Can Germany's Act Bring Transparency To The Supply Chain?
The German supply chain due diligence act was enacted on 1 January, 2023. It aims to make supply chains more transparent and upholds human rights and environmental protection. Companies like SAP have announced a solution to help organisations to comply with the new law efficiently. It promises to merge compliance with increasing consumer demand for […]
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The German supply chain due diligence act was enacted on 1 January, 2023. It aims to make supply chains more transparent and upholds human rights and environmental protection. Companies like SAP have announced a solution to help organisations to comply with the new law efficiently. It promises to merge compliance with increasing consumer demand for sustainable processes.
The German government released a report on business and human rights in October 2021 and revealed that 80 per cent of midsize to large companies in Germany need to catch up on their due diligence on supply chains. To improve this situation, the German supply chain due diligence act came into effect on 1 January 2023. Under this Act, companies with 3,000 or more employees will be held responsible for their supply chain partners’ actions, including component suppliers that process or sell manufactured products. This Act is aimed at making supply chains more transparent and upholds human rights and environmental protection in the country.
The Act Brings A Shift In Sustainable Investment
Under this Act, defaulter companies will not be spared and may attract penalties for violation. However, this Act promises to drive sustainable investment in the capital market, with stakeholders demanding compliance from the companies they are dealing with. Compliance under this Act allows companies to stand apart from their competitors.A similar act is slated to come in the European Union, likely after 2024. Unlike the Act in Germany, the Act in the EU will go beyond just suppliers.
What Does The Act Say?
Companies need to set up processes to identify, assess, prevent and remedy human rights and environmental risks, and impacts in their supply chains and operations. This Act mandates that companies provide ways for employees of indirect suppliers to file complaints alerting the company to human rights or environmental violations.
These are the following risks that companies should address: forced labour, child labour, discrimination, the violation of freedom of association, unethical employment, unsafe working conditions and environmental degradation.
Which Companies Are Bound By This Act?
From January 2023, all companies in Germany employing more than 3,000 people must comply with this Act. Next year, the German government has announced lowering the threshold limit to companies with 1,000 employees. The Act will also affect companies with smaller workforces if they are part of a larger supply chain.
Non-Compliance Is Costly
Companies taking no remedial action despite being aware of the violations may face a financial penalty of up to €50,000 and administrative fines of up to two per cent of their average annual revenue if it exceeds €400 million. In addition, defaulter companies will be excluded from public procurement contracts for up to three years.
Opportunity For SAP
Companies like SAP have announced a solution to help organisations to comply with the new law efficiently. SAP announced that its solution is part of its product vision for risk-aware procurement. In a release issued recently, the company announced its focus is on three key value drivers: risk transparency in the core process, full information transparency, and digital collaboration. These features are crucial to establishing risk-aware procurement processes in the organisation — and can be a first step to embark on a transformation journey toward resilient and sustainable value networks.
To Sum Up
The German Supply Chain Due Diligence Act has provided a window to software solution companies that promise to bring transparency to supply chain systems and digitisation. This is a positive step towards ensuring enterprises are offering more sustainable opportunities in keeping with compliance and as a reaction to consumer demands.
Around a third of German consumers are willing to spend more on sustainable products, according to the Global Sustainability Study. The study, conducted by the strategy and marketing consultancy Simon-Kucher & Partners, included over 10,000 participants across 17 countries, with more than 1,000 respondents in Germany.
