3 actions to prepare for the German Supply Chain Act
The German Supply Chain Act enters into force on the 1st of January 2023 for companies with headquarters in Germany and more than 3000 employees. Even if the law is not binding for companies with less than 3000 employees, it still affects these companies due to more and more client requirements.
In this article, I describe 3 concrete steps that SMEs can take to prepare for the rising requirements resulting from the German Supply Chain Care Act*.
What issues are at stake?
Before I get started, I would first like to mention the issues that are at stake in the law. This is not talked about as much, but it is important that we become aware of what the law is all about.
The law describes 10 principles that need to be tackled in supply chains:
1. No Child labour
2. No Forced labour including torture and brutal treatment by security forces
3. Inadequate health and safety at work
4. Restricted freedom of association & right to collective bargaining
6. Withholding a decent wage
7. Environmental Pollution (soil, water, air)
8. Unlawful withdrawal of land
9. No Production of products from mercury
10. No Use of persistent organic pollutants
In practice, these principles are often called "social and environmental standards". They are rights that protect the dignity and safety of humans. Unfortunately, in practice many of these rights are not respected.
So what can companies do to change that?
Below I describe 3 actions that companies can take that ultimately help to respect social and environmental standards in supply chains.
#1. Familiarize yourself with the topics at stake
Child labour, forced labour, decent wages are all complex issues. Before companies think about measures, such as how child labour can be stopped, it is important to understand what exactly child labour entails.
- What is the definition of a child?
- What forms of child labour exist?
- Are all forms equally bad?
- Are there situations in which children are allowed to work? (e.g. carrying out newspapers during the holidays)
- What conditions must be created for young people at work to protect them?
- Why do children work?
- How can situations for the child and its family improve?
- What is the best possible situation for the children involved in child labor?
Building up this knowledge creates confidence and more security about what measures to take.
At ETIKA, we have developed an online course that teaches the basics of these difficult topics. Further information can be found here: https://www.etika.io/csr-courses
#2 Talking to the supplier about sustainability
This seems so simple and obvious, but I believe it can lead to great impact. A solid relationship thrives on good communication. This is no different with the relationship between a supplier and a buyer. It is therefore essential that buyers repeatedly bring up social and environmental standards when they meet or talk with suppliers.
The discussion around sustainability before the supplier is selected as a business partner is particularly valuable. There, a conversation with open questions can help to understand whether the supplier is likely to respect the principles or not.
Some questions buyers can ask the supplier:
- Where is the production taking place?
- In which countries and regions?
- What is the supply chain structure?
- Which goods can also be purchased certified?
- What are the test results for pesticides?
- Is there anyone at the supplier who is responsible for sustainability?
- Has a social audit ever been carried out? What was the result?
By engaging with the supplier about sustainability topics, buyers can better evaluate suppliers and make more holistic buying decisions.
#3. Capture the status quo of high-risk suppliers
The last point I want to talk about is "capturing the status-quo of your high-risk suppliers". In order to verify that the mentioned principles are respected in practice, it is important to collect and analyze sustainability data.
To start with, companies can gather on the supply chain actors, countries of productions, activities performed at each step of the supply chain, existing certifications and audit reports, and report from supplier visits. This information can be sustained by using external tools, such as the Risk Tool from Sedex, amfori BSCI Risk Classification or the CSR Risk Check.
Based on this initial data, companies will get a pretty good idea of the where the risk that these principles are not respected is greatest.
Where the risk is greatest, it is important to collect data directly on site. This is usually done via a so-called "social audit", where social auditors visit productions and assess the status quo via site tour, document check and interviews with workers. At the end of the audit a report is issued that describes, if the principles are respected and where might be gaps.
Another form of assessing the status-quo on site is via anonymous interviews with workers. This is done by calling or texting workers and asking questions about the working conditions on site. Workers can answer anonymously and the data is aggregated and shared with the supplier and sometimes with the buying company. A provider of this solution is for example &Wider.
Once the status quo of the riskiest suppliers has been recorded, we can discuss appropriate measures. I might discuss these in a different blog post.
Building the risk management step by step
Setting up a risk management system is a long-term, dynamic process. That's why it's important to start and take one step at a time.
At ETIKA, our goal is to make it easier for companies to implement sustainability. Please get in touch and let us know, what tools you need and how we can help. Make sure to check out our existing tool on our website.
*As I was researching the „official translation” of the German Supply Chain Act in English, I found the following term: Act on Corporate Due Diligence Obligations in Supply Chains. For easier read I used the simpler term "Supply Chain Act".