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Deciphering Supply Chain Laws: LkSG vs CSDDD

On March 15, 2024, the European Council reached an agreement on the Corporate Sustainability Due Diligence Directive (CSDDD). The Belgian Presidency of the European Council circulated an adapted proposal for the CSDDD as a final attempt to reach an agreement among the Member States and with success: the required (qualified) majority was achieved within the European Council. The formal adoption of the CSDDD by the Members of the European Parliament is expected in April 2024. But how does this directive differ from the German Supply Chain Due Diligence Act (LkSG)? And how do they relate to each other? In this blog post, we will highlight the similarities and differences between the CSDDD and the LkSG. Exploring Similarities Between LkSG and CSDDD: Seeking Common Ground Both laws aim to hold companies accountable and oblige them to organize their supply chains responsibly. Both the Supply Chain Due Diligence Act (LkSG) and the Corporate Sustainability Due Diligence Directive (CSDDD) set out comprehensive due diligence obligations for human rights and environmental protection along the supply chain. This means that companies are obliged to identify and report on the potential negative impacts of their business activities and to take measures to minimize or prevent negative impacts. Both laws also provide for sanctions that companies face if they violate the stipulated regulations. This can include fines and exclusion from public contracts. Highlighting Contrasts: Key Differences Between LkSG and CSDDD The main difference between the German Supply Chain Due Diligence Act (LkSG) and the EU Corporate Sustainability Due Diligence Directive (CSDDD) lies in their scope of application and legal structure. The LkSG applies to companies of any legal form in Germany and is staggered according to company size, whereby it has applied to companies with more than 3,000 employees since 2023 and to companies with more than 1,000 employees since January 2024. In contrast, the CSDDD applies gradually to corporations in the EU and to non-EU companies that exceed a specified number of employees and a turnover threshold in the EU single market. Large companies with more than 5,000 employees and a minimum turnover of 1.5 billion euros are obliged to comply with the directive three years after its enactment, likely in 2027. Companies with more than 3,000 employees and a minimum turnover of 900 million euros have four years (potentially until 2028), and companies with more than 1,000 employees and a minimum turnover of 450 million euros have five years (potentially until 2029 2029) until they are subject to the law. Another difference involves the specific requirements and concerns covered by the laws. While the LkSG focuses primarily on human rights and direct environmental risks, the CSDDD expands its scope to include additional environmental concerns such as climate targets, the protection of flora and fauna and the minimization of environmental impacts along the “chain of activity”. The "chain of activity" includes all upstream activities that are related to the production of goods, the company’s own operations and downstream activities for distribution, transport and storage for direct business relationships. Usage and disposal of the product are not in scope. Furthermore, there are distinctions regarding liability within the two laws. While the LkSG does not provide for civil liability, the CSDDD does, but only within its own sphere of influence and in accordance with the provisions of the German Civil Code (BGB). There are also differences in the sanctions: While the LkSG provides for fines of up to 2% of annual turnover and exclusion from public sector contracts, the CSDDD provides for fines of up to 5% of annual turnover, in addition to publication of the infringement and a ban on the marketing or export of products and services. Wrapping Up: Key Takeaways from the Comparison of LkSG and CSDDD In conclusion, the comparison between the German Lieferkettensorgfaltspflichtengesetz and the EU Corporate Sustainability Due Diligence Directive reveals significant similarities and differences. While both aim to hold companies accountable for their supply chains, the LkSG applies to German companies based on employee count, whereas the CSDDD applies to specific company forms across the EU, based on employee count and turnover. Additionally, the CSDDD extends its scope to address a broader range of human and environmental concerns along the upstream and partially downstream supply chain. Understanding these distinctions is crucial for businesses navigating compliance and sustainability efforts in the evolving regulatory landscape.

