Supply chain due diligence

Supply Chain Due Diligence Act: Corporate responsibility for the observance of human rights

On January 1, 2023, the Supply Chain Due Diligence Act (LkSG) came into force. For the first time, it regulates corporate responsibility for the observance of human rights in supply chains.

Core elements of the due diligence obligations are:

• Establish a risk management system to identify, avoid or minimise the risks of human rights violations and environmental damage.
• Obligation to comply with the prevention and remedial measures laid down by law.
• complaints procedure and regular reporting.

Due diligence applies to:

• The business operations of a company.
• The actions of a contractor.
• The actions of other (indirect) suppliers.

The law initially applies to companies with:

• At least 3,000 employees in Germany from 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 occupational health and safety.
• Withholding a reasonable wage.
• Violation of the right to form trade unions or workers' representatives.
• Denial of access to food and water.
• Unlawful expropriation of land and livelihoods.

Fines can be imposed when companies fail to comply with their legal obligations. These can amount to up to 8 million euros or up to 2 percent of global annual sales. The turnover-based fine amount only applies to companies with an annual turnover of more than 400 million euros.

The Federal Office of Economics and Export Control (BAFA) implemented the Supply Chain Act on 1 January 2023 at its new branch office in Borna. BAFA has far-reaching supervisory powers:

• Enter business premises.
• Request information and check documents.
• call on companies to take concrete measures to meet their obligations and to enforce this by imposing penalties.

To support companies in implementing their due diligence obligations, BAFA develops and publishes handouts. BAFA provides the handouts on its own Supply Chain Act website .

How ComplyMarket can help you:

• Setting up a risk management system and conducting a risk analysis
• Adoption of a policy statement of the human rights strategy of companies
• Defining preventive measures
• Immediate implementation of corrective measures in the event of detected violations
• Establishment of a complaint procedure
• Documentation and reporting obligations for the fulfilment of due diligence obligations
• ComplyDoC: is an intelligent IT and first open source code cloud solution for Supply Chain Sustainability, Chemical & Product Compliance Management to collect information from suppliers.