Supply Chain Due Diligence Act: A Practical Guide
What mid-sized companies need to know and do
The German Supply Chain Due Diligence Act (LkSG) has expanded to cover companies with 1,000+ employees, and the EU Corporate Sustainability Due Diligence Directive (CSDDD) will extend requirements further. For many mid-sized companies, this means implementing systematic due diligence processes for the first time. Here's a practical guide.
Understanding Your Obligations
The law requires companies to identify, prevent, and mitigate human rights and environmental risks in their supply chains. This includes both direct suppliers (Tier 1) and, when there's substantiated knowledge of violations, indirect suppliers (Tier 2+). The key is proportionality - the law expects appropriate effort based on your size and influence.
5 Steps to Compliance
- 1Establish a risk management system with clear responsibilities
- 2Conduct a systematic risk analysis of your supply chain
- 3Implement preventive measures for identified risks
- 4Create a complaints mechanism for affected parties
- 5Document everything and report annually
Risk Analysis: Where to Start
Begin with your direct suppliers: which countries, which industries, which products? Higher risk comes from regions with weak governance, industries with known labor issues, and products with complex material origins. Prioritize based on severity and likelihood of risk, combined with your ability to influence.
Common Misconception
The law doesn't require you to guarantee a clean supply chain - it requires you to make appropriate efforts. Document your analysis and actions, even when you can't achieve perfect visibility.
Supplier Engagement
Effective due diligence requires supplier cooperation. This means communicating expectations clearly, including contractual requirements, and providing support where needed. Consider that many of your suppliers face similar pressures - collaboration often works better than pure compliance demands.
The Data Challenge
Meaningful risk analysis requires data you may not currently have. Product origin, sub-supplier information, and certifications need to be collected and validated. Digital solutions like Product Passports can help by creating standardized data collection mechanisms across your supply base.