Supply chain due diligence

The Supply Chain Due Diligence Act: Corporate Responsibility for Human Rights Compliance

The Supply Chain Due Diligence Act (LkSG) came into force on January 1, 2023. It regulates for the first time the responsibility of companies for the compliance of human rights in supply chains.

The basic elements of due diligence obligations include:

• The establishment of a risk management system to detect, prevent or minimize the risks of human rights violations and environmental damage.
• Obligation to comply with prevention and remediation measures defined by law.
• Reporting and periodic reporting procedures.

Due diligence obligations apply to:

• A company's own business operations.
• The actions of a contractual partner.
• The actions of other providers (indirect).

The law initially applies to companies with:

• At least 3,000 employees in Germany since 2023.
• At least 1,000 employees from 2024.

The Supply Chain Act contains a comprehensive catalogue of eleven internationally recognised human rights conventions, including:

• Prohibition of child labour, slavery and forced labour.
• Disregard for health and safety at work.
• Withholding an appropriate salary.
• Ignorance of the right to form trade unions or workers' representatives.
• Denial of access to food and water.
• Unlawful deprivation of land and livelihoods.

Fines may be imposed if companies fail to comply with their legal obligations. These can amount to up to €8 million or up to 2 percent of global annual sales. The turnover-based penalty framework only applies to companies with annual sales of more than €400 million.

The Federal Office for Economics and Export Control (BAFA) implemented the Supply Chain Act in its new office in Borna as of January 1, 2023. BAFA has far-reaching control powers, such as:

• Enter commercial premises.
• Request information and inspect documents.

Require companies to take concrete steps to comply with their obligations and enforce them by imposing fines.

To support companies in meeting their due diligence obligations, BAFA develops and publishes prospectuses. BAFA makes the brochures available on its own site website of the Supply Chain Act.

How ComplyMarket can help you:

• Establishing a risk management system and conducting a risk analysis
• Adoption of a policy statement of the human rights business strategy
• Establishing preventive measures
• Immediate application of corrective measures in the case of legal violations detected
• Establishing a complaint procedure
• Documentation and reporting requirements to meet due diligence requirements
• ComplyDoC: is an intelligent IT solution and the first open-source cloud solution for supply chain sustainability, product and product compliance management to collect information from suppliers.