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 corporate responsibility for human rights compliance in supply chains for the first time.

The core elements of the due diligence obligations include:

• The establishment of a risk management system to identify, prevent or minimize the risks of human rights violations and damage to the environment.
• Obligation to comply with the law's defined prevention and remediation measures.
• Complaint procedures and regular reporting.

Due diligence obligations apply to:

• A company's own business operations.
• The actions of a contractual partner.
• 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 an exhaustive catalog of eleven internationally recognized human rights conventions, including:

• Prohibition of child labor, slavery and forced labor.
• Disregard of occupational health and safety.
• Withholding of an appropriate wage.
• Disregard of the right to form trade unions or employee representatives.
• Denial of access to food and water.
• Unlawful deprivation of land and livelihoods.

Fines can be imposed if 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 framework only applies to companies with annual sales of more than 400 million euros.

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

• Enter business premises.
• Demand information and inspect documents.
• Request companies to take concrete action to fulfill their obligations and enforce this by imposing penalty payments.

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

How ComplyMarket can help you:

• Setting up a risk management system and carrying out a risk analysis
• Adoption of a policy statement of corporate human rights strategy
• Establishment of preventive measures
• Immediate implementation of corrective measures in the case of detected legal violations
• Establishment of a complaints procedure
• Documentation and reporting requirements for fulfilling due diligence requirements
• ComplyDoC: is an intelligent IT and first ever open source code cloud solution for Supply Chain sustainability, chemical & product compliance Management to collect information from suppliers.