Two months to Germany’s supply chain due diligence law – are brands ready?

From January 2023 brands selling fashion in Germany, or operating within the country will be bound by the Due Diligence Law concerning environmental and social responsibility.

Timely, as last week China Daily reported that a garment factory blaze in Henan province resulted in the death of 38 people after an electro-welding operation on the first floor ignited airborne cotton fibre, which then set fire to large piles of clothing.

It came just on the heels of two fires within the space of a week in the Narela Industrial Area, Delhi, India, which led to two deaths and 18 injuries.

Germany, keen to address the issue of due diligence negligence in supply chains by brands, is now less than two months away from signing off on its Act on Corporate Due Diligence Obligations in Supply Chains (LkSG).

But the question is, are brands and retailers geared up for the demands under the new law?

Mauro Scalia, director of sustainable businesses at Euratex, tells Just Style exclusively, respect for human rights in global supply chains is a key matter for the European industry, stating that large companies at the top of the supply chain already pass on the obligations imposed on them to suppliers and subcontractors through contractual clauses.

He added: “With the planned entry into force of the Supply Chain Act on 1 January 2023, companies face enormous bureaucratic burdens and reporting obligations. From 2023, companies that employ at least 3,000 workers and thus fall within the scope of the Act will have to prepare an annual report on the fulfilment of due diligence obligations in the previous business year.”

“The national authority responsible for compliance with the due diligence obligations has published a very extensive catalogue of 437 questions for this purpose, which companies are to answer for their report. In addition, significantly more companies are actually affected by the law than intended from the defined scope of the law. In the current dramatic situation of global distortions, business-threatening high energy prices and disrupted supply chains, the medium-sized companies, in particular, will face great challenges and burdens.”

Under the LkSG, enterprises have an obligation to exercise due regard for the human rights and environment-related due diligence obligations set out in their supply chains with the aim of preventing or minimising any risks.

The act obliges all companies operating in Germany in 2023 with 3,000 or more employees to implement a supplier risk management system. The risk management system must help assess, mitigate, and monitor human rights and environmental risks in the company’s supply chain. Reporting to the German government will be required no later than April of 2024.

The due diligence act obligations include:

  • establishing a risk management system
  • designating a responsible person or persons within the enterprise
  • performing regular risk analysis
  • issuing a policy statement
  • laying down preventive measures in its own area of business and vis-à-vis direct suppliers
  • taking remedial action
  • establishing a complaints procedure
  • implementing due diligence obligations with regard to risks at indirect suppliers
  • documenting and reporting

How it is measured:

  • the nature and extent of the enterprise’s business activities
  • the ability of the enterprise to influence the party directly responsible for a risk to human rights or environment-related risk or the violation of a human rights-related or environment-related obligation
  • the severity of the violation that can typically be expected, the reversibility of the violation, and the probability of the occurrence of a violation of a human rights-related or an environment-related obligation
  • the nature of the casual contribution of the enterprise to the risk to human rights or environment-related risk or to the violation of a human rights-related or environment-related obligation.

In this regard, the human rights group FEMNET and European Centre for Constitutional and Human Rights (ECCHR) have joined forces and addressed a public letter to those companies to which the German LkSG will apply from 2023 and which have not yet signed the International Accord.

“The German law must contribute to the effective protection of workers. We are convinced that the failure to sign the Accord is a violation of companies’ duty of care,” said Dr Miriam Saage-Maaß, lawyer and legal director of ECCHR. “We will therefore explore the legal means available to hold companies accountable here.”

The detailed report, which lays down the foundation as well as a step-by-step guide including risk management, risk analysis and preventive measures among other sections as part of the Act on Due Diligence can be found here.

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