Final version of the European Supply Chain Directive: Tightening of the German Supply Chain Act or improvement for SMEs?
Addressees of the European Supply Chain Directive
The European Supply Chain Directive initially provides for a different group of addressees than the German Supply Chain Act. The direct scope of application was reduced once again in the final stages of the negotiation process.
It is now to be extended over a staggered period:
Three years after entry into force (probably 2027):
Companies with more than 5000 employees
and a turnover of EUR 1500 million
Four years after entry into force (expected 2028):
Companies with more than 3000 employees
and a turnover of EUR 900 million
Five years after entry into force (expected 2029):
Companies with more than 1000 employees
and a turnover of EUR 450 million
The target group of direct obligations is therefore initially narrower across Europe than the current German legal situation. As is known, the Supply Chain Due Diligence Act (LkSG) in Germany currently already provides for obligations for companies with 1000 or more employees.
Scope of application and impact on German companies
The extent to which companies in Germany will be subject to obligations earlier than their European competitors will depend on the specific German implementation of the European Supply Chain Directive and the amendments to the Supply Chain Due Diligence Act and is not yet foreseeable. Both such an "excessive" implementation and an adjustment to the Europe-wide staggering are conceivable.
Regardless of this, it is urgently advisable to keep an eye on legislative developments. This is because the need for action will probably not only arise when there are direct obligations for your own company. Rather, pressure to adapt within the supply chain and indirect obligations are likely to arise much earlier , even for smaller companies.
Most important changes compared to the German Supply Chain Act
This is due to the fact that the European Supply Chain Directive no longer only stipulates due diligence obligations for companies for direct and indirect suppliers (i.e. in the upstream supply chain). Instead, the scope of obligations is extended to the so-called value chain, i.e. to upstream and downstream business relationships. Indirectly, this means that significantly more companies will be affected by supply chain compliance than before.
Large companies will probably try to pass on this pressure to adapt more emphatically. This is because the future legal situation provides for direct civil liability of the addressees of the European Supply Chain Directive. Injured parties can therefore sue companies that are subject to the directive directly. It is therefore conceivable that large companies liable for damages could take recourse against the actual polluters, even if they are small companies. Up to now, the German legal situation has only provided for sanctions by the supervisory authorities, which could occur in parallel in future and include fines of up to 5% of net turnover.
Improvement or tightening for German companies?
Despite these changes, the future legal situation could be better for some companies than is currently the case under the Supply Chain Duty of Care Act. This is because the European Supply Chain Directive provides for a number of simplifications that could be particularly beneficial for SMEs. For large companies, the law expressly provides for an obligation to support and enable smaller partners in the value chain. In particular, it is prohibited to unilaterally impose all obligations on smaller partners. Contractual regulations must be "fair, reasonable and non-discriminatory".
Last but not least, the European Supply Chain Directive stipulates that model contract clauses can be agreed between business partners. At present, there tends to be a patchwork of individual agreements that are regularly imposed by large companies with no room for negotiation. Draft model contract clauses published to date provide for a principle of "shared responsibility". In other words, duties and responsibilities do not rest solely on the shoulders of the smaller partner. Such model contract clauses could considerably simplify the handling of supply chain compliance.
In addition, the transfer of obligations under the Supply Chain Duty of Care Act has so far mainly been made to direct suppliers. In future, however, the "proximity" within the supply chain will no longer be the only decisive factor, but rather the actual risk propensity of the respective contractual partner.
Conclusion and outlook:
The European legislator has adopted the final version of a European supply chain directive (Corporate Sustainability Due Diligence Directive (CSDDD)).
For SMEs, the new European Supply Chain Directive may result in significant improvements compared to the current Supply Chain Due Diligence Act.
The decisive factor here is how Germany will actually transpose the directive into national law. Two years remain for national implementation.
- Companies should monitor these developments even if they are not directly addressed by the directive. There is still pressure to adapt and indirect obligations that need to be anticipated.
Please contact us if you have any further questions about compliance, CSDDD and the Supply Chain Act.
Status: 10.06.2024