Protesters are campaigning for a strong EU supply chain law. © IMAGO
Medium-sized companies (SMEs) consider the protection of human rights in the supply chain to be important, according to a survey conducted by the Hamburg Foundation for Business Ethics. The companies are dissatisfied with the implementation of the law in Germany by the authorities. They do not always see themselves well represented by their own associations on the subject.
This article is IPPEN. MEDIA in the course of a cooperation with ESG. Table Professional Briefing – it was first published by ESG. Table on May 17, 2023.
A rarely detailed insight into the assessment of the Supply Chain Act from the point of view of medium-sized companies (SMEs) is provided by a previously unpublished survey by the Hamburg Foundation for Business Ethics, which is available to Table.Media. The companies surveyed confidentially consider human rights protection in value networks to be "necessary" in principle and they "predominantly believe that a legal framework or binding strategy is necessary," write the study authors Jesco Kreft, Christiane Hellar and Miriam Putz. Among the companies, "there is a high level of acceptance of the Supply Chain Act".
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- 39 companies were interviewed confidentially according to the Chatham House rules,
- mainly small and medium-sized companies with sales of 15 to 600 million euros and three large companies.
- Employees: 25 to 7000 employees.
- All of them had experience in the field of human rights due diligence.
- The interlocutors came from the areas of sustainability, purchasing, compliance, law and other areas responsible for the implementation of the LkSG.
For years, two positions from the business community have dominated the public discussion regarding supply chain regulation in Germany: On the one hand, there are the clear supporters of supply chain laws. These include companies such as Vaude and Tchibo as well as mostly smaller progressive business associations such as the German Association for Sustainable Economy or B.A.U.M e.V. And on the other hand, there are large associations that have long spoken out against national supply chain regulation in terms of human rights and now want to prevent EU regulations from being adopted that go too far for them. Important voices here are the BDI, BDA and VDMA.
We are talking about competence problems, bureaucracy, costs and feasibility. On Tuesday, the Foundation for Family Businesses warned against "inflationary" regulation. Currently, companies have to implement 20 new legislative proposals and guidelines with audit, reporting and disclosure obligations. Twelve projects come from Europe, eight from Germany. "We cannot manage the ecological transformation with reporting obligations and regulation, but above all with entrepreneurial initiative and innovation," says Professor Rainer Kirchdörfer, Chairman of the Foundation for Family Businesses and Politics.
Supply chain obligations pass companies on
The survey conducted by the Hamburg Foundation for Business Ethics conveys a third, different position of companies: SMEs that are bothered by the criticism of their own associations on supply chain legislation, that consider supply chain regulation to be right in principle, but are bothered by the implementation of the law. Many SMEs are already dealing with the issue, although they are not directly covered by the law, as the obligation has so far only applied to companies with more than 3000 employees. But the companies concerned pass on the requirements to their customers – often SMEs – – which, according to the analysis, "leads to a broadening of human rights due diligence obligations far beyond the scope of the law".
Additional expenses: "sensible entrepreneurial investment"
The companies surveyed speak of financial burdens due to supply chain regulation, but these cannot be precisely quantified because the implementation of human rights due diligence is predominantly organized as a cross-sectional task.
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- Three-quarters of the companies surveyed had increased their staff by 2022.0 to 03 percent for 0, with an average of 54.<> percent.
- Further costs arise from the license costs for software for risk analysis and supplier management. Depending on the scope of the license and the number of users, this is 25,000 to 200,000 euros.
The companies surveyed considered the use of additional resources to be a "sensible entrepreneurial investment". Some companies see this as a "representation problem" by their associations. "Their political advocacy group first ignored the fundamentally positive attitude of many SMEs, then focused on prevention for too long and finally did not contribute enough pragmatically to the concrete design," it says. They consider doubts that SMEs will not be able to implement the requirements of the law operationally and conceptually to be inappropriate. According to the study, even "originally law-skeptical companies rejected this political narrative as alien to the economy or small and medium-sized enterprises."
When implementing human rights due diligence measures, companies usually used tools and procedures with which they already have experience in the environmental sector.
SMEs want concrete assistance from the authority
SMEs are dissatisfied with the implementation by the Federal Office of Economics and Export Control (BAFA). Until well into late summer 2022, there had been no interpretation aids by the authority on important points. In addition, the companies would like more specific help from the agency's helpdesk in terms of procedures, tools, reports and assessments of the scope and depth of the law. The companies are also dissatisfied with the corresponding advisory services offered by the chambers.
"Significant enforcement problems" in China
The companies see the danger that the implementation of the law "could be dominated by a compliance perspective in the medium term". Companies could focus on making themselves legally unassailable, while the real improvement of conditions along the supply chains would fail to materialize. This would gain little in terms of the matter – i.e. the improvement of the situation for people and the environment in the supply chains.
"Considerable enforcement problems" await SMEs in China, where they are "confronted with paradoxical requirements in view of the LkSG requirements and their influence on the ground", which could fundamentally call into question a whole range of business models with a large connection to China in the supply chain. It will simply not be possible to guarantee the observance of human rights "in an authoritarian, non-democratic country," say company representatives. When asked, about a quarter of those surveyed said they were considering a complete withdrawal from certain Chinese regions in the medium term. (Caspar Dohmen)
