Due Diligence is the future

CSDDD AND THE GERMAN SUPPLY CHAIN DUE DILIGENCE ACT

In advores’ latest newsletter, we focused on the Reporting Directive and gave you 10 practical steps on how to kick-start your ESG-reporting: 10 steps to get started | LinkedIn

The aim with this newsletter is to provide you with an overview of the due diligence obligation in the proposed Corporate Sustainability Due Diligence Directive (CSDDD). Further we have made a checklist on how your company can comply with the due diligence obligation in the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz -“LkSG”).

CORPORATE SUSTAINABILITY DUE DILIGENCE DIRECTIVE "CSDDD"

On February 23, 2022, the European Commission presented a draft directive regulating companies' due diligence obligations in the supply chain the "CSDDD".

On June 1, 2023, the European Parliament adopted its negotiating mandate and the actual trialogue negotiations between the Council, the European Commission and the European Parliament is about to begin.

The aim of this Directive is to foster sustainable and responsible corporate behavior and to anchor human rights and environmental considerations in companies’ operations and corporate governance.

WHAT IS NEW?

The CSDDD introduces for the first time a?corporate due diligence duty for private companies. The core elements of this duty are identifying, bringing to an end, preventing, mitigating and accounting for negative human rights and environmental impacts in the Company’s own operations, their subsidiaries and their supply chains.

The CSDDD also introduces?duties for EU Companies’ management. These duties include setting up and overseeing the implementation of the due diligence processes and integrating?due diligence into the corporate strategy.

Further, the CSDDD establishes the possibility for Companies to be subject to both administrative fines and civil liability if a private company does not comply with the obligations set out in the CSDDD.

Who will be affected?

It is proposed by the EU-Commission that the Directive shall apply to the following Companies:

Category 1: EU Companies operating in the Union with more than 500 employees and an average turnover of more than EUR 150 million.

Category 2: EU Companies operating in the Union, which are engaged in high-risk sectors, employ more than 250 employees, and have an average turnover of more than €40 million. High-risk sectors include: Textiles, agriculture, forestry, fishing, and mineral extraction.

Category 3 and 4: Third-country Companies that operate in the Union and exceed the turnover thresholds of category 1 and 2.

As the CSDDD is still a draft, it is not yet possible to conclude exactly what the final directive will look like. However, it is likely that the due diligence obligations will be similar to the requirements in OECD's due diligence model, because the CSDDD is developed on the basis of the OECD Guidelines for Responsible Business Conduct for Multinational Enterprises.

In this link you can find?the full version of the CSDDD: EUR-Lex - 52022PC0071 - EN - EUR-Lex (europa.eu)

WHAT CAN YOU DO NOW?

If you want to be a step ahead of the future and prepare your Company in the best possible way for the CSDDD and the upcoming ESRS-standards, you can start implementing the due diligence processes in your Company by using OECD’s due diligence model:

For further information on how to adopt the model in your business yon can find more guidance in the OECD’s Guidelines for Responsible Business Conduct for Multinational Enterprises: OECD-Due-Diligence-Guidance-for-Responsible-Business-Conduct.pdf

advores Advokater & Rechtsanw?lte follows the adoption of the CSDDD closely and will be happy to assist you with the implementation of your Company’s due diligence processes.

THE GERMAN SUPPLY CHAIN DUE DILIGENCE ACT

The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz?– “LkSG”) has been in force in Germany since January 1, 2023. The LkSG obliges larger companies to strive for compliance with human rights and environmental protection throughout the supply chain. The supply chain includes all domestic and international steps necessary to manufacture products and provide services, from the extraction of raw materials to delivery to the end customer. The obligations of companies, covered by the act, therefore relate both to their own business operations and to direct and indirect suppliers.

The aim is to protect people at the end of the supply chain in particular, but also to prevent non-compliance with environmental protection regulations.

With the adoption of the LkSG, Germany is thus a step ahead of the upcoming Corporate Sustainability Due Diligence Directive (CSDDD). Both sets of rules are based on OECD guidelines, and thus a large degree of overlap between the obligations currently codified in the LkSG and the due diligence obligations that are introduced with the CSDDD can be expected.

A look at the LkSG is therefore a useful preparation for the upcoming CSDDD.

WHAT CAN YOU DO NOW?

If you want to be a step ahead of your competitors in Germany, and at the same time prepare for the upcoming CSDDD, you can use our checklist below.

The checklist includes the main obligations that German companies and their subcontractors must comply with according to the LkSG.

1. Start with your risk analysis:

Start by getting an overview of which abstract risks exist in your own business area and with your suppliers. For this purpose, we recommend to use tools such as the CSR risk check from MVO: Roadmap to CSR Risk Management | CSR Risk Check (mvorisicochecker.nl).

Then find out which specific risks require urgent action and prioritize them.

2. Create a risk management system:

Appoint a person responsible for risk management in your company. Consider how best to manage the identified risks and write down the results in a policy statement. The statement should be issued by senior management and published both internally and on your website.

3. Establish a complaints procedure:

Consider whether you want to set up your own complaints procedure or participate in an external complaints procedure. Note that those responsible for the complaints procedure must be independent.

4. Implement the measures:

Implement your policy and take preventive measures, such as training, developing appropriate procurement practices or monitoring to verify compliance with the policy statement.

5. Review and document:

Once a year, we recommend you to review whether the above steps are having an impact and to adjust your approach if necessary. Document your individual actions so that you are prepared to answer questions from your business partners.

If you have any ESG-related questions you can find the contact details of advores Advokater & Rechtsanw?lte experts Thilo Wind and Cecilia Vesl?v on our homepage.

Up coming event

If you are interested in learing more about the up coming ESG-reporting standards and the LfSG from a practical and legal perspective, we will held a webinar after the summer holiday in cooperation with the Danish-German Champer of Commerce. The link to the webinar will be shared in our next newsletter in August.

advores Advokater & Rechtsanw?lte wish you all a great summer.?