CBAM

How to collect better CBAM data from suppliers

Creating effective strategies for collecting better data from suppliers for CBAM (Carbon Border Adjustment Mechanism) reporting is crucial for companies to ensure compliance and facilitate smooth operations under the new EU regulation. This article outlines practical steps and methodologies that can be integrated into your data collection processes for enhanced efficiency and accuracy. Understanding the Challenges The first step in improving data collection from suppliers is to recognize the challenges both you and your suppliers might face. These can range from a lack of understanding of CBAM requirements to technical challenges in data collection and reporting. Identifying these challenges early on helps in tailoring your approach to supplier engagement and data collection. Educating Your Suppliers Education is key to overcoming initial hurdles. A well-informed supplier is more likely to provide accurate and timely data. Consider organizing training sessions, webinars, or creating informational content that breaks down CBAM requirements and explains the importance of accurate data reporting. Highlight how this not only ensures compliance but can also benefit the supplier through insights into their own carbon footprint and areas for improvement. Streamlining Communication Establish a clear, open line of communication with your suppliers specifically for CBAM-related inquiries. Designate points of contact within your organization who can address questions and provide support. This helps in minimizing confusion and delays in data submission. Utilizing Digital Platforms as Standardized Approach Digital platforms like SupplyOn’s CBAM software play a crucial role in simplifying the data collection process. SupplyOn’s CBAM software offers features such as: Automated Data Collection: Automate the collection of relevant data directly from suppliers, reducing manual entry errors and saving time. Centralized Data Management: Store and manage all supplier data in a single, secure location, making it easier to review, analyze, and report. Data Plausibility Check: Implement checks to validate the accuracy of the data received and highlight discrepancies or missing information for follow-up. One click report: Once the data is collected, directly download the ready to go report in XML format to submit quarterly. Continuous Improvement and Feedback Finally, establish a process for continuous improvement. Use feedback from suppliers and insights from data analysis to refine your data collection processes over time. Regularly update your strategies to address new challenges and leverage advancements in technology and best practices. Conclusion Improving data collection from suppliers for CBAM reporting is a multifaceted process that requires education, communication, and the right technological tools. By implementing standardized practices, leveraging digital platforms like SupplyOn CBAM software, and fostering a collaborative environment, companies can enhance the accuracy and efficiency of their CBAM data collection efforts, ensuring compliance and fostering sustainability within their supply chains.

ESG

Why you should consider holistic ESG management

Focusing solely on specific ESG use cases, such as data collection strategies for individual sustainability metrics, rather than adopting a holistic approach to ESG management, significantly risks the effectiveness of meeting broader ESG goals. This fragmented strategy can lead to various pitfalls that not only undermine the effectiveness of sustainability initiatives but also jeopardize the organization's reputation and compliance posture. Here’s a detailed look at why an isolated approach to data collection and ESG goal setting is destined for challenges. 1. Incoherent Data Collection Leads to Gaps in Sustainability Reporting Organizations that approach ESG data collection piecemeal, without a comprehensive strategy, risk collecting inconsistent or incomplete data. This inconsistency can result in significant gaps in sustainability reporting, where key performance indicators (KPIs) are either inaccurately reported or altogether missed. The disjointed data undermine the reliability of sustainability reports, reducing their value to stakeholders and potentially leading to stakeholder mistrust. In addition, synergy effects cannot be exploited 2. Misalignment of Sustainability Goals and Business Objectives An ESG strategy that is not holistic in nature often leads to a unfavorable trade-off between sustainability goals and broader business objectives. For instance, a company might focus on reducing carbon emissions in its operations (a commendable goal) but neglect broader environmental concerns such as waste reduction or water conservation in its supply chain. This narrow focus can result in missed opportunities for comprehensive environmental stewardship and can impede the company's ability to respond to evolving regulatory requirements or stakeholder expectations. 3. Regulatory Compliance Risks The regulatory landscape for ESG is becoming increasingly complex and stringent globally. An isolated approach to ESG management, particularly in data collection and goal setting, poses significant compliance risks. For example, focusing exclusively on the Carbon Border Adjustment Mechanism (CBAM) without integrating the Lieferkettensorgfaltspflichtengesetz (LkSG) or Corporate Sustainability Reporting Directive (CSRD) into the strategy might lead to non-compliance with these equally important regulations. Non-compliance can result in hefty fines, legal challenges, and reputational damage. 4. Difficulty in Stakeholder Engagement Stakeholders, including investors, customers, and employees, are increasingly demanding comprehensive and transparent ESG practices. A fragmented ESG strategy makes it challenging to effectively engage with these stakeholders, who expect coherent and all-encompassing sustainability initiatives. Failure to meet stakeholder expectations can lead to a loss of trust, affecting customer loyalty, investor confidence, and employee satisfaction. 5. Hindered Long-term Sustainability and Innovation A piecemeal approach to ESG data collection and goal setting limits an organization's ability to innovate and implement long-term sustainability solutions. Without a comprehensive understanding of ESG impacts and opportunities, companies might miss out on innovative technologies or practices that could drive significant improvements in sustainability performance across the board. Conclusion An isolated approach to ESG management, particularly in data collection and goal setting, is fraught with risks that can undermine an organization's sustainability efforts, regulatory compliance, and stakeholder engagement. As the business world increasingly recognizes the importance of holistic and integrated ESG strategies, companies that fail to adapt risk falling behind. Adopting a comprehensive ESG management framework is not just a matter of regulatory necessity but a strategic imperative that can drive long-term sustainability, innovation, and competitive advantage. Explore SupplyOn’s holistic ESG management software by talking to our ESG experts today.

