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German Supply Chain Due Diligence Act: Ensuring Human Rights and Environmental Sustainability

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The German Supply Chain Due Diligence Act (SCDDA) introduces new requirements for companies to ensure human rights and environmental sustainability in their supply chains. This law aims to prevent violations of human rights and environmental standards by obliging companies to conduct risk analyses, implement due diligence measures, and report on their efforts.

Key Requirements

The following are the key points of the SCDDA:

Risk Management

  • Companies must introduce a risk management system or adapt their existing one.
  • This includes assigning responsibilities, financial capacities, and personnel resources within relevant departments (e.g., purchasing, compliance, sustainability) to implement and monitor human rights standards.

Risk Analysis

The annual risk analysis process includes:

  • Abstract risk analysis: based on country and industry risks
  • Concrete risk analysis: using internal findings, web screenings, questionnaires, certifications, etc.
  • Risk assessment and prioritization: based on appropriateness criteria

Policy Statement

Companies must adopt a policy statement outlining their human rights strategy, including procedures for complying with due diligence obligations, specific risks, and expectations from employees and suppliers.

Preventive and Remedial Measures

Based on risk analysis results, companies must take or review appropriate preventive and remedial measures, such as:

  • Supplier selection and control
  • Code of conduct implementation
  • Training courses
  • Sustainable contract design
  • Audit concept

Complaints Procedure

Companies must establish, implement, and publish a complaints procedure for affected persons or those with knowledge of potential violations.

Documentation and Reporting

The fulfillment of due diligence obligations must be documented, and an annual report submitted to the responsible authority.

Penalties for Non-Compliance

The law provides for penalties for non-compliance, including fines up to €8 million (or 2% of average annual turnover for companies exceeding a certain threshold) and exclusion from public tenders.