The German Supply Chain Act (SCDDA)

The German Supply Chain Due Diligence Act (SCDDA) took effect on January 1, 2023. The Act was published in the Federal Law Gazette on July 22, 2021, after the completion of the parliamentary procedures. This is the first-time supply chain human rights responsibility has been legally placed on German enterprises.  

The SCDDA requires German companies with over 3,000 employees to prevent or minimize human rights and environmental rights infringements in their operations and supply chain. In 2024, the Act will expand its scope to companies with 1,000 or more employees. 

The SCDDA requires businesses in Germany to address the following: 

• Forced labor 
• Child labor 
• Discrimination 
• Violations of freedom of association 
• Unethical employment 
• Unsafe working conditions 
• Environmental degradation. 

Companies will be required to develop a risk plan to identify and minimize human rights and environment-related risks within their value chain. Additionally, companies must issue policy statements outlining risk preventive measures, remedial actions, and grievance reporting procedures. Companies must also release an annual report outlining their steps to identify and manage these risks.  

Scope of SCDDA

The Act requires large businesses with over 3000 employees to establish procedures for identifying, evaluating, and addressing threats to human rights and the environment in their operations and supply chain. In addition, companies must ensure that they offer means for employees of their indirect suppliers to report human rights or environmental violations. This means that a business is not only responsible for its compliance but also compliance throughout its entire value chain.

SCDDA includes:

• Companies based in Germany with more than 3,000 employees or German-registered branches of foreign companies with more than 3,000 employees in 2023. As of 2024, the scope will expand to businesses with more than 1,000 employees or German-registered branches of foreign companies with more than 1,000 employees.
• This includes companies whose primary operations, principal place of business, administrative headquarters, or statutory seat is in Germany. As well as companies with a German domestic branch office under section 13d of the commercial code (Handelsgesetzbuch – HGB).

SCDDA Business Due Diligence Obligations

Businesses must abide by the following human rights and environmental due diligence obligations in their value chains or face fines. The fines range from 8 million euros to 2% of their annual global revenue. However, the revenue-based penalties apply only to businesses with over 400 million euros yearly revenue. Furthermore, companies violating this law may be barred from bidding on public contracts.

The due diligence obligations include:

• Developing a risk management plan and system.  
• Issuing a risk management policy statement.
• Designating a responsible individual or individuals within the firm to conduct risk analysis and manage the risk plan regularly.  
• Implementing remedial and preventive measures in its area of business.
• Establishing grievance and noncompliance reporting procedures.  
• Implementing due diligence obligations in relation to their operations and across their entire value chain.  
• Documenting and reporting compliance regularly.

The Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle) will supervise the act with authority to access business locations, make informational demands, review records, impose fines, and require businesses to take specific actions to uphold their duties according to the law.  

Business Implementation Guidelines

Companies have two options when it comes to implementing SCDDA requirements:

• Integrating the requirements into the company Compliance Management System.  
• Assigning the management to their Sustainability Office.

It is recommended that companies review and optimize their supply chain management policy as the SCDDA regulations apply to various departments within businesses. A business may establish a company-wide supply chain management system or procedures per department.

Departments SCDDA applies to within a company include:  

• Supply Chain  
• Compliance
• Sustainability
• Purchasing
• Legal

The implementation may include optimizing supply chains by integrating blockchains and Control Towers to create transparency and digitally mirror their entire supply chain or using supply chain risk management platforms to identify issues and create preventive and reporting measures.