Supply Chain Due Diligence

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

The Supply Chain Due Diligence Law (LkSG) came into effect on January 1, 2023. This law regulates the responsibility of companies for human rights compliance in the supply chain for the first time.

The core elements of due diligence obligations include:

• Establishment of a risk management system to identify, prevent or minimize the risk of human rights violations and environmental damage.
• The obligation to comply with the precautions and remediation measures established by law.
• Periodic complaint and reporting procedures.

Due diligence obligations apply to:

• The business operations of the company itself.
• Contract partner actions.
• Other (indirect) supplier actions.

This law originally applied to companies with:

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

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

• Prohibition of child labor, slavery and forced labor.
• Ignoring occupational health and safety.
• Appropriate wage deductions.
• Waiver of the right to form a trade union or workers' representative.
• Denial of access to food and water.
• Illegal land and livelihood grabbing.

Fines may be imposed if the company fails to meet its legal obligations. The amount can reach 8 million euros 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 euros.

The Federal Office for Economic Control and Export (BAFA) is implementing the Supply Chain Act at its new field office in Borna from January 1, 2023. BAFA has broad control authority, such as:

• Enter the place of business.
• Request information and check documents.
• Asks companies to take concrete action to meet their obligations and enforce them by imposing penalty payments.

To support companies in carrying out their due diligence obligations, BAFA develops and publishes handouts. BAFA makes the leaflet available at its Supply Chain Act website.

How ComplyMarket can help you:

• Setting up a risk management system and carrying out risk analysis
• Implementation of the company's human rights strategy policy statement
• Establishment of precautions
• Immediate implementation of corrective action if a violation of the law is found
• Establishment of complaint procedure
• Documentation and reporting requirements to meet due diligence requirements
• ComplyDoC: is the first intelligent IT and open-source cloud solution for Supply Chain sustainability, Chemical & product compliance management to collect information from suppliers.