Act on Corporate Due Diligence Obligations in Supply Chains of 16.07.2021 (Supply Chain Due Diligence Act) came into force. This imposes environmental and human rights obligations on companies based in Germany with at least 3,000 employees - from 01.01.2024 at least 1,000 employees - non-compliance with which can have serious consequences, including fines in the millions. The extent to which EU regulations will lead to stricter requirements remains to be seen.
The corporate obligation to take measures to avoid violations of the law is nothing new. With Section 130 OWiG, the legislator has already shown that breaches of the corporate duty of supervision can be punished as an administrative offense. Now the legislator has spoken out in favor of a significant expansion of corporate duties. In future, the above-mentioned companies will have to check whether, for example, occupational health and safety is being adequately observed along the supply chain. In Section 2 of the LkSG, the legislator has standardized numerous duties of care in this regard: In general, Section 3 para. 1 sentence 1 of the LkSG requires companies to adequately observe the human rights and environmental due diligence obligations set out in Section 2 of the Act in their supply chains with the aim of preventing or minimizing human rights or environmental risks or ending the violation of human rights or environmental obligations. These due diligence obligations contain a series of measures, each of which is described in more detail:
- The establishment of a risk management system,
- the definition of internal responsibilities,
- carrying out regular risk analyses,
- issuing a declaration of principles,
- establishing preventive measures in the company's own business area and vis-à-vis direct suppliers,
- taking corrective measures,
- the establishment of a complaints procedure,
- the implementation of due diligence obligations with regard to risks at indirect suppliers and
- documentation and reporting.
Even if the legislator has specified these due diligence obligations in more detail, numerous business risks remain. When is a human rights or environmental risk established "with sufficient probability based on factual circumstances" (Section 2 para. 2, para. 3 LkSG)? When exactly does a company act "appropriately" to comply with its due diligence obligations (Section 3 para. 2 LkSG)? Is risk management actually effective in individual cases (Section 4 para. 2 LkSG)? These and other questions will sooner or later occupy the courts. The risks lie with the companies, which must expect exclusion from the award of public contracts (Section 22 LkSG), penalty payments (Section 23 LkSG) and fines (Section 24 LkSG) in the event of breaches of standards. Violations can come to light not only through - planned - official inspection measures, but also through internal whistleblowers. Although the legislator has only standardized the corporate obligation to set up an internal complaints procedure (Section 8 LkSG), this should not obscure the fact that the provisions of the EU Whistleblowing Directive also allow reports to be made to official bodies. If this leads to more detailed investigations, e.g. in the form of company searches that become public knowledge, the immaterial damage can be immense.
Do you have any questions in connection with the new Supply Chain Due Diligence Act? Please do not hesitate to contact us.
Dr. Fiete Kalscheuer Dr. Jan-Philipp Redder