Supply Chain Act: Protecting Human Rights and the Environment in Global Value Chains

In the beginning of March, the German government adopted a draft for the Supply Chain Act. The law is intended to oblige companies to ensure compliance with human rights and environmental standards along the entire value chain. In the following months, the EU Commission will also present a legislative proposal on due diligence and accountability (2020/2129, INL) to protect human rights and the environment along value chains.

What does the Supply Chain Act entail for companies?
The Supply Chain Act aims to ensure that companies are held accountable for negative impacts on human rights and on the environment that occur along the value chain. Among other things, companies must ensure that their suppliers refrain from child and forced labour, pay appropriate wages and comply with environmental regulations. In addition, the Supply Chain Act stipulates that companies report on their monitoring activities and set up whistleblower systems.

Germany and France as forerunners
In Germany, the Supply Chain Act will apply to corporations with more than 3000 employees starting from 2023. From 2024, the regulation will be extended to all companies with more than 1000 employees, thereby affecting more than 2900 companies. In case of non-compliance with due diligence requirements, the German draft legislation suggests a fine of up to 2% of annual revenues. Moreover, companies that violate the Supply Chain Act will face exclusion from public tenders for up to three years. In France, a similar law has already been in place since 2017 (“Loi de vigilance”).

EU-wide supply chain law
A study authorized by the EU Commission indicated that only one in three companies within the EU thoroughly checks its global supply chains for potential human rights and environmental violations. For this reason, the EU is currently also working on a proposal for sustainable corporate governance that will include regulations on due diligence (2020/2129, INL) in supply chains. The EU Commission plans to present the concrete draft of the law in June 2021. The aim of the EU-wide supply chain law is that in the future not only human rights related risks, but also environmental risks must be identified and examined along the entire value chain on a mandatory basis. While the Supply Chain Act in Germany will apply to companies with more than 3000/1000 employees, the EU is demanding that also small and medium-sized enterprises (SMEs) in high-risk sectors and listed SMEs that sell their products on the European market, examine their supply chains more closely. Such an EU directive would therefore also entail an extensive supply chain legislation in Austria.

How does VieSto support companies with regard to the Supply Chain Act?
In order to prepare your company for the upcoming Supply Chain Act, VieSto supports you by…

  • …identifying social and environmental risks as well as actual impacts in your supply chains. This is done through field analysis, input from internal and external stakeholders and peer group
  • …gaining a better understanding of your own risk profile and creating a change of perspective from business risks to social and environmental risks.
  • … assessing the risks and impact of one’s own business and purchasing practices on the risks in the supply chain.
  • … developing measures to strengthen positive impacts and minimize negative ones.