Guide to the Act on Corporate Due Diligence in Supply Chains (Supply Chain Act)
The Supply Chain Act, promulgated on 16 July 2021, applies from 1 January 2023 to companies of any legal form with, as a rule, at least 3,000 employees domestically. From 1 January 2024, the Supply Chain Act will apply to companies with 1,000 or more employees in Germany. Since the affected (large) companies control their supply chains and in some cases even have to transfer due diligence obligations to direct suppliers, it can be assumed that they will contractually pass on the new due diligence obligations under the Supply Chain Act to their suppliers. The Supply Chain Act will thus also have an impact on small and medium-sized enterprises.
PROTECTION OF HUMAN RIGHTS
To achieve the intended protection of human rights, companies must avoid, minimise or end human rights and environmental risks in their supply chains, e.g.:
- Child labour, forced labour, slavery, repression around the place of work, disregard for occupational health and safety at the place of employment, disregard for freedom of association, unequal treatment in employment, withholding of a fair wage, harmful soil degradation, water pollution, air pollution, harmful noise emission, excessive water consumption, unlawful eviction, and unlawful taking of land, forests or waters, hiring security forces acting in violation of human rights, and other interference with a protected legal position.
- Production of certain mercury-added products (cf. Minamata Convention),
- use of mercury and mercury compounds in certain manufacturing processes (cf. Minamata Convention),
- certain treatment of mercury waste (cf. Minamata Convention),
- production and use of certain chemicals (cf. POPs Convention),
- certain handling of chemical wastes (cf. POPs Convention),
- export and import of hazardous wastes (cf. Basel Convention).
DUTIES OF CARE
Specific due diligence obligations under the Supply Chain Act:
- Establish risk management, including designation of a responsible person or persons for risk management (e.g. human rights officer).
- Conducting regular risk analyses
- Issuance and publication of policy statements by management
- Embedding preventive measures in its own business and vis-à-vis direct suppliers
- Take corrective action
- Establish a complaints procedure
- Implementation of risk due diligence with indirect suppliers
- Documentation and reporting requirements
EXCLUSION FROM THE AWARD OF PUBLIC CONTRACTS
Companies may be excluded from participating in procedures for the award of a supply, works or service contract by the contracting authorities referred to in Sections 99 and 100 of the ARC (e.g. contracting authorities) in the event of certain legally established violations of the Supply Chain Act. The exclusion may only be for a reasonable period of up to three years. In the event of successful self-cleaning pursuant to Section 125 GWB, the exclusion shall end.
Certain breaches of due diligence obligations are sanctioned by fines, which are limited to EUR 100,000, EUR 500,000 or EUR 800,000 for natural persons and to EUR 100,000, EUR 5 million or EUR 8 million for legal persons and associations of persons, depending on the breach. For a legal person or association of persons with an average annual turnover (i.e. worldwide turnover) of more than EUR 400 million, certain breaches of duty may be punishable by a fine of up to 2 per cent of the average annual turnover.
PLANNED EU DIRECTIVE
The EU is currently working on a directive which, compared to the Supply Chain Act, could have a significantly broader scope of application and contain more stringent content.
Which measures should companies implement before the directive comes into force?
- Policy statement with human rights strategy
- Creation of personnel structures to implement due diligence (e.g. risk management, risk analysis and remedial measures)
- Definition of responsibilities (e.g. human rights officer)
- Establishment of the complaints procedure
- Adjustment of supply contracts
- Training of affected staff and direct suppliers
- Revision of supplier management (e.g. assessment, selection and control)
Your contact person
Dr. Kai-Oliver Giesa