The EU Supply Chain Act obliges large companies in the EU to comply with human rights and environmental standards along their global supply chains. These are the most important aspects for companies:
These companies are affected by the EU Supply Chain Act
The EU supply chain law (Corporate Sustainability Due Diligence Directive, CSDDD) applies to EU companies with more than 1,000 employees and a global net annual turnover of 450 million euros.
Small and medium-sized enterprises therefore do not fall within the scope of the directive.
Companies from non-EU countries (third countries) must also comply with the EU Supply Chain Act if they generate more than 450 million euros in turnover per year in the EU.
However, there will be different time periods for the application of the EU Supply Chain Act, staggered according to company size.
- After three years for companies with more than 5,000 employees and a turnover of 1,500 million euros;
- After four years for companies with more than 3,000 employees and a turnover of 900 million euros;
- After five years for companies with more than 1,000 employees and a turnover of 450 million euros.
The periods apply from the entry into force of the Directive.
EU supply chain law: these are the requirements for companies
Affected companies must fulfill a number of due diligence obligations in order to meet the requirements of the law. These include:
- Risk analysis: Companies must regularly carry out a comprehensive risk analysis of their supply chains in order to identify potential human rights and environmental risks.
- Preventive and remedial measures: Companies are obliged to take measures to prevent or minimize identified risks. These include training for employees and suppliers, as well as the implementation of control mechanisms.
- Reporting and transparency: Companies must publish an annual report on their due diligence obligations that describes in detail the measures taken and the results achieved. This report must be publicly accessible.
- Complaints procedure: Companies must set up effective complaints mechanisms that enable data subjects to report violations. These mechanisms must be easily accessible and trustworthy.
Scope of responsibility
The due diligence obligations extend to the entire supply and value chain, graded according to the company's scope of influence.
- Direct suppliers must be fully included,
- Indirect suppliers with knowledge of violations.
Liability and sanctions
A combination of official controls, including the imposition of fines and civil liability, is envisaged.
The authorities are authorized to conduct investigations, carry out inspections, issue orders and impose fines in the event of violations of the due diligence obligations. Fines of up to 5 percent of global net sales can be imposed for violations.
The CSDDD also provides for civil liability for damage caused by breaches of due diligence. Companies will be liable for damages and will have to compensate their victims. This also applies in particular to victims of human rights violations.
Environmental targets mandatory
In addition, all companies in the area of application are obliged to draw up a climate plan in order to align their corporate strategy with the 1.5°C target (Paris Agreement). They should contribute to climate neutrality and set themselves corresponding emission reduction targets.
Affected companies are therefore required to act proactively and review their supply chains with regard to human rights and environmental risks. Companies should take the opportunity to improve their processes and make a positive contribution to society and the environment.
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