Understanding the Obligations of the German Supply Chain Due Diligence Act (SCDDA)

The German Supply Chain Due Diligence Act (SCDDA) is a piece of legislation that was enacted in 2017 to address the issue of human rights violations in global supply chains. The act requires companies to take steps to identify and prevent such violations, particularly in relation to their own operations and those of their suppliers.

Starting January 2023, all companies in Germany with over 3,000 employees with a head office, administrative seats, or statutory seats in Germany will be required to comply with the act. Employees are considered as any worker with an employment contract longer than 6 months. From 2024, the lower limit for the number of employees will be reduced to 1,000. Businesses with a smaller workforce may also be affected if they are part of a larger company's supply chain.

Due Diligence Obligations & Preventive Measures Under SCDDA

To be compliant with the German Supply Chain Due Diligence Act (SCDD Act), companies must take the following steps:

1. Identify and assess potential human rights risks in their supply chain: This involves conducting a thorough analysis of the potential risks of human rights violations in the supply chain. This may include risks related to labor practices, environmental impacts, and other issues.
2. Establish policies and procedures to prevent or mitigate human rights risks: Companies should develop policies and procedures that outline how they will prevent or mitigate human rights risks in their supply chain. This may include implementing measures such as audits, supplier training programs, and grievance mechanisms.
3. Implement measures to ensure that policies and procedures are being followed: Companies must have systems in place to ensure that their policies and procedures are being effectively implemented. This may involve conducting regular audits and assessments of suppliers to ensure that they are complying with the company's policies.
4. Conduct regular monitoring and review of the effectiveness of the supply chain due diligence system: Companies should have a process in place for regularly reviewing and assessing the effectiveness of their supply chain due diligence system. This may involve gathering feedback from employees, suppliers, and other stakeholders.
5. Provide training and information to employees on the supply chain due diligence system and human rights issues: Companies should ensure that their employees are aware of the supply chain due diligence system and the importance of human rights. This may involve providing training and information on these topics.
6. Report on efforts to address human rights risks in the supply chain: Companies are required to report on their efforts to address human rights risks in their supply chain. These reports must be made publicly available and must be reviewed by an independent third party.

By following these steps, companies can ensure that they are compliant with the requirements of the SCCD Act and are taking proactive steps to prevent human rights violations in their supply chain.

Enforcement Actions & Fines under German Supply Chain Due Diligence Act (SCDDA)

Non-compliance with the German Supply Chain Due Diligence Act (SCDDA) can have significant consequences for companies, including

• Monetary fines of up to 8 million euros for non-compliance
• Exclusion from winning public contracts in Germany for up to three years
• Companies with an average annual turnover of over 400 million euros may also be fined up to 2% of their average annual turnover

The Federal Office for Economic Affairs and Export Control (BAFA) has the power to enforce SCDDA requirements and can initiate investigations or respond to requests from affected parties. BAFA has the right to enter business premises, demand information, and inspect documents. Trade unions and NGOs may also have the authority to bring legal action on behalf of an affected party. It is therefore important for companies to ensure they are in compliance with the SCDDA to protect their reputation and financial stability.

In addition to the financial and reputational risks of noncompliance, companies can also see the SCDDA as an opportunity to stand out from competitors by demonstrating their commitment to integrity and sustainability. Equivalent legislation for the European Union called EU Mandatory Human Rights Due Diligence Directive is expected to come into force after 2024, so by implementing the SCDDA as quickly as possible, businesses can ensure that they are prepared for future regulations.