Due Diligence for the Supply Chain

Due Diligence Act: Corporate Responsibility for Human Rights Compliance

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

Key elements of due diligence obligations include:

• The establishment of a risk management system to identify, prevent, or minimize the risks of human rights violations and harm to the environment.
• Obligation to comply with the prevention and remediation measures defined by law.
• Complaint procedures and periodic reports.

Due diligence obligations apply to:

• The business operations of a company.
• The actions of a contractual partner.
• The actions of other (indirect) vendors.

The law initially applies to companies with:

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

The Supply Chain Act contains an exhaustive catalog of eleven internationally recognized human rights conventions, including:

• Prohibition of child labor, slavery and forced labor.
• Failure to comply with occupational health and safety.
• Refusal of adequate remuneration.
• Failure to form trade unions or workers' representatives.
• Refusal of access to food and water.
• Illegal deprivation of land and livelihoods.

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

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

• Entering business premises.
• Request information and inspect documents.
• Ask companies to take concrete action to fulfill their obligations and enforce this by imposing penalties.

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

How ComplyMarket can help you:

• Establishment of a risk management system and implementation of a risk analysis
• Adoption of a Policy Statement on Corporate Human Rights Strategy
• Establishment of preventive measures
• Immediate implementation of corrective measures in case of detected legal violations
• Establishment of a complaints procedure
• Documentation and reporting requirements for the fulfilment of due diligence obligations
• ComplyDoC: is an intelligent IT solution and the first open source cloud solution for Supply Chain sustainability, chemical and product compliance management to collect information from suppliers.