Starting in 2023, large German companies must open a channel for reporting environmental and human rights violations in the supply chain. What is this about and how does it relate to the whistleblower regulation? And does this also apply to Dutch companies?
In 2021, Germany adopted the ‘Lieferkettensorgfaltspflichtengesetz’ or LkSG (German language). It applies from 1 January 2023 to companies with at least 3,000 employees that have their headquarters in Germany or companies that have a local organisation in Germany with more than 3,000 employees. A year later, these thresholds will be lowered to 1,000 employees.
From then on, these companies will have a legal obligation to assess and monitor risks of environmental and human rights violations. This applies to their own organisation and direct suppliers. A policy must be drawn up and, based on the risk analysis, preventive measures must be taken to counter violations. Someone should also be appointed to be responsible for this. In principle, the entire supply chain should be included in the risk analysis. If the risk analysis shows that there are substantial risks with indirect suppliers, then these risks should also be included and addressed. This should then be reported annually.
In addition, these organisations must launch a complaints or grievance mechanism. Through this grievance mechanism, reports can be submitted from across the supply chain about environmental or human rights violations. This grievance mechanism must be coordinated by an independent person, who must treat the reports confidentially. The identity of the reporter must also remain confidential. This is of course similar to the whistle-blowing procedure, which has the same requirements. However this procedure goes over and beyond that on two aspects. Firstly, the procedure must be open to all potentially involved parties. Secondly, the organisation must report annually on what emerged from the complaints mechanism and what action was subsequently taken. This report must be publicly available.
The German BAFA has been appointed as the supervisor and it can issue fines of up to EUR 800.000 or two per cent of the company’s turnover. One can also be excluded from public tenders. In addition, the BAFA can also order the company to terminate its relationship with a particular supplier.
Germany is ahead of EU legislation in this regard. Earlier this year, the European Commission published a proposal for a ‘Supply Chain Due Diligence Directive’, which includes similar measures, but now for the entire supply chain. This would extend to smaller organisations. The Netherlands is also keen to adopt such legislation and does not intend to wait for EU legislation. In January, the Dutch draft law (Dutch language) about supply chain due diligence will be discussed further in the House of Representatives. This law also has a complaints and redress mechanism.
Earlier, Britain, France and Norway adopted similar legislation, but it was still fairly non-committal. In Germany, a regulator has now been appointed and hefty fines can be handed out. We notice a shift from voluntary to obligatory compliance and due diligence. Furthermore, if you are an (indirect) supplier to the US government, chances are you will be contractually obliged to take similar measures.
When designing a whistleblowing mechanism, it is therefore wise to anticipate this development in advance. After all, the grievance mechanism can very well be combined with the whistleblowing procedure, especially if you also open it up to suppliers and other parties through your external website. We see this as good practice anyway. See also our previous article on organising the reporting and follow-up channel.
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