With the introduction of the Act on Corporate Due Diligence Obligations in Supply Chains (German abbreviation LkSG; also known as the Supply Chain Act), companies will be obligated to adapt their processes along the entire value chain to the legal requirements in order to protect the environment and human rights. The implementation of these requirements is also an important component of a company’s corporate social responsibility (CSR) strategy. Furthermore, more and more consumers expect companies to act carefully and sustainably.
Our experts will assist you with the risk analysis, advise you on the selection of suitable software that supports your processes, for example in purchasing, production/manufacturing or along the entire supply chain, and on the integration of the software solution into existing systems.
The Supply Chain Act poses new challenges for companies and requires action
The German Act on Corporate Due Diligence Obligations in Supply Chains – also known as the Supply Chain Act – in force since January 1, 2023. It initially obliged companies based in Germany, and companies with a branch in Germany, (cf. sec. 13d of the German Commercial Code; HGB) that employ more than 3,000 people to improve and document their processes along the entire supply chain. From January 1, 2024, companies with 1,000 or more employees will also be affected.
At the European level, an even stricter law is in the works. The provisions are intended to go above and beyond the measures of the German Supply Chain Act. They shall apply to the following across all sectors:
- Companies headquartered in the EU with more than 250 employees and an annual turnover of more than EUR 40 million
- Companies headquartered outside the EU will have to adhere to the new rules if they turn over more than EUR 150 million, at least EUR 40 million of which in the EU
As soon as the law enters into force in Europe, the German Supply Chain Act will need to be adapted to the stricter provisions of the EU directive.
Environmental protection and human rights
The aim of the Act on Corporate Due Diligence Obligations in Supply Chains is to enforce compliance with basic human rights standards in global supply chains worldwide. These standards include, for example:
- The sanctity of life and health
- The prevention of slavery, forced labor and child labor
- Fair working conditions
- Environmental obligations to protect human health
Clear requirements regarding corporate due diligence obligations
Companies themselves will be responsible for implementing the requirements:
- They must ensure transparency in their supply chain.
- They must make sure that the suppliers along their supply chain uphold basic human rights standards – from raw material to manufacturing process to final product. Nevertheless, it should be noted that companies cannot always directly influence those who violate these standards. However, in case of violations, they are required to become active as warranted.
- Their due diligence obligation with regard to social and environmental risks also extends to upstream suppliers with the Supply Chain Act.
- Otherwise, sanctions and reputational damage could ensue.
Responsibility for the entire supply chain
- Duty of care – introduction of systematic risk management
- Reporting obligation – documentation and publication of known violations and corresponding preventive measures
Download: Whitepaper "From Act on Corporate Due Diligence Obligations in Supply Chains to supplier management".
pdf, 1 MB
You will learn how to use IT solutions to meet the legal requirements and to use opportunities for your business success. In addition, the white paper contains the results of a survey on the connection between employer attractiveness and compliance with human rights and environmental standards.
Fines for violations and omissions
Compliance with the regulations is checked by the German Federal Office for Economic Affairs and Export Control (BAFA). In the event of omissions or breaches of their due diligence and documentation obligations, companies risk being fined or excluded from public tenders. You can find details below in the FAQ on the LkSG.
What measures should companies adopt? Supply Chain Act checklist for companies
- Review legal requirements for your own company
- Adopt a policy statement regarding the human rights strategy of the company
- Define responsibilities within the company
- Identify and analyze transparency and stakeholders in the supply chain
- Establish information exchange with partners that is as efficient as possible, for example via a central platform
- Identify risks and introduce supply chain risk management with suitable procedures for risk analysis (e.g. supplier audits or cross-checking with external data sources)
- Derive effective measures for preventing, minimizing or resolving human rights violations
- Set up complaints management
- Define KPIs for measuring success; these should also be incorporated into the company's sustainability report In this way, the CSR report can serve both as a check by the authorities and as proof of careful and sustainable corporate action towards consumers.
- Review, evaluate and, if necessary, re-implement IT systems to support the requirements
How does LHIND use digital solutions to support companies in implementing the new Supply Chain Act?
