The Act on Corporate Due Diligence to Prevent Human Rights Violations in Supply Chains (the Supply Chain Act), imposing new obligations in terms of respecting human rights to certain German companies and their suppliers, entered into force on 1 January 2023.
Who will be Affected?
The Supply Chain Act will initially apply to companies having their headquarters, central administration, administrative headquarters, branches or statutory seats in Germany and having more than 3,000 employees. As of 2024, companies having more than 1,000 employees on average per fiscal year will also be subject to the Supply Chain Act.
What is its Impact on Turkish Companies?
As the Supply Chain Act imposes liabilities on German companies and the players in their supply chain, it is expected to have a material effect on an international level. Therefore, Turkish suppliers within a supply chain of a German company may need to adapt their compliance systems to meet with the obligations imposed by the Supply Chain Act.
What is New?
The companies subject to the Supply Chain Act are expected to identify, prevent and take measures against the risks of adverse human rights impacts in their supply chains worldwide, to ensure the protection of human rights including; applying fair working conditions, prohibiting child labor and forced labor, minding occupational health and safety obligations and keeping their business activities and their supply chains free from modern slavery and comparable abuses which are protected under certain human rights conventions listed under the Supply Chain Act.
The Supply Chain Act requires companies to implement a risk management system (human rights due diligence), conduct regular risk analyses and take appropriate measures and also imposes due diligence obligations in relation to adverse human rights impacts that may arise in connection with their commercial activities, products or services. It further requires companies to take the following measures:
- Implementing a complaint mechanism that allows reporting of potential human rights violations that should be investigated by the company;
- Identifying precautionary measures for their own business activities, for the actions of their contractual partners or other suppliers;
- Making a policy statement and adopting strategies for their senior management to respect human rights;
- Making a risk analysis to identify potential negative impacts on human rights;
- Making regular public reporting;
- Implementing a risk management system with remedial processes to prevent potential adverse impacts on human rights and environmental impacts;
- Appointing a human rights officer being responsible for implementing and monitoring the risk management system within the company.
What are the Sanctions for Non-compliance?
Companies failing to comply with the Supply Chain Act may be subject to administrative fines up to Euros 8 million, or for companies having an annual turnover of more than Euros 400 million up to 2% of their annual global turnover. In addition to the administrative fines, certain companies may also be excluded from tenders for public contracts.
Please contact us for the details on how to adapt your compliance system to meet with the obligations imposed by the Supply Chain Act.
Deniz Altınay, Galya Kohen Benbanaste and Alp Yılmaz Çelenk co-authored this article.