Supply Chain Due Diligence

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

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

The core elements of the due diligence obligation include:

• Establishment of a risk management system to identify, prevent or minimize the risk of human rights violations and damage to the environment.
• The obligation to comply with the preventive and remedial measures prescribed by law.
• Periodic complaint and reporting procedures.

Due diligence obligations are imposed on:

• The company's own business operations.
• Actions of contractual partners.
• 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 recognized human rights conventions, including:

• Prohibition of child labor, slavery and forced labor.
• Occupational health and safety are not taken into account.
• Appropriate salary withholding.
• Does not take into account the right to form trade unions or employee representatives.
• Denial of access to food and water.
• Illegal removal of land and livelihoods.

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

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

• Enter the business premises.
• Demand information and check documents.
• Ask companies to take concrete action to meet their obligations and enforce them by imposing penalty fees.

To support companies in fulfilling their due diligence obligations, BAFA develops and publishes circulars. BAFA provides distribution materials on the website

page

its own Supply Chain Act.

How ComplyMarket can help you:

• Setting up a risk management system and conducting risk analysis
• Use of corporate human rights strategy policy statements
• Establishment of preventive measures
• Prompt implementation of corrective measures in case of detected violations of the law
• Establishment of the complaints 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, chemistry & product compliance management to collect information from suppliers.