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Compliance October 26th, 2022

Does the German Supply Chain Due Diligence Act (LkSG) concern your brand?

The implementation of a responsible sourcing system reaches Germany, and all companies that conduct business in the country need to step up. Lieferkettensorgfaltspflichtengesetz (LkSG), or the German Supply Chain Due Diligence Act, demands compliance from brands, including fashion, commencing January 1st, 2023. 

Product DNA<sup>®</sup> Supply Chain Traceability

On June 11th, 2021, the German Parliament passed a new law that challenges and demands large companies to implement supply chain due diligence actions. With the garment sector as one of the largest consumer goods sectors in the world, this should not come as a surprise. It is time for companies based in Germany or that have a branch or administrative office there, to step up. With the law taking effect in 2023, if you are an apparel brand, you need to prepare and act fast to ensure social and environmental standards are met across your supply chain.

Almost ten years ago, the collapse of the Rana Plaza building in Dhaka, Bangladesh opened the eyes of the world who began to question the old approach to supply chain due diligence. Since then, the rules have sharpened, but things are still moving at a slow pace. In response to the European directive 2014/95/EU, regarding the obligation of due diligence reporting, several European countries such as Germany are taking the matter into their own hands, and brands are now forced to comply. The Act on Corporate Due Diligence Obligations in Supply Chains (LkSG/ Lieferkettensorgfaltspflichtengesetz) marks thus the first time German businesses are legally bound to act on human rights protection within supply chains.

When is the German Due Diligence Act / Lieferkettensorgfaltspflichtengesetz enter into force? 

  • Companies with more than 3000 employees need to comply by January 2023 
  • Companies with more than 1000 employees need to comply by January 2024 

Who is affected?  

Lieferkettensorgfaltspflichtengesetz, LkSG applies to the fashion industry (shoe, garment, or home textiles). All German companies and companies with administrative offices, headquarters, and even foreign companies with a branch in Germany are concerned.

If you check these options, your brand needs to comply.

WHAT DO YOU NEED TO DO TO COMPLY WITH Lieferkettensorgfaltspflichtengesetz ?

As fashion brand you need to:

  1. Assign a person in your company that will be responsible for the compliance work.
  2. Introduce appropriate risk management along the supply chain concerning human rights risks such as forced labor, child labor, discrimination, violation of the right of freedom of association, problematic employment and working conditions, and environmental issues.
  3. Carry out a risk analysis.
  4. Take preventive and remedial measures – such as the requirement of social compliance and certification through regular audits of your garment, shoe, or home textile suppliers.
  5. As a brand, a procedure should be implemented for employees, anywhere in the supply chain, to be able to file a complaint in case of human rights violations.
  6. An annual report should be submitted with an overview of your brand’s efforts and supply chain social compliance.

DO YOU NEED TO COMPLY TO SELL ON ZALANDO E-COMMERCE PLATFORM?

Yes, all brands selling on Zalando are concerned, they are part of Zalando supply chain. That could explain why Zalando decided to join SAC and required all partner brands to use the Higg BRM (Brand & Retail Module).

WHY TRACING SOCIAL COMPLIANCE ALONG THE SUPPLY CHAIN IS KEY?

Garment workers across the globe are going to the street to claim a wage increase. This is causing supply chain disruption but also affecting brand reputation.

HOW TO MONITOR SUPPLY CHAIN SOCIAL COMPLIANCE?

Your fashion brand can rely on social compliance standards that verify that international and local laborers’ rights are respected. It includes certifications such as AMFORI BSCI, SEDEX SMETA, SA 8000. Those certifications pay special attention to the human rights risks mentioned in the German Supply Chain Act, such as forced labor, child labor, discrimination, violation of the right of freedom of association, problematic employment and working conditions, and environmental issues. They are designed based on international references such as the ILO (International Labour Organization) conventions, UN Guiding Principles, and the OECD Guidelines for Multinational Enterprises. The Lieferkettensorgfaltspflichtengesetz is based on the ILO convention.

Trimco Group’s Product DNA® Certificate Manager module can help your brand collect supplier social compliance certificates and performances. By collecting proper data, you can:

– communicate about it to consumers via QR codes, NFC technology, and on the website

– monitor your supply chain social compliance closely

– easily answer to regulations such as the German Due Diligence Act / Lieferkettensorgfaltspflichtengesetz

CONSEQUENCES FOR NON-COMPLIANCE

Overseen by the German Federal Office of Economics and Export Control, the German Supply Chain Due Diligence Act can result in sanctions or fines if brands fail to comply and submit the documentation required. Several actions can be taken, such as:

  • Fines that reach 2% of the annual turnover, for companies that check more than 400 million euros in annual turnover and other fines of up to 800K euros.
  • Exclusion from public contracts for up to three years, if the brand has been fined 175K euros.
  • Damage to the Brand Image for the association of a brand that pursues human rights violations across its supply chain.
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