The Supply Chain Due Diligence Act: Not only the name is challenging!
The Supply Chain Due Diligence Act (LkSG), in effect since January 1, 2023, determines the human rights and environmental due diligence obligations of German companies in global supply chains. It complements the existing sustainability framework. The new requirements must be integrated into the organization. The human rights-related risk management mandated by LkSG is linked to the company's existing risk management. What is crucial is the shifted focus on Inside-Out risks under LkSG, also known as double materiality.
What is the goal?
The aim is to protect fundamental human rights and enforce the prohibition of child labor. This includes, among other things, the prohibition of forced labor, disregard of labor protection obligations, freedom of association, inequality, withholding of reasonable wages, and inhuman or degrading treatment. Environmental concerns are also relevant when they lead to human rights violations or affect human health.
Who is affected?
From 2023: Companies with more than 3,000 employees. Starting 2024: Companies with more than 1,000 employees. Small and medium-sized enterprises can already be affected today as suppliers to larger companies, as their clients are legally obligated to implement the LkSG and may require their suppliers to fulfill certain due diligence obligations.
What needs to be done?
It is recommended to adopt a human rights respect policy that includes a process description and documentation of the following three points: 1. Risk analysis: Initiation and annual assessment of the adverse impacts of one's own business on human rights. 2. Expansion of risk management (including prevention and remedial measures) to prevent negative impacts on human rights. 3. Establishment of a complaint mechanism for all stakeholders along the supply chain. It is important to thoroughly document all these steps and report them transparently to the public.
What areas should be included?
In their own business operations, companies must take immediate remedial action in the event of a violation within their domestic operations that necessitates a mandatory termination of the violation. For direct suppliers, the company must develop a specific plan for minimizing and preventing the violation if it cannot be terminated in the foreseeable future. Even for indirect suppliers, the company must take action on a case-by-case basis when it becomes aware of a potential violation.
What are the consequences of non-compliance?
Inadequately addressed risks can lead to reputational damage. Additionally, regulatory sanctions such as product seizure, exclusion from public tenders, an immediate trade ban, or even fines and imprisonment can be imposed. Furthermore, there are antitrust risks, as a violation of the Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb, UWG) under § 3a UWG may be regarded as an infringement. This can result in warnings or injunctive relief. Therefore, it is crucial to appropriately address risks to avoid such consequences
What's the next step?
The introduction of the 'EU Supply Chain Act,' the Corporate Sustainability Due Diligence Directive (CSDDD), is imminent. The final EU directive is expected to be adopted later this year. Subsequently, individual countries will need to transpose the significantly expanded due diligence requirements, particularly with regard to environmental aspects, into their national laws.
Our advisory services along the supply chain
1. Impact analysis
The aim of the LkSG is to improve the protection of basic human rights in the supply chain and to prevent the disregard of occupational health and safety and work-related health issues. Affected companies must implement mandatory measures to achieve this. syracom supports you in understanding and classifying the content of the law and assessing how your company is affected.
2. Development of project structure
The more complex the supply chain, the more complex the implementation of the LkSG. syracom supports you in setting up a suitable project structure for your company. We work with you to define the initial situation, project objective, project scope, work packages, project plan, project organization and meeting structure. In this way, we create the conditions for your company to meet the legal requirements on time.
3. Project management
Depending on the complexity of your supply chains, project management for the implementation of the LkSG can become an extensive task. syracom supports you in project management for the implementation of the LkSG in your company. We work with you on the project to ensure that the legal requirements of the LkSG are fully implemented with the involvement of all stakeholders.
4. Expert advice
As part of the implementation of the LkSG, binding measures must be implemented in your company. syracom provides you with technical support in the conception and implementation of the topics of policy statement, risk analysis, risk management, complaints mechanism and adjustments to the reporting system.
5. Create awareness
The implementation of the LkSG can often prompt a reassessment of the supply chain, not only in supply chain management and operational purchasing but also in established supplier relationships. In addition to training measures, change management processes may also need to be introduced. This is where syracom can support you.
6. Integration into risk management
The most comprehensive measure is the establishment of a risk management system (including preventive and remedial measures) to avert potential negative impacts on human rights in your supply chains. syracom supports you in establishing an appropriate risk management system and integrating it into your existing risk management system.
Interest aroused?
Give me a call or write to me
Torsten Lutz
Product Manager Sustainability Consulting