Supply Chain Act (Germany)

Keeping up with the rapidly evolving world of ethics in Europe, Germany is the next country to pass ESG (environmental, social, and corporate governance) legislation. The latest ‘Lieferkettensorgfaltspflichtengesetz (LkSG)’, also known as the Supply Chain Act, aims to minimise risks to human rights and the environment created by the financial activities of organisations. Over and above internal procedures, the Act calls for organisations to now expand their CSR standards to their supply chain.

German Supply Chain Act in a nutshell

German companies have to comply with new due diligence obligations in regards to their suppliers. This includes foreign companies with German subsidiaries or German branches. Organisations are called to establish processes to identify, assess, prevent and remedy violations of human rights and the environment in their supply chain. Such violations could occur at all levels of the chain. Therefore, the Act applies to both direct and indirect suppliers.

The Act was passed in 2021, but does not come into effect until 2023. Companies with at least 3,000 employees must comply by January 1, 2023. Starting from January 1, 2024, the number will be reduced to at least 1,000 employees.

Download our Whitepaper on the Supply Chain Act for more details.

The Supply Chain Act & The EU Whistleblowing Directive

Having an appropriate reporting mechanism in place has been a requirement for European organisations since December 17, 2021. In view of the European Whistleblowing Directive (EUWBD), there’s already been a major shift in the way organisations deal with the topic. While setting up a reporting channel for third-parties is not mandatory under the EUWBD, it has become a best practice for whistleblowing management.

Ethical business conduct does not end with employees. Organisations need to look beyond their own business area if they are to operate ethically on a global level. What if one of their biggest suppliers pursues immoral practices? Or worse, what if one of their supplier’s suppliers is in the wrong? To this end, the Supply Chain Act is making a great contribution by calling organisations to extend their ESG policies and practices down the entire supply chain. Naturally, this concerns the employee misconduct reporting procedure among other things.

How can we help?

A common topic of discussion with organisations looking to implement a misconduct reporting solution is making SpeakUp® available to third-parties. Despite the (until now) absence of legal obligations, we have always advised clients to set up additional SpeakUp® lines dedicated to third-parties.

Considering the multiple advantages, a lot of our clients happily proceed to do so. First, this enables receiving messages from both inside and outside the organisation. SpeakUp® helps organisations deal with misconduct regardless of the location of the incident, the language of the reporter or his relationship to the organisation. All reports are received and handled in the exact same way.

Along these lines, our clients are able to manage and solve all cases within one secure environment. Furthermore, this eliminates the need to keep track of different processes or tools. As a result, reporting efforts – another big requirement of the Act – become painless. More importantly, our clients are able to act in a way that is equally fair to employees, suppliers, partners, and customers. They demonstrate a true ethical commitment and actually manage misconduct on all fronts.

Getting started

Implementing SpeakUp® is simple. Setting up additional SpeakUp® lines is simpler. We’d be more than happy to demonstrate how easy it is to meet the complaint procedure requirement of the Act. Feel free to reach out for a demonstration with one of our consultants.

For more information on the Act, please refer to the Federal Office for Economic Affairs and Export Control (BAFA)’s official website here.