What is the German supply chain due diligence law?
Lieferkettengesetz (LkSG), also known as The German Supply Chain Due Diligence Act (SCDDA), has taken effect from January 2023. The law broadly requires businesses to comply with, uncover and rectify any human rights and environmental obligations, including the suppliers within a businesses entire supply chain. The SCDDA is aligned with the UN Guiding Principles on Business and Human Rights, and the National Action Plan for Business and Human Rights.
Compliance requirements
The SCDDA requires businesses to make sure social and environmental standards are observed in their business and within their supply chain. The Act requires businesses to ensure they have processes in place that identify, assess, prevent and remedy human rights and environmental risks and impacts within their global, multi-tiered supply chains, and in their own operations. Businesses are required to ensure they also provide ways for employees of direct suppliers and, indirect, sub-suppliers the ability to log and raise any human rights or environmental violations.
However, businesses do have a higher responsibility to successfully implement measures that stop violations in their own operations and with direct suppliers, than with indirect sub-suppliers.
Businesses are required to:
- Form a comprehensive overview of their supply chains (Supply Chain Mapping)
- Set up an effective risk management process, with a person responsible for overseeing its implementation and ongoing management
- Make a clear policy statement related to the businesses human rights strategy
- Take measures to prevent and remedy any abuses, providing details of rectification measures
- Establish a complaint procedure
- Produce and publish an annual report on the businesses overall compliance and effectiveness of measures implemented.
- Terminate relationships with any direct suppliers where violation has occurred and measures of rectification were unsuccessful, and no other possible future measures could be implemented.
Who does the SCDDA apply to?
Currently (2023): Any businesses based in Germany or any German-registered branches with more than 3,000 employees
From 2024: Any businesses based in Germany or German registered branches with more than 1,000 employees.
It is important to note that employee numbers should include; any employees temporarily relocated to another EU country, any temporary workers who have been in employment for more than six months and any employees of businesses belonging to the same consolidated group.
What are the consequences of non-compliance?
Verification of compliance with the SCDDA will be carried out by BAFA, an administrative agency under the German Federal Ministry for Economic Affairs and Energy, and they have the authority to take action against any violations.
If a business fails to comply with or violates the obligations, the BAFA can:
- Issue sanctions, including periodic penalty payments of up to €50 000
- Issue fines ranging from €100 000 to €800 000
- Fine of up to 2% of a businesses average annual turnover over the past three years, if the company has more than €400 million in annual global or group turnover
- If a fine is bigger than €175 000, a business could be excluded from public procurement contracts in Germany for up to 3 years
Victims resulting from non-compliance with the SCDDA can file a complaint with BAFA. In addition, the SCDDA also allows for trade unions and NGO’s to seek legal action on another’s behalf, meaning businesses could be subject to potentially costly law suits.
Risk Mitigation - it will take time - so start now
To ensure compliance with SCDDA, businesses urgently need to implement an effective compliance system to achieve full transparency of their entire value chain in order to uncover and rectify any human rights or environmental violations. Ensure you have a supply chain transparency solution in place to get visibility of your n-tier supply chain, and start to gather robust data and evidence now. It will take time to gain this visibility and data, so the sooner you start the less risk to your brand.
With the right solution, compliance and compliance reporting can quickly become second nature. Segura provides the transparency you need by mapping your suppliers and the relationships within your supply chain to n-tier. Segura captures supplier audits, CAPs and certification data, providing businesses with evidence based reporting and due diligence they need to comply with legislation.
"As supply chains become more global and complex, and data reporting alongside legislative requirements increases, it is vital to have access to up to date, accurate information. Segura enables us to provide our stakeholders with increased confidence in supply chain transparency. In the current climate, where legislative compliance and enforcement is imperative, Segura’s ability to capture and enable us to monitor our emissions and understand human rights adherence is of the utmost importance. Understanding impacts and opportunities associated with environmental and geopolitical events in the wider supply chain through Segura will be of huge benefit not only to us, but our customers as well."
If you’d like to know more, or have a free exploratory call, get in touch with us today; info@segura.co.uk
Advice for suppliers affected by the new German supply chain law
If you supply businesses that are required to comply with SCDDA, you are very likely to receive more requests for information relating to this;
Be prepared: Read about the SCDDA and note what it asks of your customer. Get an understanding of what information your customers will need from you, why and when.
Be compliant: Make sure that you are up to date and compliant with all labour, health and safety, and environmental legislation. Make sure the relevant information is ready to share with customers, to help them comply with the new law.