Digital solutions help to meet the requirements of the Act on Corporate Due Diligence Obligations in Supply Chains and to bring all the data and information required for this together in one central system. This allows transparency to be created, data to be analyzed and documented, and risks to be identified at an early stage.
With our many years of experience and suitable IT solutions, we can support you in implementing the requirements of the Act on Corporate Due Diligence Obligations in Supply Chains,
- Risk and needs analysis
- Recommending and selecting software that is optimally suited to your needs
- Individual adaptation of the IT solution
- Integration into existing systems
- Creation of required interfaces
- Training of your employees
- If required, also subsequent system supervision
Introductory workshop on LkSG with LHIND
Do you still not know what the LkSG means for you? How should you proceed? What IT solutions fit your needs? We can help you with:
a 1-day introductory workshop with 2 LHIND experts:
- Status quo analysis
- Definition of requirements & best practices
- Requirement prioritization
- Implementation options & procedures
- Presentation of results
Total price: € 2,500
Download & contact
All info about our workshop
Software solutions and modular platforms for the Act on Corporate Due Diligence Obligations in Supply Chains for companies
What can you expect from software solutions for the Act on Corporate Due Diligence Obligations in Supply Chains and what can they cover? The following shows a selection of possible functions and aspects:
However, feel free to contact us, and we will take a look at what you really need and in which combination.
In many IT solutions for the LkSG, companies can store their customer-specific requirements along their supply chains. For example, special specifications can be created for auditing suppliers, automated processes can be defined and individual questionnaires can be stored, which are then completed by the partners and monitored continuously by the system. It is also possible to create individual codes of conduct and to demand previously clearly defined corrective actions from suppliers and to track them. Inspections, audits, and their results, further information on suppliers and production sites can usually be managed centrally, etc.:
Integration of new suppliers and partners with special workflows. Automated provision and receipt of documents and information via software or on a platform, automated tracking of receipt or regular updates, coordination and documentation of checks and approval by the company, and sending of feedback to the supplier.
Easy and quick creation of individual survey templates to request specific information required from partners and suppliers.
Share your own company's policies and codes of conduct with your partners via software/a platform and have them countersigned there easily and in a manner sufficient for audits.
Map a diverse risk management system across all stages of your supply chain with the support of comprehensive and configurable assessment and monitoring systems.
Audit-compliant management of all of your audit documents, have an overview of the audit status of your supply chain partners displayed, alert functions for updates, etc. Various solutions can provide you with timely notifications regarding expiring certificates, validity periods or renewed audits and you can initiate new audit cycles via the systems. Various providers also offer the central retrieval and control of results, necessary corrective actions, and follow-ups.
To fulfill your due diligence obligation, various platforms offer dedicated workflows for tracking and managing deficiencies and corrective actions discovered and to be implemented at your partners.
Easy success monitoring and facilitated reporting obligations thanks to evaluation options, dashboards, and partly preconfigured reports.
Some solutions offer you a central overview of your CSR measures and supply information for regular reporting and evaluations.
Clear dashboards show you all critical and incomplete issues, risks, and to-dos in a well-structured form and in real time wherever possible.
In many systems, suppliers and their preliminary stages including production sites and the origin of raw materials can be recorded and monitored for comprehensive management of all tier levels.
Advantages of software solutions for Act on Corporate Due Diligence Obligations in Supply Chains implementation
The Supply Chain Act creates a binding framework that supports companies in fulfilling their responsibility to protect human rights and the environment along their supply chain. A corresponding software solution reduces the burden and helps you to fulfill your due diligence obligations effectively.
- Transparent and reliable compliance with the legal requirements of the Act on Corporate Due Diligence Obligations in Supply Chains
- One central piece of software or system for a complete overview of the status of sustainability in the supply chain
- Centrally managed compliance with your due diligence obligations and documentation of efforts
- Access to all procurement-related documents, audit data and reports
- Early warning of non-compliance or milestones using AI and data analytics
- Simple and efficient control of your database without media breaks and manual work steps, significantly fewer e-mails
- Integration into existing system landscapes, linking and takeover of relevant data from your other systems, such as supplier master data from ERP systems, product data management (PDM) tools or quality management platforms, analysis tools, risk management and compliance systems, etc.
