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SFA's Guide to the German Supply Chain Due Diligence Act

3 July 2023

 

Overview

The German Supply Chain Due Diligence Act (the “Act”) came into force on the 1st January 2023, having been passed by the German Parliament in 2021. The law is applicable to German companies consisting of a minimum of 3,000 employees. As of January 2024, the law will be extended to companies with a minimum of 1,000 employees. A study by the EU Commission has estimated the additional cost for companies to implement appropriate monitoring of their entire supply chains at 0.005% of company turnover.

Adele Rouleau

ESG and Critical Minerals Lead

What does the act require companies to do?

 

1. Risk Management

    • Companies are required to either introduce or update an adequate risk management procedure. This includes the establishment of a task force, with clearly defined responsibilities, including involvement from the company’s management, legal, compliance, and purchasing departments; there may be involvement from Corporate Social Responsibility (CSR) and other departments where applicable.

    • This task force is required to meet regularly and to track the relevant responsibilities and monitoring measures in place.

    • The Act also recommends the creation of the Human Rights Officer role in order to report to management.

 

2. Risk Analysis

    • Companies are required to conduct a risk analysis of their supply chains.

    • Once a year, or depending on whether an incident arises, companies are required to determine whether their commercial actions or the actions of their direct (or in some cases indirect) supplier are in violation of human rights.

    • The companies are required to identify all their business activities and relationships along with where human rights could be affected. There is extensive reference to International Labour Organization (ILO) standards in the Act.

    • The risks identified must be on potentially affected persons, and not the company itself.

    • How companies gather information is at their discretion and could be supplemented via different means such as supplier interviews, who may have a more in-depth understanding of the risks involved, along with onsite inspections, where needed.

    • The results of these findings will need to be presented in a risk map, e.g. grouped according to countries of origin and products.

    • The identified risks will need to be prioritised according to an “appropriateness criteria”, such as the company’s ability to influence the violator, the likelihood of the violation occurring, and the severity of the violation. The list of priorities must be based on the interests of the potentially impacted parties.

    • The results of the risk analysis must be communicated to the company’s decision-makers.

 

3. Policy Statement

    • Companies are required to draft or revise their policy statement, which must include the following: (i) the company’s duty of care process, (ii) the risks identified in the company’s risk analysis, (iii) the company’s expectations of its employees and suppliers in terms of human rights and environmental expectations.

    • The policy statement must be publicly available and communicated to all employees and suppliers throughout the supply chain.

 

4. Preventive Measures

    • Where risks are identified, companies must take preventive or remedial actions, such as training, introducing codes of conduct, contract design, etc. All these actions must be documented.

    • If a risk is identified, companies must immediately establish suitable preventive measures throughout their business. This includes the development and update of codes of conduct based on the company Policy Statement (3).

    • Companies are required to integrate sustainable purchasing practices. g., ISO 20400 “Sustainable Procurement”. 

    • The Act focuses on the human rights risks that could occur as a result of the contract e.g., time pressure, and purchase prices; this means that the implementation of the contract must not increase the risks of human rights violations.

    • The procurement guidelines must be assessed at each step to identify which precautions need to be implemented.

    • The effectiveness of the preventive measures must be verified annually and reviewed on an incident-related basis.

 

5. Remedial Measures

    • If a violation is committed, the company is required to take immediate remedial action to prevent, end or minimise this further. The company must take action immediately to cease this violation.

    • If the violation was committed by a direct supplier (or in case of ‘substantiated knowledge’ of an indirect supplier), the company must collaborate with the supplier in coming up with a corrective action plan to minimise or prevent the violation.

    • Breaking off a business relationship with a supplier is to be applied as a last resort.

 

6. Grievance mechanism

    • Companies are required to establish an internal grievance mechanism that will allow potentially impacted individuals, as well as those with knowledge of violations, within the company and throughout the supply chain, to report both human rights and environmental violations.

    • There is also the option of using an external grievance mechanism.

 

7. Reporting

    • Companies are required to document how they have fulfilled their duty of care, the risks identified along with mitigation measures, as well as the effectiveness of the measures applied, and to report on this annually.

    • The report must be made publicly available on the company website.

 

How might this impact PGM suppliers?

    • PGM suppliers in commercial relationships with companies subject to this Act are likely to come under greater scrutiny in terms of how they identify, rate, and mitigate potential human rights and environmental risks and violations throughout their operations. There may be further requests for information along with further evidence required to support measures described to manage human rights and environmental risks.

    • PGM suppliers are likely to receive revised contracts, procurement policies, and terms of business as a result of the passing of this Act.

    • Furthermore, the passing of this law opens upstream mineral operators to greater scrutiny by possible victims or interested parties via the company’s grievance mechanism available on its website.

    • Due to the annual review requirements of the Act, upstream operators may receive a higher frequency of information requests related to how they are managing and mitigating human rights and environmental risks.

 

Forthcoming Supply Chain Legislation impacting PGMs

    • EU Corporate Sustainability Due Diligence Directive (CSDDD)

      [currently being discussed in the EU right now, awaiting a final decision at the end of 2023].

    • Dutch Bill on Responsible and Sustainable International Business Conduct

      [awaiting for the EU CSDDD to be finalised].

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SFA (Oxford)'s PGM team

For further information on mineral supply chain due diligence, our team will be delighted to assist.

Henk de Hoop

Chief Executive Officer

Beresford Clarke

Managing Director: Technical & Research

Dr Ralph Grimble

Operations Director

Lee Hockey

Precious Metals Expert

Dr Jenny Watts

Head of Clean Energy & Sustainability

Jamie Underwood

Principal Consultant

Rj Coetzee

Senior Market Analyst: Battery Materials and Technologies

Adele Rouleau

ESG and Critical Minerals Lead

Oksan Atilan

Consulting Automotive Analyst

Alex Biddle

Senior Mining Analyst

Dr Sandeep Kaler

Market Strategy Analyst

Gyubin Hwang

Consultant

Daniel Croft

Commodity Analyst

David Mobbs

Head of Marketing

Joel Lacey

Sales and Marketing Specialist

Brought to you by

Adele Rouleau

ESG and Critical Minerals Lead

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