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Established in July 2021 and applicable from financial year 2023, the Supply Chain Law (“Lieferkettengesetz”) regulates corporate responsibility for human rights compliance in supply chains. The due diligence obligations cover the company’s own business operations, the actions of contractors and the actions of other (indirect) suppliers. Consequently, a company’s responsibility now extends to its entire supply chain.
Companies with the head office, main branch, administrative headquarters, registered office or branch in Germany are obliged to report under the Supply Chain Law. While initially applying to companies with at least 3000 employees in Germany for financial year 2023, the act will extend to companies with at least 1000 employees from 2024.
Companies are now required to take ownership of the risks ‘caused’ directly by its operations. ‘Causing’ implies that the company alone has directly caused the risk or has (causally) contributed to the emergence or intensification of the risk through its actions. This has expanded the scope of a company’s risk management to its entire chain, irrespective of whether the risk lies with the company, a direct supplier or an indirect supplier.
The core elements of the due diligence obligations include a risk analysis and the establishment of a risk management system to identify, prevent or minimize the risks of human rights violations and damage to the environment, as well as a complaints procedure and regular reporting. Manufacturers and traders must evaluate their direct suppliers according to sustainability criteria. They must monitor compliance with due diligence obligations, set up a complaints office and are supposed to submit a human rights declaration.
Risk management necessitates a risk analysis, to gain an overview of the status quo and arrive at a strategy for the company. This includes an analysis of the procurement processes as well as the structure and players at the immediate supplier, as well as important groups who may be affected by the company’s business activities. With a dynamically changing situation such as this, risk analysis should be carried out regularly (at least annually). This risk analysis should also be repeated when entering business relationships with new business partners.
Together with experts from renowned large, medium-sized and small companies with experience in sustainability reporting, we have developed a software solution that makes it easier for you to implement the new directive.