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PracticalESG

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Keeping you in-the-know on environmental, social and governance developments

Last week, I wrote about problems with conducting human rights due diligence audits in China (here and here). This Monday, the Senate Finance Committee not only confirmed these problems but explicitly accused automakers BMW, VW and Land Rover of violating the US Uyghur Forced Labor Prevention Act (UFLPA). The Senate investigation took place over two years, reflecting information as recent at this month. According to the report,

“In January 2023, US automakers assured [Senate Finance Committee Chair Ron] Wyden that they maintain robust compliance programs to prevent components made with forced labor from entering their supply chains… Throughout the investigation, most automakers and their tier 1 suppliers assured the Committee that they maintain robust due diligence programs that ensure that their supply chains, which contain thousands of suppliers and subsuppliers are free of forced labor.”

However, the Committee found after the investigation that actually, “automakers do not possess adequate visibility and compliance procedures to keep their supply chains free of forced labor.” Indeed the investigation concluded that “with the exception of a select few that traced specific high-risk materials back to mines,”

“… companies generally could not trace their supply chains back to their origin. Although a few companies were making substantive efforts to trace high risk components to the mineral level, supply chain visibility generally relies heavily on self-reporting surveys completed by tier 1 suppliers …[that] depend on the truthfulness of questionnaires completed by subsuppliers and potentially unreliable information available to software platforms…” 

The investigation centers on a supplier named JWD, which was added to the UFPLA Entity List December 11, 2023. JWD had been he subject of numerous audits conducted under one the leading industry initiatives for supplier audits – the Responsible Business Alliance (RBA):

“Since 2012, Bourns has conducted eleven on-site audits of JWD, including Responsible Business Alliance (“RBA”) audits, and, starting in 2014, had its own employee on site and working with JWD employees to assure JWD’s compliance with Bourns quality standards and Code of Conduct. Bourns also regularly uses RBA self-assessment questionnaires with its suppliers and conducts risk-based RBA audits. Bourns conducted an RBA-style audit of JWD in July 2023 that concluded no concerns regarding forced labor.”

The report offers these three takeways concerning UFLPA compliance and social audits used to rebut the law’s presumption:

  • Questionnaires, self-reporting and audits of direct suppliers are insufficient to proactively identify forced labor exposure in supply chains, particularly in China.
  • Reliance on only the UFLPA Entity List and tools that scan for publicly available information related to critical media of Chinese government-owned or supported companies is not a sufficient means to identify forced labor within supply chains.
  • Credible human rights audits cannot be conducted in Xinjiang.

My own takeaways are:

  • The US government itself is clearly questioning the validity and credibility of supplier audits in China; and
  • Companies rebutting the UFLPA presumption that goods and materials originating from or shipping through China are not made with forced labor should expect significant scrutiny of their “clear and convincing evidence,” particularly if that evidence includes supplier audits.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile