The Supply Chain Act in Germany

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According to the Supply Chain Act companies must ensure that human rights are respected in their supply chains, i.e. that no children work or forced labour takes place. This is about compliance with basic human rights standards. The aim is to improve the protection of human rights as there are 152 million child labourers worldwide, half of them in exploitative conditions and 25 million people in forced labour.

Estimated reading time: 5 minutes

Environmental concerns are also relevant if they lead to human rights violations (e.g. through poisoned water). The law sets out clear and implementable requirements for companies’ due diligence obligations and thus creates legal certainty for companies and those affected.

The law will be effective from 2023 for companies with more than 3,000 employees (over 600 companies in Germany). From 2024 companies with more than 1,000 employees (2,900 companies) will be included. After that, the scope of application will be evaluated.

To which human rights does Supply Chain Act refer?

  • Integrity of life and health;
  • Freedom from slavery and forced labour;
  • Protection of children and freedom from child labour;
  • Freedom of association and the right to collective bargaining;
  • Protection from torture;
  • Fair working conditions (health and safety, breaks);
  • Environmental duties to protect human health.

What are the most important regulations?

1. Clear requirements for corporate due diligence for the first time

2. Responsibility for the entire supply chain

The due diligence obligations of companies extend to the entire supply chain – from the raw material to the finished sales product (but in a graduated manner). The requirements for companies are appropriate and graduated, among other things according to the company’s ability to influence the perpetrator of the violation as well as according to the different stages in the supply chain. Many companies already comply with these requirements, as they implement, for example, the EU Conflict Minerals Regulation and / or the EU CSR Directive.

3. External review by an authority

With the Federal Office of Economics and Export Control, an authority checks compliance with the law. It checks the company reports and investigates complaints submitted.

4. Better protection of human rights

Those affected by human rights violations can not only assert their rights in German courts, but can now also file a complaint with the Federal Office of Economics and Export Control.

What is a supply chain?

The supply chain within the meaning of this Supply Chain Act covers the inputs used by the enterprise to produce a product or provide a service, starting from the extraction of the raw materials to the delivery to the final customer.

How are the requirements graded in the supply chain?

The requirements for companies are graded according to the different stages in the supply chain:

  • Own business division
  • Direct supplier
  • Indirect supplier

And also after:

  • The nature and extent of the business activity,
  • the company’s ability to influence the direct perpetrator of the breach,
  • the typically expected severity of the injury.

What must a company do in its own business and for direct suppliers?

Companies must implement the following measures:

  • Adopt a Declaration of Principles on Respect for Human Rights.
  • Risk analysis: Carry out procedures to identify adverse human rights impacts.
    • Risk management (incl. mitigation measures) to avert potential negative impacts on human rights
    • Establish a complaints mechanism.
  • Report publicly in a transparent manner.
  • In the event of a violation, it must immediately take corrective measures in its own business area that will necessarily lead to the termination of the violation. In addition, it must initiate further preventive measures.
  • If the company cannot end the violation at the direct supplier in the foreseeable future, it must create a concrete plan for minimisation and prevention.

What must a company do for indirect suppliers?

  • Here, the due diligence obligations only apply on an ad hoc basis.
  • If the company becomes aware of a possible infringement at an indirect supplier, it shall immediately carry out a risk analysis,
  • Implement a concept for minimisation and avoidance,
  • anchor appropriate prevention measures vis-à-vis the polluter.

What must a company do when a complaint is received?

The company must check whether there is an infringement in its own business area or at a supplier. Depending on the stage of the supply chain, the requirements outlined above then apply.

It is not the aim of the law to abort business relations. Rather, it is about permanently anchoring improvements in human rights protection. A termination of business relations is only required if a serious human rights violation has been identified and the previous measures of the concept are not successful within a set period of time.

Other topics

Non-governmental organisations do not have their own right of action. Affected persons whose important rights have been violated can, however, be supported in their legal action by non-governmental organisations

The law does not set global minimum wages. However, the law refers to the ILO Conventions, which provide for an adequate wage. The target wage level varies from country to country and is based on the economic situation.

The goal remains a uniform European regulation. It will probably take several years until a uniform European regulation is in place.

Conclusio

The Supply chain Act defines due diligence obligations for companies. The obligations are more concrete and business process oriented than the standards that the Global Reporting Initiative (GRI) offers. From an ESG perspective it is a good development, as it widens the responsibility of companies. Contact us to set-up and define respective processes in your company or group of companies.

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By Georg Tichy

Georg Tichy is a management consultant in Europe, focusing on top-management consultancy, projectmanagement, corporate reporting and fundingsupport. Dr. Georg Tichy is also trainer, lecturer at university and advisor on current economic issues. Contact me or Book a Meeting

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