Supply Chain Due Diligence

• Carbon emissions
• Chemical use/stewardship
• Collective bargaining
• Deforestation
• Exploited, forced and child labor
• Water footprint
• Wastewater
• Worker wages

1. Supply Chain Mapping
   • Take a risk-based approach
   • Trace and map suppliers across all tiers of the supply chain
     • Tier 1 - Minimum 75% by volume - within 12 months of effective date
     • Tier 2 - Minimum 75% by volume - within 2 years
     • Tiers 3 & 4 - Minimum 75% by volume or dollar value - within 3 years
   • Disclose suppliers: Name, address, parent company, product type, number of workers at each site, by country
2. Mandatory Due Diligence
   • Effectively identify, cease, prevent, mitigate, account for and remediate
     • Actual and potential adverse impacts to human rights and the environment
     • For all categories of harm
     • In own operations and supply chain
   • Reduce climate emissions - in own operations and supply chain - to align with levels of the Paris Agreement and Greenhouse Gas Protocol
     • Use science-based targets (SBTs) as the minimum standard for companies below $1 billion and absolute reduction for companies above $1 billion
     • Include upstream, company and downstream activities in the scope
   • Measurably improve the lives of garment workers
   • Work with significant mill partners to:
     • Meet Zero Discharge of Hazardous Chemicals (ZDHC) wastewater guidelines, at minimum
     • Effectively manage chemical use
3. Targeted Impact Reduction
   • Quantify baseline and short-/long-term reduction targets on greenhouse gas emissions
   • Remediate non-compliance with these emissions targets (within 18 months)
4. Disclosure
   • Reports available on the company website (readily available and free to access)
   • Include any adverse impacts and reduction targets
   • Submit independently verified reports to the NY Attorney General, including labor records from suppliers throughout the supply chain
     • Mean wages of all workers
     • Comparisons to local minimum and living wages
     • % unionized factories
     • Weekly hours worked by month
     • Overtime by company and country

Penalties:

• Companies have 3 months to remediate noncompliance
• After 3 months, fines up to 2% of annual revenue

Failure to comply includes:

• Failure to conduct due diligence
• Failure to conduct due diligence in an effective manner

Regardless of due diligence conducted, each party involved will have independent liability to garment workers for any lost wages.

• Pay hourly rate of at least minimum wage (instead of per piece rate)
• Keep records - TBD
• Certificate of registration from the Department of Labor - Federal Garment Factory Registry
  • Within 6 months of contract for manufacturing
  • Annually thereafter
  • Posted and accessible by any employee during the work day

• For any companies that pay at price rate and manufacturers who contract with them
• Up to $50,000,000, depending on:
  • Size of the business
  • Whether the violation was committed in good faith
  • Gravity of the violation
  • Any previous violations
  • History in complying with the recordkeeping requirements

Regarding the extent - or lack - of efforts throughout supply chain for:

• Verification to evaluate and address risks of human trafficking and slavery (with specification if not conducted by 3rd party)
• Supplier compliance audits (with specification if not conducted by 3rd party)
• Any certification required of direct suppliers that materials comply with labor laws in their country or encouragement to comply with all relevant laws
• Internal accountability standards and procedures for employees or contractors failing to meet company standards
• Provided training on mitigating risks within supply chains

• Pay hourly rate of at least California's minimum wage (instead of per piece rate)
• Keep worker details and pay records for 3 years
• Keep contracts, invoices, orders, style sheets, etc. for 4 years
• Register with the Labor Commissioner

• For any companies that pay at price rate and manufacturers who contract with them
• $200/employee/pay period

Compliance with the EU-CSDDD is supervised and enforced at the Member State level.

• Sanctions include fines, compliance orders for:
  • Failure to comply
  • Failure to prevent/mitigate risks
• Civil liability - ability for victims to get compensation

Risk Assessments

• In company's own operations, organization structure and global supply chains
• Supply chain mapping
• Identification of geographies and industry sectors with potential risks
• Supplier communication and annual questionnaires on operations with risks

Corrective Actions

• Maintain corrective actions system, policy and steps to eliminate banned practices
• Annual statement, including whistleblowing policy (with no repercussions)

Supplier Code of Conduct

• Based on International Labor Organization and United Nations Guiding Principles on Business and Human Rights
• Available to suppliers
• Include zero tolerance policy, working conditions and living wages

Supply Chain Due Diligence

• Staff training
• Proof of taking all necessary steps to identify and prevent slavery in own operations and supply chains
• Process for monitoring and enforcing consequences

Audits

• Supplier audits to identify non-compliance
• Investigations of potential risks or violations
• Communication of how audits are conducted

Annual Reporting

• To UK government within 6 months of company's financial year-end
• On company website
• Including:
  • A human trafficking/modern slavery statement, including prevention steps taken
  • Due diligence processes
  • Risk assessment and management
  • Key performance indicators on actions
  • Staff training

Human Rights

• Child labor
• Forced labor
• Slavery
• Occupational health and safety
• Freedom of association
• Equal treatment at work, including equal pay
• Reasonable wage
• Harmful environmental changes that can significantly affect people
• Land grabbing
• Excessive use of force by security forces
• Other manifestly unlawful conduct that may directly affect human rights in a particularly serious manner

Environmental

• Mercury
• Persistent Organic Pollution
• Dangerous waste

• Determine internal responsibilities
• Establish a risk management system
• Conduct regular risk analyses
• Issue and publish a policy statement
• Establish preventive measures
• Establish and implement corrective measures for any violations
• Establish a complaints procedure
• Document and annually report on supply chain management

Compliance with the German Supply Chain Act is monitored and enforced by the German Federal Office of Economics and Export Control (BAFA). Its tasks include:

• Checking compliance with reporting obligations
• Conducting inspections
• Detecting, eliminating and preventing violations
• Imposing coercive sanctions and fines