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The Supply Chain Act: A statement

The Supply Chain Act will be implemented on 01.01.2023

The words on everybody’s lips are “the Supply Chain Act” and on 1 January 2023 it will be implemented at the national level for companies with their headquarters in Germany and more than 3,000 employees (and one year later for all companies with more than 1,000 employees). As an industrial country, Germany is particularly dependent on intermediate inputs from other countries. According to the German Federal Ministry for Economic Cooperation and Development, intermediate inputs account for 29 per cent in the automotive industry alone; in the textile industry, for instance, this number even reaches 63 per cent.  

Voluntary initiatives and measures have not been sufficient so far

History has shown that purely voluntary initiatives and measures are not adequately implemented to counteract human rights abuses. Thus, the law is certainly a positive signal that takes a binding step on the road to sustainable supply chains with defined requirements in relation to companies’ duties of care. But here we can already see the first challenge.

We do not speak from “the” supply chain in the Supply Chain Act

Duties of care differ depending on the stage in the supply chain, on the type and scope of the commercial operations, the company’s level of influence on those causing injuries, and the severity of injury typically to be expected. Above all, for example, focus is placed on direct responsibility, whereas it would have been more appropriate to focus on wider social responsibility. What does that mean specifically? Even if a company is not directly responsible for an offence, with size comes a certain social responsibility that must be shouldered.

This also demonstrates an additional difficulty with the law: The concept of a supply chain in its proper sense is lost. Through the use of different levels direct suppliers are only involved “as warranted”, but it is at the initial stages of the supply chain, for example the mining of raw materials, that major human rights risks are observed.

Lack of liability regulations and weaknesses in the content of the law

Another point of criticism comes from the lack of, or inadequate, liability regulations that diminish the position of the law. Thus, there are no new civil law provisions that would support the act.

From a substantive point of view as well, there is one or another weak point, for example in the area of environmental protection, or other humans rights challenges such as corruption that are not regulated in the Supply Chain Act.

Conclusion: The Supply Chain Act is an opportunity to invest in better supply chains now

Based on news reports most companies are nonetheless positively inclined towards the law and view it as an opportunity to improve supply chains. I, too, view it as a step in the right direction. Away from voluntary commitments and gaming the exemptions, away from impacts on competition at the cost of human rights and the environment, and towards long-term, company and industry wide supply chains that are both successful and sustainable.

With this law, Germany would have been able to take an “early-mover position”, but the degree of courage necessary to really get something going was not there. The goal for the future must be transparency and completeness. In this respect, the potential EU-wide regulation will play a role that will hopefully turn the right screws to develop and implement a comprehensive law.

All in all, now is the time and the opportunity to undertake the necessary organisational changes, and to position your company for the future when it comes to sustainable supply chains.

I welcome your feedback, opinions and comments.

Männliche Person, braune kurze Haare, braune Augen, lächelnd, trägt ein weißes Hemd und dunkelblauen Anzug, stehend mit der rechten Hand in der Hosentasche
Männliche Person, braune kurze Haare, braune Augen, lächelnd, trägt ein weißes Hemd und dunkelblauen Anzug, stehend mit der rechten Hand in der Hosentasche
Stefan Kemény
Senior Partner

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