From 2023, German organisations will face fines if they do not actively look to prevent human rights abuses in their supply chains.
The new legislation, Lieferkettensorgfaltspflichtengesetz – LkSG (Act), gives the German Federal Office for Economic Affairs and Export Control the power to impose fines on foreign companies who have 3,000 or more Germany-based workers. This number also includes temporary ex-pats working abroad.
From 2024, this number will drop to just 1,000 Germany-based workers.
Despite the new law applying to only larger businesses, it will have an impact on the small- and medium-sized businesses that play a part in their supply chains.
The new Act will oblige affected companies to identify and assess risks within their supply chain in terms of:
- forced labour
- child labour
- violations of the freedom of association
- problematic employment and working conditions
- environmental degradation.
The following measures are required to prevent or minimise the risk of human rights violations in the above areas:
- a policy statement on respect for human rights
- risk analysis i.e. implementing procedures to identify potential adverse impacts on human rights
- a risk management system (including remedial measures) to avoid potential adverse impacts on human rights
- a mechanism to allow for the reporting of potential human rights violations, which must then be investigated by the company
- public documentation and transparent reporting.
These measures are far beyond what is currently being done in many companies. With the increased focus on social and environmental issues, compliance teams need to consider the ‘New Millennium Pillars’ such as supply chains and ecosystems, as discussed by our CEO Scott Lane in Speeki’s recent webinar.
Suppliers with workers in Germany will increasingly need to demonstrate how they are complying with the Act, or they could face their business relationships being terminated.
The conditions of the Act apply in a business's own field and to its immediate suppliers. Indirect suppliers only become subject to the obligations if the business at the head of the supply chain becomes aware of potential breaches.
Punishments for breaches of the Act could include:
- fines of up to EUR800,000, or fines of up to 2% of annual turnover if the company’s average global turnover exceeds EUR400 million
- bars from winning public contracts in Germany for up to three years
- NGOs and trade unions bringing legal cases on behalf of foreign nationals who consider their human rights to have been violated.
Ensuring your business is notified about possible violations at the earliest opportunity is crucial. Therefore, implementing an anonymous reporting solution for third parties should be central to your compliance programme.
This is why Speeki believes that companies should ‘take no chances, hear all voices’ and has developed an anonymous reporting solution that can be used through a mobile app, web portal or telephone.