The engine that powers sustainable organisations
The Supply Chain Law, also known as the Lieferkettengesetz, was introduced in July 2021 and will come into effect for the financial year 2023. This law aims to ensure that companies take responsibility for respecting human rights throughout their supply chains.
It requires companies to conduct due diligence, not only within their own business operations but also for the actions of their contractors and other suppliers, even those further down the supply chain. In other words, companies are now accountable for the entire supply chain in terms of human rights compliance.
The Supply Chain Law requires companies that have their head office, main branch, administrative headquarters, registered office, or branch in Germany to comply with reporting obligations. Initially, the law applies to companies with a minimum of 3,000 employees in Germany for the financial year 2023. However, starting from 2024, it will also extend to companies with at least 10,000 employees.
The Supply Chain Law covers certain industries, such as:
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:
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.