Reporting Obligations under the German Supply Chain Due Diligence Act

by Moritz Marpe

In recent weeks, the German Federal Office of Economic Affairs and Export Control (BAFA) has published additional guidelines for companies on how to implement the new Supply Chains Due Diligence Act (LkSG).

The latest guidelines on establishing appropriate mechanisms for human rights due diligence (HRDD) were released on 14 October. These form an important resource for companies as they specifically outline how businesses can integrate information collected on HRDD into their reporting.

Under both the UN Guiding Principles on Business and Human Rights (UNGP) and the German LkSG, reporting on HRDD is a central corporate concern. The UNGP state that external communication plays a key role for companies, by enabling them to provide information about their respective processes should any concerns be raised towards the company, in particular by and on behalf of affected stakeholders. The LkSG therefore obliges companies to report on their HRDD efforts in the form of an annual report. This report should cover, among others, the following points:

  • Any identified risks and impacts on human rights and their prioritisation
  • Measures taken in response to such risks (including references to the strategy within the policy statement and remedial measures resulting from grievance mechanisms)
  • Impact and effectiveness of the actions taken
  • Integration of results for the implementation of further measures

Importantly, the reporting requirements do not require companies to disclose any sensitive information or trade secrets, however non-public internal documentation should draw on all available information.

When implementing the new guidelines, companies must consider the following:

Prior documentation: Any information and data, whether general or specific, collected in the context of due diligence implementation could potentially be considered relevant and useful for HRDD reporting. Importantly, the data documentation must not be published, while the report itself must be. The guidelines provide information on how to integrate any prior documentation of information into the annual report in a meaningful way.

Context: The guidelines combine multiple choice questions with open questions, allowing companies to contextualise their activities, as efforts to implement due diligence should not simply take the form of a checklist. In addition to the mandatory reporting requirements, the guidelines also give companies the option of reporting on their specific progress voluntarily.

External communication: The annual report is the main source of information about a company’s HRDD process, both for third parties, including the supervisory authority, and for potentially affected stakeholders. The report can therefore also play an important role in shaping public perception of the company.

Internal learning: BAFA’s reporting requirements are designed to enable companies to assess their HRDD processes in terms of impact and effectiveness. Here, the report provides an important source of regular feedback for companies, allowing them to review and update their internal processes. This complements their due diligence as a duty of effort rather than a duty to succeed. The report is intended to reflect a company’s specific efforts to implement and continuously improve its HRDD processes.

BAFA has announced that in 2023 it will introduce an online tool to allow the efficient submission of reports. Furthermore, the legal requirements with regard to reporting on human rights, sustainability and environmental impacts are also currently evolving in the European Union. Reporting under the LkSG creates processes and draws on resources, which could prove useful for future reporting requirements under the updated Corporate Sustainability Reporting Directive (CSRD) and the forthcoming Corporate Due Diligence Directive (CSDD).

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If you need support for implementing risk analyses or for any other requirement under the Supply Chain Act, or if you have any other questions concerning human rights in your company, get in touch:

Moritz Marpe
Project Assistant