Karl Schmidt-Degen | Dr. Helmut Nold
Challenges and demands of the new German Supply Chain Act
Institut für Management und Organisation (IMO) GmbH
Karl Schmidt-Degen
BG RCI
Dr. Helmut Nold
Imprint:
1st edition 2021
Institut für Management und Organisation (IMO) GmbH
Am Walzwerk 25 | 45527 Hattingen
www.imo-bochum.de
Reproduction in whole or in extracts prohibited.
All rights reserved
Context:
From the perspective of the German civil society the Lieferkettengesetz (Supply Chain Act) seeks to harmonize differences in environmental, social, and governance (ESG) standards across the supply chains of companies operating in Germany. It is a response to the complex and international nature of supply chains, and the limits of current domestic legislation with regards to ESG standards. By establishing the
Supply Chain Act, Germany wants to ensure that products and services are conforming with these standards, and thus improve and harmonize social and environmental standards in societies where supply chains start and end.
Its content in a nutshell:
The Supply Chain Act demands that all affected businesses have to make reasonable efforts to ensure that no violations of ESG standards occur within their own business or within their supply chain.
The term „supply chain“ covers:
- Actions of an enterprise in its own business
- Actions of a contractual partner, insofar as they are necessary for the manufacture of the product in question or for the provision and use of the service in question (direct supplier), as well as
- Actions of other suppliers (indirect suppliers).
In regard to indirect suppliers, companies must only (but immediately) carry out a risk analysis and take preventive or remedial measures, if they receive substantiated knowledge of possible human rights violations or violations of environmental obligations.
What has to be done?
ANALYSIS AND REDUCTION OF ESG-RELATED RISKS
The law obliges German companies to comply with an appropriate level of due diligence with regard to human rights and environmental protection throughout their supply chains.
A central element of this legislation is the performance of a risk analysis, through which the risk of a violation of human rights or nvironmental obligations must be assessed.
The risk analysis must be comprehensive, taking into account all of a company’s sites, all business processes in the supply chain from raw material extraction to end product, and contextual factors such as political conditions.
Following the risk analysis, companies are required to establish measures. These measures should be decided upon through a consideration of:
- Nature and scope of the business
- Company’s ability to influence the direct cause
- Expected severity of the breach
- Reversibility of the breach
- Likelihood of the breach occurring
- Nature of the causation contribution
FURTHER OBLIGATIONS
Companies affected by the draft law will need to develop a human rights strategy and appoint a human rights officer responsible for risk management. In addition, companies must prepare an annual report on their fulfilment of due diligence obligations.
Key Elements
- Transfer of ESG standards into other societies
- Obligation to act also outside one’s own business
- Risk level assessment along the supply chain
- Occupational safety measures
- Human health
- ESG strategy and permanent risk level assessment
IMO Workshop Formats
Phase 1
Kick-off WS with key participant
Phase 2
Single interviews with stake holders and participants and/or Survey on organizational status and expectations/concerns
Phase 3
3–4 days workshop on the content above
Phase 4
3–5 months support with regular calls, 2–5 groups (depending on the size)
OUTCOMES:
- An organization being ready to install and understand the ESG measures
- Motivated and focused managers and employees
- Recognized employer branding for the companies
- Sustainable competitiveness
- Higher resource productivity
- Long-term supplier contracts
Drawing upon our expertise in transforming organizations, and our longstanding relationship with the Berufsgenossenschaft Rohstoffe und Chemische Industrie (BG RCI), The Institute of Management and Organization (IMO), collaborate on offering a workshop program focusing on the framework demands to enable NGOs, government organizations, and companies, to meet the requirements of the new German Supply Chain Act.
Donwload this article as pdf.
