Logistics
6/8/2021

Supply chain law and sustainability

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What is the EU-wide supply chain law all about?

The Supply Chain Act (German “Lieferkettensorgfaltspflichtengesetz”) implements the UN Guiding Principles on Human Rights and the Coalition Agreement in a binding way. In the background is the obligation of all entrepreneurs and EU member states to uphold human rights in global supply chains. This happened in Germany between 2016 and 2020 on a voluntary basis. Under the name "National Action Plan for Business and Human Rights" (NAP), the responsibility of German companies was laid down in law for the first time. However, the German government concluded that too few companies were fulfilling their human rights due diligence obligations through voluntary commitment alone.

This was also confirmed by a company survey from 2019: only 400 of 3000+ companies contacted completed the questionnaire sent out. Finally, it was determined that only 20% of these 400 participating companies also met the requirements of the NAP. Since more than 50% should have fulfilled their due diligence obligations according to the NAP, a whole legal regulation was set in motion - the Supply Chain Due Diligence Act, which was approved by the Federal Council on June 25, 2021.  

The following duties of care were in the law laid down:

1. Establishment of a risk management system  

2. Definition of an in-house responsibility

3. Performance of regular risk analyses

4. Adoption of a policy statement

5. Anchoring preventive measures within the company's own business area and vis-à-vis direct suppliers  

6. Taking corrective action

7. Establishing a complaints procedure  

8. Implementing due diligence measures with regard to risks at indirect suppliers  

9. Documentation and reporting

In this context, appropriate action that satisfies due diligence requirements is defined according to 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, logistics companies are its heartbeat. Without them, Germany as an export nation would not exist. Container ships, airplanes, trucks and freight trains are constantly supplying us with raw materials and foodstuffs. The supply chains of German companies extend to all parts of the world." Gerd Müller, Federal Minister for Economic Cooperation and Development

To follow the Federal Minister's words, the Supply Chain Act is essential for making German companies jointly responsible for compliance with minimum social and ecological standards along the supply chain. For although globalization has boosted international trade and thus given many countries a significant boost in development, 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 able to be held legally accountable for their offenses in order to create fair working conditions everywhere in the world. That is why German companies bear responsibility not only for their domestic employees, but also in the countries of production.

What does the Supply Chain Act mean for logistics?

The Supply Chain Act will initially be mandatory for companies with at least 3,000 employees in Germany from 2023, and for companies with at least 1,000 employees in Germany from 2024. However, this does not mean that SMEs will not be affected by the provisions: Insofar as SMEs are suppliers to larger companies, these can pass on the conditions to their suppliers. Thus, SMEs are also indirectly affected by the law. In the event of violations of human rights, the German Federal Office of Economics and Export Control (BAFA) will be used as a monitoring unit.

How companies already assume their responsibility

In the automotive sector, for example, well-known manufacturers have joined forces in the "Drive Sustainability" initiative to make their supply chains more sustainable in the future. Around 50 percent of the companies in the Textile Alliance are also committed to fairness in production and respect for human rights. In the case of new start-ups, many investors require compliance with so-called "ESG standards" (environmental, social and governance criteria).

In a recent study by AMC and CBS, 162 procurement specialists were asked about their attitude towards the Supply Chain Act. The authors of the study came to 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 essential.
  • A good 86 % of the purchasing specialists stated that they would add sustainability clauses to their contracts with suppliers in future.
  • Almost 70 % of respondents agree that ISO certifications, for example, will gain in importance as a result of the Supply Chain Act.
  • 88% of respondents see the use of digital solutions as a benefit in risk management.

Conclusion

The Supply Chain Act has great potential to finally bring sustainability issues to all companies trading in and with Germany. Even though a number of industries have already formed alliances, environmental commitment is essential in all companies. Governmental certifications such as ISO can make the effort visible in the first step - but ultimately the idea of sustainability should be incorporated into the values of all German companies in order to be able to change more together.

TradeLink easily connects you to your supply chain, enabling efficient and predictive logistics. More than 200 companies already use our tool every month. By enabling digital exchange as well as documentation of supply routes, TradeLink is the ideal tool to secure you for the due diligence requirements in points 3 and 9. With the approximately 30% shorter truck standing times in the yard that our customers experience by using TradeLink, quite a few CO2 emissions are also saved.

You want to learn more about your possibilities with TradeLink? Book your personal demo now and let one of our logistics experts guide you through the tool!

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