Supply Chain Act takes effect in 2023
From January 1, 2023, the obligations of the Supply Chain Act will affect all companies whose head office is in Germany, and which employ more than 3,000 people. In these cases, the German Supply Chain Act assumes that the relevant decisions for supply chain risk management are made in Germany.
Due diligence obligations
According to Section 3 of The German Supply Chain Due Diligence Act (in German, Lieferkettensorgfaltspflichtengesetz or LkSG), companies are required to observe specified human rights and environmental due diligence obligations in an appropriate manner in their supply chain. The central obligation for companies is to integrate due diligence obligations into their corporate policy. This means implementing the following measures:
- Establishing a risk management system (Section 4, para. 1 LkSG)
- Establishment of an in-house responsibility for human rights protection (Section 4, para. 3 LkSG)
- Implementation of regular risk analyses (Section 5 LkSG)
- Adoption of a policy statement (Section 6 para. 2 LkSG)
- Incorporation of prevention measures in the company’s own business area (Section 6 para. 1 and para. 3 LkSG) and towards immediate suppliers (Section 6 para. 4 LkSG)
- Taking remedial measures in case of violation of a protected legal position (Section 7 para. 1 – para. 3 LkSG)
- Establishment of a complaint procedure (Section 8 LkSG) for reporting human rights violations
- Implementation of due diligence obligations with regard to risks posed by indirect suppliers (Section 9 LkSG) and
Procedure for risk analysis
The LkSG obliges companies to conduct a risk analysis with regard to their own business activities and supply chain. The procedure for the risk analysis is described by The Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, or BAFA) here. It can be based on publicly available information on country and sector risks, as well as certifications and self-disclosures. The results form the basis for the later determination of prevention and remedial measures with the aim of identifying human rights risks and legal infringements along the supply chains. Identified risks must be assessed and prioritized. The prioritization must be based on the company’s own business activities with the supplier and the severity of the risk classification. If further information is needed, there is an obligation to conduct further research. Based on the identified and prioritized risks, measures for prevention and remedy must be defined. These require clear responsibilities. Their success must also be recorded centrally.
BAFA Reporting under the Supply Chain Act
This information is to be submitted to the BAFA in a uniform format to be determined by the BAFA, starting in the spring of 2023. The The BAFA questionnaire serves as a guide. Tool support can be useful to meet the requirements of BAFA reporting in a structured manner. The risk management of Prospeum is specifically tailored to the requirements of the Supply Chain Act. We would be happy to provide you with a demo video on this.