Supply Chain Act – what companies need to consider now

The law aims to improve the international human rights situation by ensuring responsible supply chains for companies based in Germany. It will initially apply to companies with more than 3,000 employees from January 1, 2023, and then to companies with more than 1,000 employees from January 1, 2024, in each case including employees working abroad. The Supply Chain Act sets out clear and implementable requirements for due diligence. These basically cover the entire supply chain – from raw materials to the finished sales product. 

Companies are given a clear, proportionate and appropriate legal framework for fulfilling human rights and environmental due diligence obligations. An external authority is appointed to monitor and enforce compliance with due diligence obligations and is given powers of intervention. In addition, companies must publish a report on compliance with due diligence obligations at least once a year.

For companies, it means a considerable effort to introduce the required measures that the new law entails. Among other things, companies must implement a human rights and environmental due diligence process throughout the supply chain that aims to identify, prevent and mitigate negative impacts on human rights and the environment. Supply chain coverage must include direct and indirect suppliers. This is particularly challenging as raw material suppliers must also be included in the risk assessment; not just direct suppliers.

To meet the extensive requirements of the Supply Chain Social Audit Act, the VDE Group offers support to German companies along their supply chains through its subsidiary VDE Global Supply Chain Services Co., Ltd (VDE GSCS). Based on documentation reviews, on-site observations and employee surveys, VDE GSCS assesses suppliers' social obligations. A social audit typically covers the following areas:

• Social management system and cascade effect
• Employee involvement and protection
• The right to freedom of association and collective bargaining
• Non-discrimination
• Fair pay
• Decent working hours
• Health and safety in the workplace
• Child labor, precarious employment and forced labor
• Special protection for young workers
• Protection of the environment
• Ethical business conduct

Remedial actions are reviewed by qualified auditors following audits. Training and capacity building ensure that suppliers implement good practices at their production sites over the long term.