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The Supply Chain Act (LkSG) Scope, Implementation and Controls

The supply chain due diligence act

Millions of people worldwide live in poverty because there are no minimum social standards. This includes 79 million children who work under exploitative conditions, for example in textile factories, mines or in agriculture. The Supply Chain Due Diligence Act (LkSG), also known as the Supply Chain Act, is intended to remedy this.

What is the Supply Chain Act (LkSG)?

The aim of the law, which is in effect in Germany as of January 1, 2023, is to improve the protection of human rights and the environment in global supply chains. It is based on internationally recognized codes of conduct and prohibitions. In particular, it concerns companies adhering to fundamental human rights standards. These include the prohibition of child labor and forced labor. The Supply Chain Act also covers some key environmental standards, such as the requirement that drinking water must not be contaminated. The law imposes due diligence obligations on companies to ensure that human rights are respected within the company, among contract partners, and suppliers. The most important of these are that companies must establish risk management and a complaints procedure. Measures must also be taken to reduce risks and remedy violations. Once a year, companies must report how they and their business partners prevent human rights violations from occurring or remedy them if they do occur. In addition, they must report whether violations have occurred.

Who is the Supply Chain Act for?

The obligations arising from the law apply to companies that have their head office, main branch, administrative headquarters, statutory seat, or branch office in Germany and typically employ at least 1,000 workers domestically.

When does it apply?

The law has been in effect since January 1, 2023, initially for companies with at least 3,000 employees, and from 2024 also for companies with at least 1,000 employees in Germany.

Am Anfang einer jeden Lieferkette steht ein Mensch.

Here you can find the frequently asked questions briefly explained again:

The Federal Office of Economics and Export Control (BAFA) checks whether companies comply with the law. In addition, the BAFA checks the company reports and follows up on submitted complaints. If it detects shortcomings or violations, it can impose fines or exclude companies from public procurement.

The law oversees violations by German companies in supply chains worldwide. For the law to apply to a company, it must have its head office, main branch, administrative headquarters, statutory seat, or a branch office in Germany.

Companies must adhere to the nine due diligence obligations. These include: 1) establish a risk management system, 2) determine internal responsibility, 3) conduct regular risk analyses, 4) make a policy statement, 5) implement preventive measures (in the company and with suppliers), 6) take remedial action, 7) set up a complaints procedure, 8) implement due diligence obligations in relation to indirect suppliers, 9) documentation and reporting.

The law aims to improve the protection of human rights and the environment in global supply chains.

The Supply Chain Act (LkSG) in Germany applies to companies that have their headquarters in Germany or whose business activities have a significant connection to the German market. The law primarily applies to larger companies with more than 3,000 employees in Germany. However, from 2024, the law will be extended to companies with more than 1,000 employees. It applies to all sectors and covers the entire supply chain of the company, including direct and indirect suppliers. It requires companies to prevent and remedy human rights abuses and environmental violations in their supply chains. Companies must be able to demonstrate compliance with the law and can be subject to fines and other sanctions in the event of violations.

The Supply Chain Due Diligence Act (LkSG) in Germany requires companies to take responsibility for human rights and environmental standards in their global supply chains. The law covers several key aspects:

Risk Analysis: Companies must conduct regular risk analyses to identify potential negative impacts of their business activities on human rights and environmental standards.

Preventive Measures: Based on the risk analysis, companies must develop and implement preventive measures to prevent violations.

Remedial Measures: If companies find that they have caused or contributed to human rights abuses or environmental violations, they must take remedial action.

Reporting and Transparency: Companies are obliged to report publicly on their due diligence in the supply chain and make their reports accessible.

Complaint Mechanisms: Companies must establish effective complaint mechanisms to report and address potential violations.

Liability: Companies can be held civilly liable for violations of the law and can face fines.

Our software SCORES – master the LkSG with minimal effort

Is your company affected by the LkSG? We have the appropriate software solution

Our solution supports you in complying with all due diligence obligations in a process-supported manner. The entire process guides you step by step through all obligations. This way, you minimize your risk of having to pay fines or penalties or even eliminate it entirely. We take care of the time-consuming and complex risk analysis for you completely. You can also detail measures to minimize risks and prevent or reduce violations of the LkSG and assign these tasks to those responsible. The software documents all results and processes and automatically transfers them into the LkSG report. There is no need for a frantic gathering of all documents at the end of the year. In addition, with our artificial intelligence software for event-related risk analysis, you have the risks in your own business area as well as in the supply chains under control on a daily basis (event-related risk analysis). Full lawyers developed our solution together with experienced sustainability and IT experts. The legal expertise is thus built in – and you can calmly turn to other tasks.

With our software solution, we implement the supply chain act uncomplicatedly in your company, let us advise you now.

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