- Protection against lasting reputation damage and monetary compliance penalties
For whom are LHIND’s services and Due Diligence software relevant?
- Companies in all sectors in Germany
- Companies with national and international suppliers and partners along their supply chain
- Companies with 3,000 or more employees (Act on Corporate Due Diligence Obligations in Supply Chains since January 2023)
- Companies with 1,000 or more employees (Act on Corporate Due Diligence Obligations in Supply Chains as of 2024)
These thresholds may change when the EU Directive is introduced.
Good reasons to choose LHIND
As a service provider for IT consulting and system integration, we can support you with our expertise and digital solutions to meet the legal requirements of the Act on Corporate Due Diligence Obligations in Supply Chains, to prevent sanctions and damage to your reputation.
- Our team of IT consultants, developers and IT security specialists has years of operational and strategic expertise in logistics along the entire supply chain.
- We develop and implement suitable IT solutions to comply with the Act on Corporate Due Diligence Obligations in Supply Chains, and its challenges for your company.
- We support our customers from strategy and conception to end-to-end system integration and are always consistently geared to their needs.
- When realizing IT projects, we rely on classic or agile project management as well as hybrid variants – depending on what is best suited to the project at hand.
- We work for medium-sized organizations and large corporations.
Our extended service along the supply chain
LHIND is your first port of call, not only when it comes to the Supply Chain Act, but also when it comes to the digitalization of your entire supply chain. For example:
- Identification of potential improvements and realization using suitable IT solutions
- Linking information flows and technical processes
- Creation of end-to-end data transparency by integrating appropriate software and analysis tools
- Automation of data-based processes
- Interfaces to ERP systems (e.g. for the integration of supplier master data)
- Integration into analysis tools (e.g. existing reporting tools)
- Further risk management beyond the Act on Corporate Due Diligence Obligations in Supply Chains
Do you need advice or support in implementing the Act on Corporate Due Diligence Obligations in Supply Chains in your company?
Feel free to contact us! We’d be delighted to learn more about your upcoming challenges and support you in facing them.
Act on Corporate Due Diligence Obligations in Supply Chains FAQs
The Act on Corporate Due Diligence Obligations in Supply Chains came into force in Germany on January 1, 2023.
The German Act on Corporate Due Diligence Obligations in Supply Chains, also known as the Supply Chain Act, obliges companies to adapt their processes along the entire supply chain to the legal requirements in order to protect the environment and safeguard human rights. Initially, the law applied to companies with 3,000 employees or more. From 2024, it will also apply to companies with 1,000 or more employees.
The aim of the Act on Corporate Due Diligence Obligations in Supply Chains is to enforce compliance with basic human rights standards in global supply chains worldwide.
Companies are obliged to adopt a policy statement. As part of their due diligence, they must also introduce systematic risk management, conduct risk analyses and embed all risks and preventive measures, document them and make them publicly accessible (for example in the CSR report). In addition, companies must establish a complaints procedure.
In Germany, there are currently about 900 companies (with more than 3,000 employees) that have been affected by the Act on Corporate Due Diligence Obligations in Supply Chains, since January 2023. From 2024, a total of 4,800 companies (with 1,000 employees or more) are expected to be affected.
If the law is violated, companies must expect sanctions and damage to their reputations. Depending on the severity of the offense, fines of EUR 100,000, EUR 500,000 or even EUR 800,000 could be imposed (source: Federal Law Gazette, as of July 22, 2021). In certain cases, companies that generate a turnover of more than EUR 400 million in a year must expect a fine of up to 2% of their average annual turnover. In addition, exclusion from public procurement for a period of up to three years is also possible.
Companies are obligated to ensure transparency in their entire supply chain in the future. They must guarantee that their own business unit, as well as all suppliers and upstream suppliers, comply with social and ecological standards in order to avoid sanctions and damage to their reputations.