The German Supply Chain Due Diligence Act Establishes Ongoing Vendor Monitoring
Many European nations and countries throughout the world have enacted necessary national legislation to demonstrate their commitment to fulfilling the United Nation’s Guidelines on Business and Human Rights.
In 2017, France enacted the Duty of Vigilance. Two years later, in 2019, the United Kingdom passed the Modern Anti-Slavery Act. The Netherlands published the Child Labor Due Diligence Act the same year. Following in the footsteps of these nations, Germany will enforce the Supply Chain Due Diligence Act (SCDDA) starting January 1, 2023.
The SCDDA aims to improve human rights protection across the global supply chain to avoid child and forced labor and mitigate the negative impact of business activities on the environment.
The regulation requires companies to exercise due diligence to ensure that basic human rights standards are respected across their supply chains.
Supply Chain Act Goals
The SCDDA will exclusively apply to German-based companies. By 2023, it will apply to businesses with 3000 or more employers. By the following year, the regulation enforcement will be broadened by including companies with 1000 or more workers.
However, it should be underlined that the regulation mandates that the company’s supply chain remain free of human rights and environmental violations. Therefore, if a company is not a subject but is a member of a subject company’s supply chain, the SCDDA will have an indirect impact on them.
According to the SCDDA, companies in the supply chain are associated companies, even if they are not contractually related. For instance, if a German company has a supplier company that sources items from third parties, it is required to do a risk assessment on the supplier if there are genuine indicators of human rights or environmental requirement breaches.
The SCDDA requires companies to maintain a continuous record of their due diligence compliance for at least seven years. This implies that companies must undertake ongoing monitoring of their subsidiaries and suppliers at all times.
Ongoing monitoring is a periodic assessment of existing subsidiaries and suppliers. As important as initial due diligence, ongoing monitoring is performed to detect any changes in potential risks related to human rights and the environment.
Integrity Asia, with up to more than two decades of experience in the compliance industry, offers a comprehensive due diligence service through Know Your Vendor™.
The Know Your Vendor solution helps our clients mitigate supply chain risks by providing a consolidated panorama for due diligence on third parties. Using the most recent technology to monitor clients’ supply chains, Know Your Vendor enables clients to find out about their vendors by using the latest monitoring technology.
Our due diligence is done through a series of methodologies. There are several methodologies that we conduct to ensure thorough verification, including court checks, adverse media research, and of course, source inquiries — a crucial method in which we are skilled.
Contact us for more information about Know Your Vendor services.