That is coming to an end in Germany, as a new mandatory supply chain due diligence legislation has been approved. According to the new law – the Lieferkettensorgfaltspflichtengesetz (don’t worry, there’s an abbreviation for us non-germans; LkSG) – large businesses are legally required to take responsibility for human rights in their supply chains from 2023 and onwards.
So, what exactly is the LkSG? And who is affected by it and when? In this blog, we will cover everything you need to know about Germany’s new supply chain law and how businesses in the rest of the EU will be affected.
What is the LkSG?
Lieferkettensorgfaltspflichtengesetz translates to Supply Chain Due Diligence Act, and it aims to improve human and labor rights in international supply chains by making it mandatory for larger businesses to conduct meaningful supply chain due diligence. The act was passed on 11 of June 2021 and will set out a clear, proportionate and reasonable legal framework for a business’s fulfilling human rights due diligence. The LkSG will raise the bar for Germany’s social sustainability work, as it is the first time that companies operating in Germany are obligated to take responsibility for human rights regulation in their supply chains in a binding manner.
When Does LkSG Apply and to Whom?
The law will start applying from 1 January 2023 to businesses with 3000 or more employees in Germany. From 1 January 2024, businesses with at least 1000 employees in Germany will have to comply. This means that both german businesses, and businesses operating in Germany with more than 3000 employees must align to the new law by 2023.
How to Prepare for LkSG
The new law obligates the concerned businesses to ensure that they successfully align to the human rights and due diligence duties with regard to their supply chain. To do so, the businesses must establish relevant risk management plans and, on an annual basis, report their findings and actions. If the business fails to carry out or meet its obligation, it can be fined up to 2% of the annual turnover. Adapting a new legislation is always more time-consuming than expected, so make sure to start aligning in time. Both for the best of your business – and for every worker in your supply chain.
How to Comply with the LkSG Supply Chain Due Diligence Law?
Step 1: Make human rights an integral part of the business’s DNA.
Step 2: Develop risk analyses to measure and identify potential human rights impacts in the business supply chain.
Step 3: Minimize risks by taking action to prevent human rights abuses in the supply chain and conduct regular following-ups.
Step 4: Transparently communicate and report your impacts.
Step 5: Enable complaints and give those affected the opportunity to claim their rights in a transparent procedure.
EU Calls for its own Supply Chain Due Diligence Law
Human rights due diligence legislation have been on the uprise across the entire European continent for the past years. In 2017, France was the first to adopt a law for all large French businesses to mandatory undertake human rights due diligence with regard to their suppliers, sub-suppliers and contractors. This was the first due diligence law to have a cross-sectoral approach, as previous human rights legislations have been focused on a specific sector or particular human rights violations.
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