Lieferkettengesetz

LkSG risk management: Excel vs. SupplyOn Software

The Lieferkettensorgfaltspflichtengesetz (LkSG) compliance requires a nuanced approach that goes beyond the functionality of tools like Excel. Considering the operational realities and challenges faced by companies in the last 2 years, a structured comparison between using Excel and SupplyOn's LkSG Risk Management Software illustrates a clear choice for companies looking to fulfill LkSG requirements this year. Excel for LkSG Compliance: Operational Realities 1. Data Management and Integrity Challenges: In Excel, maintaining the integrity of vast amounts of supplier data across complex supply chains can lead to significant discrepancies, risking non-compliance. Excel lacks automated alerts for data anomalies or updates, placing the burden of continuous data checks on you. 2. Risk Assessment Limitations: Performing dynamic risk assessments with Excel is cumbersome. The manual aggregation and analysis of data to identify risks among direct and indirect suppliers are prone to oversight and inaccuracies. 3. Collaboration and Reporting Inefficiencies: Excel’s static nature hampers real-time collaboration. Sharing updated risk assessment and status quo with customers can be delayed, leading to outdated decision-making. Preparing compliance reports for regulatory bodies is 100% manual and time-intensive, diverting resources from strategic compliance activities. SupplyOn's LkSG Risk Manager: A Structured Approach 1. Enhanced Data Management: SupplyOn provides a centralized platform for managing supplier data, ensuring high data integrity and accessibility. It automatically updates and flags inconsistencies, facilitating proactive compliance management. The platform's supplier mapping feature offers a comprehensive view of the supply chain, including indirect suppliers, significantly reducing the risk of oversight. 2. Sophisticated Risk Analysis: The tool conducts abstract risk analysis considering both country risk and granular level product risk that were developed on the basis of BAFA recommended risk databases. This enables precise identification of high-risk suppliers in preliminary scoring. Based on the abstract risk scoring, the tool detects the high risk suppliers and sends concrete risk specific survey questions – but only for the high risks to keep effort minimal for suppliers. Automated risk prioritization feature on the tool allows to focus on appropriate risks and apply necessary measures. Conduct preventative and remedial actions and track the effect of the measures to have a better view on risk reduction. 3. Streamlined Collaboration and Reporting: SupplyOn fosters real-time collaboration among all internal users including suppliers. This ensures that everyone is informed and can act promptly on required matters. Streamlined creation of BAFA report using the designated fields ensures high accuracy of a better report. The Structured Advantages of SupplyOn over Excel Automated vs. Manual Processes: Where Excel relies on manual entry and analysis, SupplyOn automates risk assessments, data management, and reporting, significantly reducing the potential for human error and increasing efficiency. Dynamic Risk Management:Unlike Excel’s static data sets, SupplyOn offers dynamic risk management capabilities, automatically adjusting risk priorities as new data becomes available or as the supply chain evolves. Integrated Compliance Framework: SupplyOn provides an all-in-one platform for LkSG risk management, from supplier mapping and risk analysis to measure management and reporting. Excel, by contrast, requires multiple spreadsheets and manual integration of data for a comprehensive view. Resource Optimization: SupplyOn's streamlined and automated processes free up valuable resources, allowing companies to allocate more time to strategic initiatives rather than tedious manual compliance tasks. In summary, while Excel may offer a familiar interface, it falls short in addressing the real-world challenges of LkSG compliance. SupplyOn's LkSG Risk Manager, with its structured approach to data management, risk analysis, collaboration, and reporting, offers a comprehensive and efficient solution. This platform not only simplifies compliance efforts but also enhances the strategic capability of companies to manage their supply chain risks proactively. Click here to request a software demo from our LkSG experts

