Economics
Combatting Modern Slavery Through Supply Chain Disclosure Laws
Quick fact
In 2010, California became the first jurisdiction in the world to require companies to disclose their efforts to eradicate modern slavery, setting a precedent that influenced the UK's Modern Slavery Act and the EU's corporate due diligence rules.
Why this is interesting
Every product we buy—from coffee to smartphones—may contain goods produced by forced labor. But what happens when a company's own supply chain is found to be complicit?
Read the full explanation
Understanding Combatting Modern Slavery Through Supply Chain Disclosure Laws
Imagine you are a major retailer. You don't own the factories that make your clothes, but you buy from hundreds of suppliers worldwide. How can you know if someone in that chain is using forced labor? Supply chain disclosure laws are a response to this dilemma. They don't directly ban slavery (that already exists) but instead force you, the company, to publicly report on your efforts to police your own supply chain. Typically, these laws apply to large companies and require them to publish a statement each year. That statement must include steps taken to stop forced labor, such as auditing suppliers, verifying contracts, or training staff. The thinking is simple: sunlight is the best disinfectant. By making efforts (or lack thereof) public, these laws harness consumer pressure, investor scrutiny, and brand reputation to push companies toward deeper action. While these laws are a powerful first step, they are not a cure-all. Many companies comply on paper but do little in practice. This has led to calls for stronger, mandatory due diligence laws that require more than just reporting.
A deeper explanation
The mechanism behind disclosure laws is rooted in information economics and behavioral psychology. The core principle is asymmetric information: as a consumer or regulator, you cannot know what happens deep inside a complex supply chain, but the company can (or should) know. The law reverses this asymmetry by requiring companies to gather and communicate that information to the public. By making diversity and compliance visible, the law creates a 'smart' incentive: companies that report no action risk reputational damage and loss of sales, while those with robust policies gain a marketing advantage. However, the effectiveness depends on the credibility of the reports. If no one verifies the statements, companies may engage in 'greenwashing'—issuing glossy reports with no real change. That's why many jurisdictions are moving beyond disclosure toward mandatory due diligence, which requires companies not just to disclose what they are doing but to actually take reasonable steps to prevent slavery. For example, the French Duty of Vigilance law and the new EU Corporate Sustainability Due Diligence Directive impose legal obligations to identify, prevent, and mitigate human rights risks in their supply chains, backed by civil liability. This evolution from transparency to action shows both the power and the limitation of disclosure as a regulatory tool. Ultimately, disclosure laws are a valuable first step because they force the conversation into the open, but they are a beginning, not an end.