What is the EU-wide Supply Chain Act all about?
The Supply Chain Act – officially known as the “German Supply Chain Due Diligence Act” - provides a binding implementation of the UN Guiding Principles on Business and Human Rights and the coalition agreement. It is rooted in the obligation of all businesses and EU member states to uphold human rights within global supply chains. In Germany, this was handled on a voluntary basis between 2016 and 2020. Under the “National Action Plan for Business and Human Rights” (NAP), the responsibility of German companies was codified for the first time. However, the federal government concluded that voluntary commitment alone was not enough to ensure that companies fulfilled their human rights due diligence obligations.
This was confirmed by a 2019 corporate survey: only 400 out of more than 3,000 companies contacted completed the questionnaire. Ultimately, it was determined that only 20 percent of those 400 participating companies met the NAP requirements. Since more than 50% should have been fulfilling their due diligence obligations according to the NAP, a comprehensive legislative regulation was initiated – the Supply Chain Due Diligence Act, which was approved by the Bundesrat on June 25, 2021.
The following due diligence obligations were established in the law :
1. Establishment of a risk management system
2. Designation of internal responsibility
3. Conducting regular risk analyses
4. Adoption of a policy statement
5. Implementation of preventive measures within the company's own business operations and with respect to direct suppliers
6. Taking remedial action
7. Establishment of a complaints procedure
8. Implementation of due diligence obligations regarding risks with indirect suppliers
9. Documentation and reporting
Appropriate action that satisfies due diligence requirements is defined based on the severity, reversibility, and nature of the violation.
Why is the Supply Chain Act long overdue?
“If roads, bridges, rails, air and sea routes are the lifelines of globalization, then logistics companies are its heartbeat. Without them, Germany would not be an export nation. Container ships, airplanes, trucks, and freight trains tirelessly supply us with raw materials and food. The supply chains of German companies reach into every part of the world.” Gerd Müller, Federal Minister for Economic Cooperation and Development
Following the Federal Minister’s words, the Supply Chain Act is essential for making German companies jointly responsible for compliance with minimum social and environmental standards along the supply chain. Although globalization has boosted international trade and thus provided many countries with a significant development push, people and nature are still being exploited in many places.
Cost pressure, starvation wages, child labor, and environmental pollution still exist today. Therefore, companies should also be held legally accountable for their offenses in order to create fair working conditions everywhere in the world. This is why German companies bear responsibility not only for their domestic employees but also for those in production countries.
What does the Supply Chain Act mean for logistics?
The Supply Chain Act is intended to from 2023 initially apply mandatorily to companies with at least 3,000 employees in Germany, and from 2024 to companies with at least 1,000 employees domestically. However, this does not mean that SMEs will not be affected by the regulations: If SMEs are suppliers for larger companies, those companies can pass the requirements on to their suppliers. Thus, SMEs are also indirectly affected by the law. In the event of human rights violations, the Federal Office for Economic Affairs and Export Control (BAFA) will be deployed as the supervisory authority.
How companies are already taking responsibility
In the automotive industry, for example, major manufacturers have joined the “Drive Sustainability” initiative to make their supply chains more sustainable in the future. Around 50 percent of companies in the Partnership for Sustainable Textiles are also committed to fairness in production and the protection of human rights. For new startups, many investors now require compliance with so-called “ESG standards” (environmental, social, and governance criteria).
In a recent study by AMC and CBS , 162 procurement specialists were surveyed about their stance on the Supply Chain Act. The study authors reached the following conclusions:
- 50% of respondents are familiar with the Supply Chain Act.
- 89% see the Supply Chain Act as an important driver for sustainable supplier management.
- 84% of respondents consider the law to be essential.
- A good 86% of procurement specialists stated that they intend to add sustainability clauses to their supplier contracts in the future.
- Nearly 70% of respondents agree that, for example, ISO certifications will become more important due to the Supply Chain Act.
- 88% of respondents see the use of digital solutions as a benefit for risk management.
Conclusion
The Supply Chain Act has the great potential to finally integrate sustainability into all companies that trade in and with Germany. Even though many industries have already formed alliances, environmental commitment is essential for every company. State certifications, such as ISO, can make these efforts visible as a first step – but ultimately, the concept of sustainability should be embedded in the values of all German companies to drive greater change together.
TradeLink easily connects you with your supply chain, enabling efficient and proactive logistics. More than 200 companies already use our tool every month. Because TradeLink facilitates digital exchange and the documentation of supply routes, it is the ideal tool to help you ensure compliance with due diligence requirements in points 3 and 9. With the approximately 30% reduction in truck turnaround times at the yard that our customers achieve by using TradeLink, significant CO2 emissions are also saved.
Would you like to learn more about what you can achieve with TradeLink? Book your personal demo now and let one of our logistics experts guide you through the tool!
