it would not be surprising if the Act were to be eventually subsumed within this broader due diligence-based legislation. Due diligence-based legislation would mandate what diligence measures companies will be required to have in place to address forced labour and child labour risks.

For further information on this blog, including the variety of practical strategies that companies can take to prevent and mitigate the risk of forced labour and child labour in their supply chains contact a member of the Bennett Jones  ESG, Mining or International Trade & Investment  practice groups.

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