The German law on due diligence in the supply chain (Supply Chain Act – LkSG), published in June 2021, introduces challenging new legal requirements that most companies have not faced before. While the legal requirements of the LkSG initially only apply to the largest companies based in Germany, the European Union is currently preparing similar requirements that are expected to come into force in all European countries in the near future.
In this blog we will not go into the details of the LkSG legislation as many online publications detailing these new supply chain due diligence requirements are already available, but we will focus on solutions that companies could implement and which Challenges they face in the process.
Once a proper environmental and social risk assessment has been performed and all potential risks identified, which is a relatively straightforward process, the difficulties for most organizations begin. The most challenging requirement of the LkSG is not to develop a new policy statement (most large companies in Germany have already published ESG policy commitments), not to develop a supplier self-assessment questionnaire (many such questionnaires are already available on the internet). The real challenge most companies, large and small, will face is the ability to implement an effective remediation mechanism that assesses, validates, and addresses all potential risks,
In today’s global supply chains, no two suppliers pose exactly the same potential environmental and/or social risks. The risks may also differ for different commodities, commodities, industry-specific supply chains and regions of the world. Developing and delivering cost-effective risk assessment and remediation solutions to address such a variety of situations and local contexts is the real challenge most German companies face when responding to the new LkSG requirements.
Another difficulty that has been included in the Supply Chain Act is the obligation to implement a comprehensive and effective grievance mechanism that is accessible to all relevant stakeholders in a company’s supply chain. This is not a trivial task, as such a complaints mechanism must not only be accessible, but also provide opportunities to submit complaints anonymously, ensure confidentiality, comply with all relevant data protection and EU GDPR requirements and, most importantly, ensure that every Complaints raised will be satisfactorily resolved within a reasonable timeframe.
At e-Acore we will not pretend to have a cost-effective and effective solution suitable for all types of businesses that need to implement these new German and soon EU legal obligations on supply chain due diligence. However, in recent years we have developed online solutions that support the cost-effective implementation of social and environmental risk assessments, risk management, remediation and grievance mechanisms that enable organizations to meet some of the most demanding LKSG requirements.
In order to address any risk identified in a supplier’s supply chain and to ensure that an appropriate remediation is effective, it is generally necessary to conduct on-site assessments and implement appropriate follow-up activities, which may also require some on-site visits. The online platform e-Audit (www.e-auditservices.com) enables companies to address social and environmental risks in global supply chains by managing complex audit programs, including options for risk management surveys, supplier self-assessments and second party audits conducted by competent independent local auditors be conducted, and third-party certification audits where necessary. The e-Audit platform provides a company with the tools required to manage risk in a complex supply chain without depending on a single expensive external audit organization. Based on the potential risk identified, it is possible to focus on specific high-risk areas using a range of assessment methods and resources required to achieve effective resources. Even large global accounting organizations, which can be quite expensive, may not always have the necessary local expertise to satisfactorily meet a company’s needs. E-Audit enables connection to multiple auditing organizations as well as independent local auditors and provides an effective solution for a company to constantly monitor risks throughout its supply chain, relying on independent, competent local resources able to conduct relevant site assessments and report on the actual risk level identified. Finally, companies may upload their own templates (policies, procedures, risk management surveys, self-assessments and audit checklists) to the platform, or we may provide access to relevant industry-specific templates to organizations that may not have such templates readily available.
The online platform e-Voices (www.e-voices.com) offers companies an out-of-the-box grievance mechanism that meets the requirements of the LkSG and can be implemented across complex global supply chains. The platform has been used successfully in the tuna industry to allow crew members on deep sea fishing vessels to access an effective grievance mechanism through simple but clear and effective grievance questionnaires available in multiple languages. Complaints may be received from the relevant supplier, the Company itself or an independent third party to ensure that complaints are dealt with appropriately and timely in a confidential and anonymous manner to avoid possible retaliation.In addition, e-Voices allows companies to track complaints received, keep records of communications with the complainant(s) as needed and through some short online videos it is possible to provide workers on the ground with relevant information in their own language to provide . The e-Voices platform is an out-of-the-box tool that effectively complements any risk management program and is fully aligned with the requirements of the LkSG.
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