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The Supply Chain Due Diligence Act (SCDDA) in effect since January 1, 2023, mandates significant adjustments in compliance, procurement, and contract drafting processes for companies in Germany. With a focus on due diligence obligations and continuous monitoring, the law impacts large companies based on their employee count and operations.
Who is Affected by the SCDDA?
The German Supply Chain Due Diligence Act (SCDDA) imposes significant obligations and requirements on companies to ensure the protection of human rights and environmental standards within their operations and supply chains. Under the SCDDA, covered companies are mandated to exert reasonable efforts to prevent violations by employing due diligence procedures. This includes obligations to conduct comprehensive risk analyses to identify potential human rights and environmental risks, both within their own business operations and across their supply chain network. The act stipulates that companies must adopt a policy statement outlining their human rights strategy and compliance measures, highlighting specific risks and setting expectations for employees and suppliers. To mitigate risks effectively, companies must implement preventive and remedial measures based on the outcomes of their risk analyses, emphasizing supplier selection, codes of conduct, training programs, and sustainable contract design. Additionally, the SCDDA requires companies to establish and publish a complaints procedure to facilitate the reporting of potential human rights violations. By adhering to these key requirements and obligations, companies not only enhance their own practices but also contribute to building a more responsible and sustainable business environment in Germany. The emphasis on due diligence, transparency, and accountability underscores the SCDDA’s commitment to promoting ethical supply chain practices and upholding human rights and environmental standards in corporate operations.
Key Requirements and Obligations of the SCDDA
The SCDDA obliges covered companies to exert reasonable efforts to prevent human rights violations and ensure compliance within their operations and supply chains. The law underscores a duty of effort rather than a guarantee of success, emphasizing accountability in addressing issues like child labour, forced labour, environmental pollution, and more.
SCDAA Company Obligations:
Own Business Operations: Inclusive of all activities in product production, services provision, irrespective of the location.
Supply Chain: Extends to direct and indirect suppliers, necessitating risk analysis and preventive actions upon identification of potential violations.
Human Rights: Emphasizes adherence to international agreements, addressing risks like child labor, slavery, labor rights, and environmental concerns.
Environment: Requires companies to consider environmental obligations under relevant conventions in the diligence process.
Compliance Measures and Risk Management:
Risk Management: Companies must integrate or enhance risk management to enforce SCDDA requirements effectively.
Risk Analysis: Mandates regular assessment of human rights and environmental violation risks in operations and supply chain activities.
Policy Statement: Companies must establish a policy outlining human rights strategies and compliance measures.
Preventive Measures: Based on risk analysis outcomes, organizations need to implement preventive measures like supplier selection, codes of conduct, and training initiatives.
Complaints Procedure: Companies must set up a channel for reporting and addressing potential human rights risks and violations.
Documentation and Reporting:
Comprehensive documentation and reporting requirements under the German Supply Chain Due Diligence Act (SCDDA) are instrumental in ensuring transparency, accountability, and compliance with the legislation. Companies must maintain detailed records of risk assessments, policy statements, preventive measures, and complaints procedures to demonstrate legal compliance and track their efforts in managing human rights and environmental risks. Annual reports, submitted to regulatory authorities, play a crucial role in evaluating the effectiveness of compliance measures, inviting external scrutiny, and fostering transparency. By adhering to these documentation and reporting obligations, companies can uphold ethical supply chain practices, build trust with stakeholders, and contribute to a more responsible business environment in Germany.
Compliance Monitoring and Enforcement
Compliance monitoring and enforcement mechanisms under the German Supply Chain Due Diligence Act (SCDDA) empower regulatory authorities, such as the Federal Office of Economics and Export Control (BAFA), to intervene in ensuring adherence to human rights standards. The expansive regulatory powers enable the enforcement of compliance measures, with potential penalties of up to €8 million for violations. Notably, the SCDDA allows trade unions and non-governmental organizations to engage in litigation, amplifying accountability beyond the immediate operations of the obligated companies. The stringent penalties, including fines and potential exclusion from public tenders, underscore the gravity of compliance with human rights and environmental due diligence obligations. By monitoring and enforcing these regulations rigorously, the SCDDA aims to create a culture of ethical supply chain practices, uphold human rights standards, and foster a sustainable business landscape in Germany.
Penalties for Non-compliance
Violations can lead to fines of up to €8 million with potential public tender exclusions for up to three years. Additionally, companies could face penalties based on their annual turnover percentage, reinforcing the importance of adhering to due diligence and reporting requirements.
The SCDDA aims to drive ethical supply chain practices, enhance transparency, and hold companies accountable for human rights and environmental compliance, shaping a more responsible and sustainable business ecosystem in Germany.
