What is the German Supply Chain Due Diligence Act?
The German Supply Chain Due Diligence Act is a regulatory requirement which draws upon international guidelines such as the OECD Guidelines for Multinational Enterprises. Companies that fall under the requirements of the Act will be responsible for ensuring that they have appropriate processes in place to identify, remediate and report on any human rights or environmental issues within their supply chain. Failure to do so may result in a company being fined or being restricted from trading in Germany. The German government assumes that approximately 2,900 companies will be subject to the act.
Who will it affect?
The new legislation has been developed as part of a phased implementation with two key dates for companies to be aware of:
From January 2023 the Act will apply to all companies employing 3,000 or more staff that have their head office, principal place of business, or registered office in Germany. This also includes foreign companies with a branch office in Germany with 3,000 or more staff. As of the 1st January 2024 the Act will be extended in its scope to cover companies with head offices or branches in Germany with 1,000 or more employees.
What do companies need to do?
Risk areas covered by the Act are based on International Standards and guidance documents such as the ILO Fundamental Conventions, OECD Due Diligence Guidelines for Responsible Business Conduct and UN Guiding Principles on Business and Human Rights. Risks companies must consider include:
- Forced labour
- Child labour
- Unsafe or unhealthy working conditions
- Unethical employment practices
- Freedom of association
- Environmental damage
The Act requires companies to ensure they have adopted risk-based processes to identify, assess, prevent and remediate risks that are identified within their supply chain. Risk-based processes may include measures such as supply chain mapping, audit and introduction of grievance reporting mechanisms. Companies will also be expected to publish an annual report which outlines the activities that have been undertaken to address risks that have been identified, as well as reporting on the effectiveness of their processes.
What happens if a company fails to comply with the German Supply Chain Due Diligence Act?
Companies that are legally obligated to comply with the law may be subject to financial or trading restrictions based on their lack of compliance. The Act currently advises that consequences may include:
- Fines of up to EUR 800,000, or, of up to 2% of the company’s annual global turnover.
- Up to EUR 50,000 financial penalty under administrative enforcement proceedings.
- Exclusion from winning public contracts in Germany for up to three years.
How Achilles helps companies to comply with the Act
Achilles has been a global leader in providing supply chain risk management solutions for over 30 years. We provide solutions to support companies in meeting their legislative obligations from risk assessment through to reporting. Our services include:
Supply Chain Evaluation & Risk Assessment – Questionnaire content developed in line with International human rights and environmental standards which is deeply validated by our experts to ensure accurate scoring and risk assessment of a company’s supply chain.
Due Diligence – Delivering thousands of audits (both desktop and site) every year, our teams of highly skilled audit personnel can be deployed across the globe to interrogate documentation, physically inspect workplaces and confidentially speak with individuals who may be subject to unethical employment practices or human rights violations.
Remediation and Reporting – Tracking of audit report findings and remediation actions to drive continual improvement within the supply chain. Analysis supported by our in-house Data Scientists who can provide supply chain data for company reports and legal disclosures.
We work with you to ensure your supply chains are ethical and sustainable. From risk assessing your supply chain, providing high-quality due diligence on your global suppliers and driving continuous improvement through analysis and reporting. Contact us to find out how Achilles can help you meet your legal obligations.