It has been discussed for years and from 1 January 2023 the Lieferkettengesetz (Supply Chain Act) will come into force. What is it all about? Essentially, it’s about compliance. And about companies complying with environmental, human and children’s rights throughout their entire supply chain. If obligated companies do not comply with this requirement, they face severe fines – and sometimes claims for damages by competitors. What can you do to prevent this? And how do you comply with the new supply chain law? Read on – and by the way: we have even prepared a sales pitch presentation for your internal processes. More on that later.
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1. The Lieferkettengesetz – what is it?
The Lieferkettengesetz/Supply Chain Act (also known as Lieferkettensorgfaltspflichtengesetz/Supply Chain Due Diligence Act) is a law of the German federal government. It focuses on the commercially diligent actions of companies. It is important to understand when the Lieferkettengesetz applies, what the consequences are – and for whom.
The Lieferkettengesetz takes a holistic look at a company’s merchandise management – and aims to ensure that no human rights violations are committed or environmental hazards are accepted.
2. Supply Chain Act – who is affected?
Not every company has to comply with the Supply Chain Act. At least not formally. This becomes clear when one takes a closer look at the content of the Supply Chain Act. Because it clearly defines which companies are directly affected by the Supply Chain Act:
- In the first step, it will apply in 2023 to companies that have their head office, principal place of business, administrative headquarters or statutory seat in Germany.
- In addition, they must employ 3,000 or more workers domestically. (Temporary workers count here. Just like workers posted abroad).
- From 2024, this limit will drop to 1,000 employees.
- It also applies to companies that have a branch office in Germany and employ 3,000 (from 2024 1,000) people in Germany.
Not obligated? Indirectly, perhaps you are!
Smaller companies are not directly affected by the Supply Chain Act. However, it still makes sense for them to deal with the issue. Because larger players will probably also approach their partners and suppliers in connection with the law. This is because the law regulates the responsibility for the entire supply chain from raw materials to the final product. So the Supply Chain Act also has an impact on small businesses. After all, it affects:
- The activities of the company itself
- Direct suppliers
- Indirect suppliers (suppliers of direct suppliers, for example)
What are the fines under the Lieferkettengesetz?
The law, which will come into force in 2023, makes fines of varying amounts possible in its current form. These range from 100,000 euros to 2% of the average annual turnover (for companies with an annual turnover greater than 400 million euros).
In case of serious violations, companies can also be excluded from public tenders for 3 years.
Need supply chain law advice? We are happy to share our knowledge!
If you are affected by the legal obligation and are looking for a smart solution to fulfil your obligations, you are in good hands with us. With RADIX Tree, we offer you a lean and practical tool for this purpose. Simply arrange a demo.
3. What due diligence obligations do companies have to fulfil?
§ 3 Duties of care
(1) Businesses are required to exercise due diligence in their supply chains in accordance with the human rights and environmental due diligence requirements set out in this section, with the aim of preventing or minimising human rights or environmental risks or ending the violation of human rights or environmental obligations. The due diligence obligations include:
- the establishment of a risk management system (§ 4 paragraph 1),
- the definition of an in-house responsibility (§ 4 paragraph 3),
- the performance of regular risk analyses (§ 5),
- the issuing of a policy statement (§ 6 paragraph 2),
- the anchoring of prevention measures in their own business area (§ 6 paragraph 1 and 3) and vis-à-vis direct suppliers (§ 6 paragraph 4),
- taking remedial action (§ 7 paragraphs 1 to 3),
- the establishment of a complaints procedure (§ 8),
- the implementation of due diligence with regard to risks at indirect suppliers (§ 9) and
- the documentation (§ 10 paragraph 1) and the reporting (§ 10 paragraph 2).
By the way, you can find the exact and detailed wording of the law here.
What do you have to do concretely?
Basically, you need to implement an appropriate and effective compliance risk management system in your company – focusing on ethical rights (child labour, modern slavery, working conditions) and on environmental impacts (air and water pollution, water consumption). Here it is worthwhile to proceed step by step. Above all, however, with a certain lead time. Because such processes cannot be planned and integrated from one day to the next.
This is how you could proceed:
- Develop and implement a human rights compliance/environmental hazard prevention policy.
- Carry out a risk assessment. You can do this by implementing processes to identify human rights violations/environmental risks.
- Use own risk management to prevent potential negative effects related to human rights and environmental risks.
- Establish a grievance procedure in the company.
- Implement a transparent and publicly accessible reporting system.
- Create routines that allow you to take immediate remedial action when violations are identified.
- Also, integrate preventive measures.
4. We make your supply chain law compliance simple – with our expertise and our digital platform.
If you have read between the lines, you will have realised: In principle, the requirements of the new Lieferkettengesetz can also be fulfilled in paper form. But only in principle. Because if you want to work smart and clever here, you can’t avoid a digital solution. This is exactly where we come in. Because with RADIX Tree, we have decades of experience in the field of supply chain management – based on the timber trade. Now you can simply take advantage of that.
Also important: the topic of cost efficiency. Because our tool enables you to put your supply chain compliance on a professional and secure footing simply and inexpensively.
RADIX Tree – the number one platform, smart and flexible
- RADIX Tree enables you to easily collaborate with your suppliers on supply chain compliance and supply chain law.
- All compliance requirements are always integrated up to date
- With this digital solution, you automatically and securely collect the crucial sustainability information.
- And you monitor your suppliers’ responses with automated verification.
Automated risk analysis
Time saving tools
We demonstrate our tool free of charge and live – whenever you like:
Send us an enquiry and we will contact you immediately to arrange an appointment.
FAQs on the Lieferkettengesetz:
Does the Lieferkettengesetz only apply in Germany?
Yes and no, because Germany is indeed a pioneer here. But there are also corresponding regulations on supply chain compliance in other countries. Likewise, the EU has expressed the clear goal of adopting a regulation that should apply throughout the entire Union.
What standards are we talking about?
The Lieferkettengesetz defines various standards and values. These are, for example:
- Physical integrity and health
- No slavery or forced labour
- Protection of children and no child labour
- Freedom of association and right to collective bargaining
- Protection from torture
- Fair working conditions (safety at work, breaks)
- Environmental regulations to protect health.
- Water pollution
- Air pollution
- Excessive water consumption
- Noise pollution
- Hazardous residues
Why is the law being brought into being?
The Supply Chain Act or Lieferkettengesetz is one that politicians have been wrestling with for a long time. However, the focus is not on the penalties of the Lieferkettengesetz, but on the benefits. This is because politicians want to actively combat human rights violations and environmental hazards that are unnecessarily accepted. Hubertus Heil, Federal Minister of Labour and Social Affairs of the Federal Republic of Germany, put it this way:
“The Lieferkettengesetz is the strongest law in Europe so far in the fight for human rights and against exploitation.”
Your sales pitch document – free to download
From our experience, we know that many people responsible for supply chain law and supply chain compliance do not always have it easy in the company. But we support you at all levels. For example, if you want to present the topic further.
Just have a look at our presentation template in PPT form. It could provide you with important arguments and save you work.
Your free PowerPoint guide to the Lieferkettengesetz
Download your simple action statement as a guide.