Zum Hauptmenü Zum Inhalt

Due diligence in the supply chain


Unfortunately, illegal deforestation, child or forced labor, exploitation of minorities, irreversible destruction of nature are not uncommon phenomena in global supply chains. If the EU has its way, companies should be required to take a closer look and no longer tolerate such practices in their supply chains. Germany is already a step ahead in this respect. Since the beginning of the year, the Supply Chain Due Diligence Act (“LkSG“) has been in force there. Austrian companies may also be (indirectly) affected by these new obligations.

What are the objectives of the LkSG?

The LkSG regulates corporate responsibility for compliance with human rights in global supply chains. The LkSG obliges companies to respect human rights and comply with environmental standards by implementing defined due diligence obligations. These obligations apply to the company’s own business operations, to the actions of a contractual partner and to the actions of other (indirect) suppliers. This means that companies’ responsibility no longer ends at their own factory gates but exists along the entire supply chain.

The aim of the law is to prevent the manufacture of products under inhumane working conditions, with insufficient safety standards or through child labor. With regard to environmental protection, the companies affected by the law are obliged to ensure that no environmentally harmful (hazardous) substances are released or improperly disposed of within the supply chain. The annex to the law contains a catalog of internationally recognized conventions for the protection of human rights and environmental protection, from which the protected legal positions within the meaning of the LkSG derive.

Applicability also to foreign companies

The LkSG applies to all German companies that employ at least 3,000 people. However, foreign companies are also affected by the LkSG if they have a branch office with at least 3,000 employees in Germany. The threshold values for the scope of application of the LkSG will be lowered at the beginning of next year. From then on, companies with at least 1,000 employees will also be affected. The scope of application will thus be massively expanded once again.

What obligations arise from the LkSG?

The LkSG obliges the companies covered by its scope of application to take the following measures in particular:

To begin with, companies are required to set up a risk management system that seeks in particular to identify risks in the supply chain and look for ways to end or at least reduce them. Part of this is also a stringent allocation of internal company responsibilities. Furthermore, regular risk analyses are to be carried out, which serve to identify, evaluate and prioritize risks. Also, the affected companies must adopt a policy statement on the planned measures. In addition, preventive measures must be taken to proactively prevent breaches of duty.

In addition, risks and grievances must not only be identified, but appropriate remedial measures must also be provided, which will be applied in the event of an identified breach of duty. Depending on the specific risk structure, appropriate measures must also be implemented with regard to indirect suppliers. In this context, the establishment of a complaints procedure is also envisaged to enable the reporting of (potential) breaches of duty by third parties. Furthermore, the companies are subject to ongoing documentation and reporting obligations regarding the above-mentioned measures and internal risk management.

What are the implications for Austrian companies?

Due to the close economic ties with Germany, Austrian companies are increasingly being confronted with requests from obligated German companies. The tendency in practice is that Austrian supplier companies are not only obliged to accept their customers’ supplier code of conduct, but also to pass on the obligations along their own supply chain. In addition, companies are also often confronted with training and auditing clauses in supplier contracts.

From the German company’s point of view, this is a legitimate concern, as they are legally obligated to take appropriate preventive measures towards suppliers. Conversely, however, since your company does not want to commit itself to passing on countless (different) supplier codes of conduct of your customers, it makes sense to proactively impose self-commitments, for example through your own code of conduct and corresponding training programs. The German contractual partner can then refer to their own compliance structures and, in the course of contract negotiations, a mutually acceptable declaration of commitment (e.g. with regard to compliance with the principles of their own code of conduct) can be found.

“Only those companies that set up their own compliance structures and also take supply chains into account are able to position themselves well in negotiations with German buyers.”

Thomas Baumgartner, Attorney-at-Law and certified compliance officer

An “EU Supply Chain Law” on the horizon

Work on supply chain due diligence requirements is being carried out with vigor not only in Germany, but also at European level. At the beginning of 2022, the European Commission’s draft of the Corporate Sustainability Due Diligence Directive was published. This draft includes a significantly broader personal and factual scope of application and the intended due diligence obligations also go beyond those of the LkSG. Among other things, the draft provides for the obligation to support the achievement of the European climate targets in accordance with the Paris Agreement. It is also intended that violations will be sanctioned more severely than in the LkSG. Apart from fines, civil law liability is also to be implemented.

In a next step, the draft will be discussed further in the so-called trilogue negotiations. The negotiations could possibly be concluded (relatively) quickly, which means that the “EU Supply Chain Law” could come into force as early as 2024. Depending on which implementation period is agreed, the member states would then have two or three years to enact corresponding national supply chain due diligence laws or to adapt existing laws accordingly.

In summary, it can therefore be said that it is only a matter of time before corresponding due diligence obligations along the supply chain are also enshrined in law in Austria.

“Austrian companies should already proactively address their risks in the supply chain. Risks can be minimized, and competitive advantages generated by early implementation of compliance measures such as “supplier code”, “supplier declarations”.

Thomas Baumgartner, Attorney-at-Law and certified compliance officer

Contact us, we are happy to support you.

Disclaimer

This article is for general information only and does not replace legal advice. Haslinger / Nagele Rechtsanwälte GmbH assumes no liability for the content and correctness of this article.

 

13. April 2023

 
Go back to News
  • Referenz | Haslinger / Nagele, Logo: JUVE Awards
  • Logo JUVE
  • Promoting the best. Women in Law Award