As social awareness around ethical issues continues to evolve worldwide, Germany joins several countries in implementing a legal framework focused on improving human rights on an international scale. The German Supply Chain Due Diligence Act pinpoints specific requirements for supply chain management for German companies, with the intention of eradicating human rights violations across all points of the supply chain.
A report published by the German Government found that 80% of mid to large size companies in Germany are not doing enough due diligence on their supply chain. Therefore, January 1st 2023 will see the introduction of The German Supply Chain Due Diligence Act, known natively as Lieferkettensorgfaltspflichtengesetz. The Supply Chain Due Diligence Act will bring about some significant changes to how the supply chain in Germany is managed, with the aim of increasing transparency, promoting better human rights, and furthering legal certainty and fair competition.
The global laws and legislation regarding Supply Chain Due Diligence stem from the unethical practices we see many large businesses profiting from today. Such practices include child labor, forced labor, disregarding of safety standards within a working environment or unfair pay. This act also aims to eliminate certain environmentally hazardous practices such as contamination of soil, water, and air, the manufacturing of mercury products and treatment of mercury waste and the use of persistent organic pollutants.
What Companies Are Impacted by the Act?
When the act takes effect in the New Year, these due diligence requirements will be expected of German companies employing more than 3000 people and any foreign companies with German subsidiaries or branches. Company size will be calculated based on the number of employees at all affiliated companies. Another key date to consider is 1st January 2024. On this day, the act will apply to any company with headquarters or branches in Germany employing 1000 or more employees.
What Does This Mean?
So what does this mean for those impacted by the Act’s introduction? All companies affected must take a step back and review their supply chain. They must identify current risks and how the organization’s operations impact the environment and its people. Some tactical measures that can be taken to ensure compliance are as follows;
(1) If you haven’t already, start implementing a supplier management system that allows for an overview of operations and your suppliers. Use this system to perform regular assessments, identifying current and potential risks. In doing this you can act on removing any risks with the potential to adversely impact on human rights and the environment.
(2) Issue a Human Rights Strategy policy statement. This should cover the supplier code of conduct, complaints procedures, grievance mechanisms, due diligence and more.
(3) Establish control measures to ensure compliance with direct suppliers and prevent potential human rights violations within the business.
(4) Publish a report each year evidencing any identified risks for that year and how they were addressed or are being addressed.
Penalties for Non-Compliance
Under the new act, companies are required to disclose all documentation on how they fulfill due diligence obligations, any identified risks or complaints, and the measures taken in response. If a company becomes aware of any violations and does not actively respond, they are liable for a penalty payment of up to €50,000. If the company in question has an annual revenue of over €400 million, administrative fines can amount to two percent of the company’s annual revenue. Complying with the legislation also grants eligibility to be awarded public procurement contracts; therefore, non-compliance can result in exclusion from this program for up to three years.
Ensuring Supply Chain Due Diligence With AuditComply
AuditComply aims to lift the supply chain visibility barrier with an end-to-end supplier management solution. Implementing a Risk-Based Audit approach to proactively assess, identify, manage and predict supply chain risks in real-time. AuditComply for Supply Chain Management has been developed by supply chain leaders to simplify the complexities of the modern supply chain.
Providing a solution that encourages deeper and more insightful supplier relationships. With a configurable self-service environment, your team can manage supplier information, lifecycle, performance and risk all in one place.
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