Workshop 3 on the implementation of due diligence obligations in more distant parts of supply chains

The third company workshop on 30 January 2025 in Nuremberg focused on cooperation in light of corporate due diligence obligations in more distant parts of supply chains. Below you will find the key results of the workshop:

Starting point: Risk-based approach, obligation of means – no obligation of results

The greatest risks for human rights violations and environmental harm often arise not with direct suppliers, but further down the supply chains. The starting point for the risk analysis should therefore be a risk-based approach. Companies shall use their resources effectively to identify and manage risks and violations along the entire supply chain. The focus should be on systemic hotspots and areas where they can realistically exert influence. Companies have considerable flexibility in prioritising risks and violations, deciding on the most appropriate measures and identifying which suppliers (with risk potential) to focus on. The LkSG (Supply Chain Due Diligence Act) only requires companies to take legally and practically feasible actions within the deeper supply chain (‘best-efforts obligation’, no ‘result-based obligation’).

Many companies have initially opted for sending questionnaires to all suppliers as a first step. However, this approach does not contribute to fulfilling due diligence obligations but rather generates unnecessary bureaucracy for suppliers both at home and abroad.

Challenges: Lack of transparency, changes within the network

A major challenge lies in the complex, changing, and non-transparent structures of supply chains. Indirect suppliers are often unknown, and direct suppliers, as traders, may fear competitive disadvantages if, for instance, they disclose information about their business partners. Suppliers with significant market power, such as those in the raw materials sector, can also make traceability more difficult in some cases. In addition, each issue in the deeper supply chain is context-dependent, meaning there are no standard solutions. Furthermore, the belief that sustainability should not cost anything still prevails in some companies. This limits the scope available to effectively address these issues.

It is also crucial for policymakers to ensure continuity and legal certainty in the regulatory framework, providing clarity for long-term planning. Companies are calling for a binding legal framework that is not subject to frequent revisions or uncertainty.

Individual options for action: Own procurement, pooling internal knowledge

A key takeaway from the workshop is that a company’s procurement and sourcing practices are among the most important and effective tools for minimising risks and violations. Delivery times, price pressures, last-minute changes to deadlines and product specifications, short-term contract relationships as well as tight payment terms significantly affect suppliers’ ability to protect human rights and the environment.

It is also vital for companies to pool internal knowledge from various departments and use this strategically, for example, in their risk analysis.

Another tool is the use of a code of conduct for direct suppliers, which sets clear expectations for their behaviour concerning indirect suppliers. Suppliers can also be offered training. If suppliers and interest groups from the deeper supply chain are known, direct engagement can take place in exceptional cases.

Field of action: Synergies through cooperation

Cooperation with other companies can be beneficial when considering abstract risks in specific sectors or countries, or with regard to particular raw materials. Such collaborations can create valuable synergies. A joint, structured approach is also beneficial in situations where supplier relationships frequently change or where traceability is not feasible (e.g. small-scale mining or smallholder farming). Support from the government could include facilitating industry dialogues or providing risk-related information.

One form of cooperation could involve developing industry-wide supplier codes, ideally created through a multi-stakeholder process, along with mutual agreements for companies to accept the code. As part of such cooperation, joint actions on the ground can also be implemented. In this context, it is important to effectively involve local stakeholders in both the development and implementation of these measures.

Goal: Understanding risks in the deeper supply chain and developing further measures

The long-term goal should be to identify priority risks in the deeper supply chain and take measures to prevent or minimise them, and to prevent, bring an end to or minimise any violations. Companies are not expected to trace every supply chain in detail or to achieve complete transparency. In many cases, it is sufficient to have a general understanding of the issues in the relevant production countries and sectors. When implementing measures, the emphasis is on a "best-efforts" approach. Furthermore, companies should act in consultation and dialogue with stakeholders, following the principle of "stay and improve" (support services, industry initiatives).