Supply Chain Due Diligence Act

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New regulations and effects on medium-sized companies

As of 01.01.2024, the scope of the Supply Chain Due Diligence Act was extended to cover more medium-sized companies: Since 01.01.2023, the law has applied to companies with more than 3,000 employees; now companies with more than 1,000 employees are also affected.

The main purpose is to make social responsibility of German companies for sustainable development, such as respect for human rights and environmental protection, a legal obligation, and through its jurisdiction over German companies, it extends these measures to the global supply chains.

Due to the extensive due diligence obligations and the serious legal consequences imposed by this act, many German companies, German branches of foreign companies as well as German companies’ suppliers, even if they are located outside of Germany, are all affected directly and indirectly.

What due diligence obligations under the SCDDA must medium-sized companies fulfill?

Establishment of a risk management system

– Designating a responsible person or persons within the company

-Conducting regular risk analyses and issuing a policy statement

-Laying down preventive measures

-Taking remedial action and establishing a complaints procedure

-Documenting and reporting

Sustainable supply chains: Social responsibility of German companies

German companies subject to jurisdiction are required to conduct human rights due diligence on their global supply chains, including the prohibition of child labour, the prevention of slavery and forced labour, non-discrimination, the prevention of illegal occupation of land, occupational health and safety and related health hazards, the prohibition of deductions from an adequate living wage, the right to form trade unions and workers’ representatives, the prohibition of causing any harmful soil changes or water pollution, and the prevention of torture.

Legal consequences of non-compliance with the SCDDA

Companies which had failed to fulfill their statutory obligations will face fines of up to €8 million or 2% of annual turnover. The framework of fines based on revenue only applies to companies with an annual turnover of more than €400 million. Furthermore, a company that violates the Act may not be awarded a public contract for a period of three years if it is fined more than a certain minimum amount (the threshold depends on the severity of the violation: €175,000 or €1,500,000, €2,000,000 or 0.35 per cent of annual turnover).