A new human rights due diligence law comes into force 1 Jan 2023 in Germany – the so-called Supply Chain Act. This law will ensure businesses comply with human rights within their global supply chain activity. A new pan-European legislation has also been proposed this year around human rights.
But what does this mean in practice, and where do businesses start?
Human rights due diligence (HRDD) is the procedure taken by businesses to identify and act upon actual and potential risks for workers in their operations, supply chain, and the services used. The concept was introduced by the United Nations in its Guiding Principles on Business and Human Rights (UNGP).
Different companies approach the issue in different ways. For example, many large brands or retailers set out minimum standards in their supplier code of practice and may insist on certificated standards and/or audits (such as SEDEX’s SMETA social audit).
At the heart of the new German legislation is the need to perform a regular risk analysis of all suppliers. The law is initially limited to companies which have their head office, principal place of business, administrative headquarters, or registered seat in Germany who employ over 3,000 employees. Many of these larger companies will have established HRDD practices. However, in January of 2024, the legal threshold extends, so thousands more companies will be included. In anticipation of the new legislation, alongside the likelihood of other countries following suit, many more companies will need to assess their supply chain risk in early 2023.
What does this mean for brands and retailers?
When the legislation is adopted, businesses operating in the EU will be required to identify, prevent, and mitigate the adverse human rights and environmental impacts of not just its operations but specifically its value chain. This is because the law extends across the entire supply chain of a business, from the production of raw materials through to the manufacturing of finished products).
The new legislation is not limited to HRDD. It also extends corporate due diligence requirements around environmental risks specific to chemicals of concern and requires companies to be able to assess the risks from identified persistent chemicals. The first step for brands and retailers is to engage suppliers in a risk assessment. This informs a business of what actions to take to prevent and mitigate impacts, but also helps to avoid unnecessary costs or burden on suppliers.
The Supply Pilot Kickstart Assessment is a quick and cost-effective solution for companies to engage their suppliers to identify the impact and inform strategy across six key pillars, one of which is social risks. It is free for suppliers and includes key areas of risk including forced labour, child labour, discrimination & diversity, freedom of association, ethics, safe working conditions, and environmental degradation. The assessment is designed not only to identify risk but to inform action and options for capability building within a company’s supply chain.
The six ESG pillars within the Kickstart Assessment are:
- carbon emissions (Scope 3)
- human rights
- sustainable sourcing
- materials of concern
The German HRDD legislation (as well as the EU proposal) will be a trigger for many other countries around the world. It is becoming more and more clear that all companies need to urgently consider, identify, and manage the risks present in their supply chain in order to protect workers (and their brands).
If your business needs to adhere to new legislation quickly and wants to stay on top of human rights due diligence within your supply chain, get in touch and we will help to simplify the process for you via our Kickstart Assessment.