The Supply Chain Due Diligence Act (SCDDA) has been in force since 1 January 2023. This law requires that companies review and update purchasing contracts and agreements to include compliance and due diligence obligations for managing their supply chains.
Often referred to as the German Supply Chain Act, the law’s primary purpose is to prevent human rights violations in the supply chain and provide a means for impacted parties to have a process for filing complaints.
Affected Parties
As of January 1, 2023, companies that have a branch, headquarters, or a registered office in Germany with at least 3,000 employees are in scope of the law. There are approximately 600 companies affected.
As of January 1, 2024, companies that have a branch, headquarters, or a registered office in Germany with at least 1,000 employees are in scope of the law. There are approximately 3,000 companies affected.
Companies with fewer employees may be impacted due to customers needing data for their reporting. Requests for data may ripple through the supply chain.
Requirements
The Act clarifies that a company must demonstrate their efforts and there is no guarantee of success for the efforts put forth.
Companies are required to assess their business operations and supply chains. They are required to implement policies and procedures to ensure human rights are established for all workers. This includes child and forced-labor concerns, along with slavery and labor protections. A new level of scrutiny must be applied to managing a company’s supply chain to mitigate liability and risk regarding human rights, slavery, and trafficking.
Actions and Activities
To meet compliance obligations, companies must implement processes that enable them to track, manage, monitor, and control activities within their supply chain.
Some examples include supply chain mapping, aligning the supplier code of conduct with ethical sourcing, and conducting social audits. Being transparent about the findings and implementing corrective actions is necessary to mitigate risk to workers and the business.
Regulatory Obligations
1. Implement a human rights risk management system,
2. Create an internal team to be responsible for human rights protection,
3. Have a declaration of basic principles to protect human rights in the business,
4. Apply preventive measures in their business and those of their suppliers,
5. Enforce a corrective actions policy in the event of a human rights violation,
6. Establish a complaints procedure for human rights violations,
7. Execute due diligence measures regarding suppliers and risks,
8. Document the measures connected to the mandatory due diligence obligations.
Violations
Several penalties will be enforced depending on the violation. This includes fines, civil liability, and exclusion from public tenders for up to three (3) years.
Companies can be fined up to €800,000 in fines or up to 2% of their average annual global revenue.
Conclusion
The Supply Chain Due Diligence Act (SCDDA) is an important new compliance regulation that manufacturers and suppliers conducting business in Germany must give deep consideration. Existing supplier management methodologies and supplier management systems need to incorporate these new requirements into future sourcing needs. Supplier mapping exercises, updates to one’s Supplier Code of Conduct, and tighter controls regarding where and how materials, parts, and products are sourced is critical.
Bio:
Kelly Eisenhardt is Co-Founder and Managing Director at BlueCircle Advisors, an environmental compliance and sustainability consulting and training firm based in Massachusetts (www.bluecircleadvisors.com.) In her role at BlueCircle Advisors, she is responsible for providing business intelligence, strategy and implementation of environmental, social and governance (ESG) risk programs. Her experience aligns well with her client’s needs for technology, compliance, and sustainability expertise by helping companies create and manage their corporate environmental and social responsibility programs.