The German Supply Chain due diligence legislation (Lieferkettengesetz – LkSG or German Supply Chain Act – GSCA), published in June 2021, introduces challenging new legal requirements that have not been previously faced by most companies. While LkSG legal requirements will initially apply only to the largest companies with a registered office in Germany, the European Union is currently preparing similar requirements that will probably become effective throughout European Countries in the near future.
In this blog we will not review the details of the LkSG legislation, as many online publications presenting these new supply chain due diligence requirements are already available, but we will focus on solutions that companies could implement and the challenges that they will be facing in this process.
Once appropriate environmental and social risk assessment has been performed and any potential risk identified, which is a relatively straightforward process, the difficulties will start for most companies. The most challenging LkSG’s requirement is not to develop a new policy statement (most large companies in Germany have already published ESG policy commitments), not to develop a supplier self-assessment questionnaire (many such questionnaires are already available on the Internet). The real challenge that most, large as well as small, companies will be facing is the ability to implement an effective remediation mechanism which evaluates, confirms, and addresses any potential risk identified at the level of one or of a group of suppliers which maybe located thousands of kilometres away.
In today global supply chains, there is no two suppliers that are presenting exactly the same potential environmental and/or social risks. Risks may also differ for different commodities, raw materials, industry specific supply chains and regions of the World. To develop and provide cost effective risk assessment and remediation solutions to address such diversity of situations and local context is the real challenge that most German companies will have to face when responding to the new LkSG requirements.
Another difficulty which has been incorporated in the Lieferkettengesetz, is the obligation to implement a comprehensive and effective grievance mechanism accessible to all relevant stakeholders across a company’s supply chain. This is no trivial task as such complaint mechanism requires not only to be accessible but also to offer options to raise anonymous complaints, to ensure confidentiality, to meet all relevant data privacy and EU GDPR requirements and most importantly of all ensure that any complaint raised is satisfactorily addressed within a reasonable time frame.
At e-Acore, we will not pretend to have a cheap and effective solution that will be suitable for all types of companies required to implement these new German, and soon to come EU, supply chain due diligence legal obligations. However, over the last few years we have developed online solutions which support the cost-effective implementation of social and environmental risk assessment, risk management, remediation and complaint mechanisms that allow companies to address some of the most challenging LKSG requirements.
To address any risk identified in a supplier’s supply chain and ensure that appropriate remediation is effective, it is generally necessary to perform onsite evaluation(s) and implement appropriate follow-up activities which may also require some sites visits. The e-Audit online platform (www.e-auditservices.com) allows companies to address social and environmental risk across global supply chains through the management of complex audit programs, including options for risk management surveys, suppliers’ self-assessment, second party audits performed by competent independent local auditors, and if required third-party certification audits. The e-Audit platform provides a Company with the tools required to be managing risk across a complex supply chain, without having to be dependent on a single expensive third-party audit organisation. Based on potential risk identified it is possible to focus on specific high-risk areas using a range of evaluation methodologies and resources needed to achieve effective resources. Even large global auditing organisations, which maybe quite expensive, may not always have the required local competences to satisfactorily address the needs of a company. E-Audit allows to connect with multiple auditing organisations as well as independent local auditors and provides an effective solution for a company to constantly monitor risk across its supply chain while relying on independent competent local resources that can perform relevant site evaluations and report on the actual level of risk identified. Finally, companies can have their own templates (policies, procedures, risk management surveys, self-assessment and audit checklists) uploaded in the platform or we can provide access to relevant industry customized templates for organisations that may not have such templates readily available.
The e-Voices online platform (www.e-voices.com) provides companies with a ready to use grievance mechanism that complies with LkSG’s requirements and can be implemented across complex global supply chains. The platform has been successfully deployed in the tuna fishery industry to allow crew members on high-seas fishing vessels to have access to an effective complaint mechanism, through simple but clear and effective complaint questionnaires available in multiple languages. Complaints can be received by the relevant supplier, by the company itself or by an independent third-party to ensure that complaints are adequately and timely addressed in a confidential and anonymous manner to avoid any potential retaliation. Furthermore, e-Voices allows companies to keep track of the complaints received, to maintain records of communication with the complainant(s) as required and through some short online videos, it is possible to provide local workers with relevant information in their own language. The e-Voices platform is a ready to use tool that effectively complements any risk management program and is fully aligned with the LkSG’s requirements.
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 Companies (German legal entity) with more than 3,000 employees will have to comply from 01 January 2023 and companies (German legal entity) with more than 1,000 employees will have to comply from 01 January 2024.
 For an accurate description of the new LkSG legal requirements it is recommended to review the legal publication itself: https://www.bmas.de/SharedDocs/Downloads/DE/Internationales/act-corporate-due-diligence-obligations-supply-chains.pdf?__blob=publicationFile&v=3