Supply Chain Due Diligence Act ushers in a new era of corporate culture

Here you will find an overview of our services and solutions related to the Supply Chain Due Diligence Act.

The EU is expanding the number of affected companies even further with an EU supply chain law. This will ensure harmonisation and overall legal certainty among European competitors to eliminate any potential disadvantages for companies in international competition caused by differing national laws. What makes this unique: all this now applies not only to your own company but also to your direct and indirect suppliers. These external standards now need to be reviewed as well.

Which companies are covered by the Supply Chain Due Diligence Act?

• From 2023 onward, approximately 900 companies in Germany having over 3,000 employees will initially be directly affected by this regulation. Due to various interdependencies and spillover effects, however, the law will affect practically every other company as well beginning then.
• From 2024 onward, it will apply to about 4,800 companies having over 1,000 employees.
• When the EU Supply Chain Act takes effect, significantly lower and therefore stricter thresholds will apply than under the Supply Chain Due Diligence Act.

Companies of all sizes and in all sectors should have this issue on their agenda. Failing to deal with this issue exposes a company to the risks of competitive disadvantages, harm to its reputation, and substantial fines.

What are the biggest challenges for your business?

Many organisations are wondering how the legal obligations will affect their supply chain, and what opportunities and measures exist to help them integrate these into their internal regulations, processes, and data requirements. Companies are also looking for ways to achieve clear competitive advantages by acting proactively and anchoring this in their communication policy. With increased scrutiny from the public, investors, stakeholders, and employees on the issue of sustainability, companies are well-advised to deal with this issue proactively.

What are your specific duties in this regard?

The due diligence obligations and potential opportunities affect your entire supply chain – from raw material to end product to distribution. These obligations depend on the nature and extent of the business activity, your company’s ability to influence the perpetrator of the violation, the expected severity of the violation, and to what degree the company contributed to the cause of the violation.

Your company needs to do the following, both internally and with its indirect suppliers:

• Adopt a declaration of principle on respect for human rights
• Conduct a risk analysis and identify anything that could negatively affect human rights
• Adapt the risk management system (including prevention and remedial measures) to avoid anything that could potentially negatively affect human rights
• Establish a mechanism for handling complaints
• Implement transparent public reporting

At each step, ensure that a moderate, but very structured approach is taken to avoid any adverse effects on your business relationships with suppliers, customers, and other stakeholders. At the same time, make sure that the measures allow the monitoring to be automated later and are compatible with the processes and data flows.

What measures are effective in an emergency?

• If a legal violation occurs domestically, companies must take immediate corrective action in their own business area.
• A concrete plan must be drawn up for direct suppliers to minimise and prevent violations if these cannot be stopped in the foreseeable future.
• For indirect suppliers, a risk analysis must be performed on an individual basis and if a violation is known, a plan for minimising and avoiding the violation must be implemented, and preventive measures must be initiated against the polluter.

How Forvis Mazars can assist you:

Our experts will be happy to help you meet the requirements and reap the opportunities of the Supply Chain Due Diligence Act. From risk analysis to concrete risk management to transparent reporting and identification of strategic advantages – we ensure that your company gains legal certainty.

Please contact us to learn more