Supply Chain Act/ EU Supply Chain Directive (CSDDD)
On 24.04.2024, the EU Parliament passed the Corporate Sustainability Due Diligence Directive (CS3D), the EU supply chain law. This regulation requires companies to audit their supply chains to ensure that there are no human rights violations or environmental damage. Companies will soon have to prepare to meet these requirements.
The scope of the law depends on the number of employees and the company's turnover. The original draft of the EU Supply Chain Act was intended to apply to companies with 500 or more employees and an annual turnover of more than 150 million euros. The law is now aimed at EU and foreign companies with 1,000 employees and a global net turnover of more than 450 million euros.
First, the EU member states must transpose the directive into national law by 2026. The law (the directive) comes into force in various stages. After a transitional period of 3 years, the EU Supply Chain Directive (CS3D) will apply to companies (corporations AG, KGaA, KG, OHG, GmbH) with more than 5,000 employees and a turnover of more than EUR 1.5 billion from 2027. In 2028, the directive will already apply to companies with more than 3,000 employees and an annual turnover of EUR 900 million. The actual scope of application of the directive will be reached from 2029. The threshold value will then be a company size of more than 1,000 employees and annual turnover must be greater than €450 million.
The scope of the Supply Chain Directive relates to strengthening human rights and environmental protection worldwide. The law is intended to ensure that European companies ensure compliance with human rights and environmental standards in their supply chains. In this way, the EU wants to take action against child labor, exploitation and environmental pollution.
CS3D's due diligence obligations or "due diligence area" relate in particular to its own business activities, subsidiaries and direct suppliers. However, they also apply to indirect suppliers, as well as the use and disposal of the respective products.
The due diligence obligations of the EU Supply Chain Directive comprise 6 steps, which are set out in the OECD Due Diligence Guidance for Responsible Business Conduct and include due diligence measures for companies to identify and address adverse impacts on human rights and the environment.
Specifically, the due diligence obligations to be integrated into corporate policy and concrete corporate governance are as follows: Identification and assessment of adverse human rights and environmental impacts, as well as their prevention, cessation or minimization. Remedial measures taken must be evaluated for their effectiveness and communicated.
CS3D also includes a comprehensive reporting and complaints system. This means that a complaints system covering the entire value chain must be set up. The effectiveness of the measures must be regularly monitored and communicated via a reporting system. An "authorized person" must be appointed as the contact person for the supervisory authorities.
Violations of the CS3D should lead to sales-related, severe fines. The details of this are to be regulated in national laws.
The Supply Chain Due Diligence Act has been in force in Germany since 2023 and was tightened further in 2024. This applies to all companies with more than 1,000 employees in Germany. One of the main differences to the new EU regulation is that it applies to all companies regardless of their legal form. It only applies to the company's own business area and direct suppliers. Indirect business relationships are only relevant if there are specific indications. The current regulation provides for fines of up to 8 million euros or 2% of annual turnover.
