I recently had the opportunity to meet several people from Assent Inc. for a sponsored podcast series titled Supply Chain and ESG – What you need to know. We discussed: ESG pilots with Jared Connors and James Calder; UFLPA, Supply Chain and ESG with Travis Miller and Jamie Wallisch; the new world of product compliance and ESG, with Cally Edgren and Devin O’Herron; and Responsible Minerals, Supply Chain and ESG, with Jared Connors and Daniel Zamora. Today, we review the intersection of Uyghur Forced Labor Prevention Law (UFLPA), supply chains and ESG.
The UFLPA is a law that targets goods made, in whole or in part, by forced labor in China’s Jing Jang region or made by forced labor in other parts of China by Uyghurs or other minorities. Wallisch explained that it is designed to function as a de facto trade ban on goods from the Jing Jang region of China. American companies will face the heavy burden necessary to overcome an expectation of presumption of forced labor. Wallisch believes it is the “most significant law on the issue of forced labor, and has the most tangible and practical impact that businesses can potentially face.” Additionally, she believes the key will be around your documentation to provide to US Customs and Border Protection. Miller noted that this means that if you “ask companies to look back to find out where the real sand came from, which turned into silica, which turned into semiconductor, which turned into a circuit board, which turned into a device that ends up in your laptop.There’s simply never been anything like it.
Interestingly, this is directly linked to a company’s overall ESG framework, as it combines all the elements of such a program. When linking the UFLPA, with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA), export control laws and regulations enacted by the Trump and Biden administrations, and anti-money laundering laws ( AML), such as the AML Act of 2020, you are starting to see a more integrated approach from government and how companies need to respond with an integrated approach such as a corporate ESG program. Wallisch concluded, “It really signals the intersectionality of all these particular topics within the ESG framework.”
Miller noted, interestingly, how this law and its guidelines weave existing business processes together. He believes the UFLPA was “born out of the US supply chain executive order in the US-China trade war, which focused on semiconductors, the critical raw materials that make the object of the extractive industries. To comply with it, you couldn’t really start unless you already had a product compliance program in place. That means if you don’t know the nomenclature, if you don’t have list of approved suppliers, if you don’t know where your components are made; how do you even start the ESG program? So really in my opinion, UFLPA is not new in the sense that it has created something something new; it’s new in the sense that it forces companies to use all existing business processes to tie the breadcrumb and understand the things they should already know and then be responsible for reporting them.
Miller believes that even with the UFLPA and other regulatory initiatives, the real driver here is commerce and business operations. He believes this will force organizations to recognize that their organizational footprint, for each company, extends beyond the four corners of the organization. This will come into play for financing, whether through private equity investments, public market offerings, bank loans or other mechanisms. It did not extend to individual responses to requests for quotes in the business world.
Equally important, he said, “it’s also about who you’ve chosen to do business with, who you’ve chosen to profit from, and it’s not enough that you can just say, eh well, I outsource the bad stuff; slaves are used in my supply chain and bribes happen in the same place. This is no longer a sufficient answer. It’s that assessment, it’s that realization that you are the sum of your parts. You are the sum of your relationships. Business is not an island. That’s all that comes together and all of your impact on the world, on the people in the world, on the business processes that derive your profitability must now be taken into account. And it’s quite revolutionary. If you think about that.”
Join us in Part 3, where we examine the new world of product compliance and ESG.