The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz LkSG) is a new German law that requires German companies and foreign companies operating in Germany with more than 3,000 employees, to carry out analyses of its supply chain to identify risks to human rights and the environment and to take mitigating actions against these risks and publish the findings annually.
Companies must also establish a complaint procedure for workers to report potential risks. To those companies to which it applies, failing to respect the terms of the law can result in fines of up to two percent of the company's annual revenues.
The law came into effect in 2023, applying to companies with over 3,000 employees in its first year, however, in 2024, the provisions of the law will be extended to apply to all companies with over 1,000 employees.
Over the next few months, although not required to, Bertling Logistics has determined to comply with the LkSG, which is in line with our ESG policies and will help us actively support our larger clients.
To comply with the LkSG a company must make reasonable efforts to ensure that there are no violations of human rights and/ or legal environmental obligations in its business operations and in its supply chain. This covers any provision of services, regardless of whether it is carried out at a location in Germany or abroad. The supply chain includes the company's own offices and warehouses, and primarily its direct subcontractors. It must carry out a risk analysis of the supply chain and implement preventive and remedial measures.
COMPLIANCE WITH HUMAN RIGHTS
These are internationally recognized agreements, in particular the ILO core labor standards, which are referred to in the LkSG and defined as human rights risks, in particular, child and forced labor as well as slavery, disregard of labor protection obligations, and freedom of association, inequality, and withholding of an adequate wage, certain environmental pollution relevant to human rights as well as land deprivation, torture, and cruel, inhuman or degrading treatment.
COMPLIANCE WITH ENVIRONMENTAL LAW
With regard to the environmental legislation, companies are obliged to conduct due diligence including environment-related obligations arising from the Minamata Convention (risks from involvement in the production and disposal of mercury-containing products) the PoPs Convention (risks from the production or use of certain persistent organic pollutants) and the Basel Convention (risks from the import and export of waste).
What a company must do depends on the appropriateness criteria outlined in the legislation. and considers the following:
- Nature and scope of the business: for example, risks of the business and nature of products/ services,
- The company's ability to influence the immediate causer: for example, considering the company's proximity to the risk,
- the expected severity of the breach: for example, the possibility of breach of duty and intensity of impairment,
- the reversibility of the violation,
- the probability of an injury occurring: for example, the probability related to a possible injury, considering past injury actions,
- the nature of the causation contribution: for example, directness of causation, joint causation with suppliers or other involved actors. Similarly, causation may exist when an entity contributes in connection with the risk or injury.
Companies must introduce appropriate risk management or adapt their existing risk management. This includes, in particular, responsibilities / financial and personnel capacities in the relevant company departments, such as purchasing, compliance, and sustainability, that implement the law in the company and such responsibilities / financial and personnel capacities that monitor implementation, e.g. in the form of a compliance or human rights officer.
Companies must determine at least once a year whether there is a risk that their own business activities or business activities in the supply chain violate human rights or environmental obligations.
The process for this regular risk analysis is as follows:
- abstract risk analysis – e.g. based on country and industry risks;
- concrete risk analysis of the abstractly identified risks – e.g. based on already available internal findings, web screenings, questionnaires, certifications, etc.;
- risk assessment and risk prioritization - after risk identification, companies must assess and prioritize risks based on the appropriateness criteria.
In addition to the regular risk analysis, companies must also conduct a risk analysis on an ad hoc basis if they have substantiated knowledge that a human rights or environmental violation appears possible at an indirect supplier or if significant changes or expansions in the risk situation arise within the scope of business activities.
Companies must adopt a policy statement on their human rights strategy. This policy statement must contain the procedure for complying with human rights and environmental due diligence obligations in the supply chain, the specific risks and the company's human rights and environmental expectations of its employees and suppliers.
Based on the results of the risk analysis, companies must take or review appropriate preventive and remedial measures. This applies, for example, to supplier selection and supplier control, the creation of (supplier) codes of conduct, the implementation of training courses, the procurement strategy and sustainable contract design, an audit concept, etc.
Companies shall establish, implement, and publish a complaints' procedure in writing through which (potentially) affected persons and persons who have knowledge of possible violations can report human rights risks and violations.
DOCUMENTATION AND REPORTING OBLIGATIONS
The fulfillment of human rights and environmental due diligence obligations must be documented. In addition, a report must be prepared and published annually. This report must be submitted to the responsible authority.
If you have any questions regarding the German Supply Chain Due Diligence Act, please contact Chris Brooks (Director of Risk Quality and Compliance).