Lieferkettengesetz

Lieferkettengesetz compliance checklist for SMEs

As a SME operating within Germany's dynamic market landscape, the enactment of the Lieferkettensorgfaltspflichtengesetz (LkSG) brings both a challenge and an opportunity to redefine your approach to supply chain management. With a workforce of 1,000 to 3,000 employees, your company is at a pivotal size—large enough to have a significant impact on your supply chain but agile enough to adapt swiftly to new regulations. Here's how you, as an SME, can proactively embrace LkSG compliance as a core part of your business ethos: 1. Embracing Your Role in Global Sustainability First and foremost, you should recognize your responsibility towards ensuring that your operations and supply chains respect human rights and environmental standards. The LkSG is not merely a regulatory requirement; it aligns with your commitment to ethical business practices and sustainability. Understanding the spirit of this law is the foundation of your compliance strategy. 2. Conducting Thorough Risk Assessments With your extensive network of suppliers, conducting a thorough and continuous risk assessment is crucial. You can implement a comprehensive evaluation system, identifying potential risk areas across your direct and indirect supplier universe. This proactive approach will enable you to address issues before they escalate. 3. Crafting a Clear Policy Statement Your commitment to ethical supply chain practices should be encapsulated in a publicly available policy statement. This document, accessible to all stakeholders, should outline your approach to maintaining LkSG compliance and underscore your dedication to transparency and accountability. 4. Implementing Rigorous Due Diligence Procedures You should establish structured due diligence processes, incorporating regular audits, supplier assessments, and contractual compliance clauses. You should think that your dedicated resource should work on such topics and collaborate with internal compliance team members. 5. Taking Prompt Remediation Actions In instances where supply chain violations are identified, you should be committed to taking immediate and effective action. This could range from working directly with suppliers to correct the issues, to severing ties with non-compliant partners. Your goal is to address problems in a way that fosters long-term improvements and respects affected individuals or communities. 6. Ensuring Transparency through Reporting Annually, you should publish detailed reports on your supply chain due diligence efforts, findings, and the measures you have taken to address any issues. This level of transparency not only meets LkSG requirements but also builds trust with your customers, partners, and the broader public. 7. Fostering a Culture of Awareness and Training Understanding that compliance starts with awareness, you should invest in regular training for your employees and suppliers. Educating them about the LkSG, its implications, and your collective role in upholding its standards is essential for embedding ethical considerations into every aspect of your operations. 8. Committing to Continuous Improvement Compliance for you should be an ongoing journey. You should continually review and refine your processes, staying abreast of best practices, and adapting to new regulations such as CBAM, CSRD Reporting and even in future EU Forced Labor law. 9. Collaborating for Greater Impact You should believe in the power of collaboration. Engaging with your suppliers, industry peers, and other stakeholders should allow you to share insights, challenges, and solutions. Together, you can drive more significant, industry-wide changes towards more responsible supply chains. 10. Leveraging Technology for Compliance To streamline your compliance efforts, leveraging software solutions will make your journey much more streamlined and efficient such as automatically collecting data from suppliers, understand their risk levels, applying pre defined measures, track the effectiveness of the measures and create regulatory reports like for BAFA in appropriate manner. To learn how SupplyOn’s LkSG Risk Management Software can simply your LkSG journey in just 48 hours, contact us here.

CBAM

Integrating Carbon Border Adjustment Mechanism (CBAM) in Procurement Strategies

As the Carbon Border Adjustment Mechanism (CBAM) reshapes the regulatory landscape, many businesses are still finding their ways to submit their quarterly report. However, CBAM must be strategically integrated in their procurement practices to ensure compliance and foster resilience. This article explores how CBAM can be part of such procurement strategies and have long term influence in how companies source, contract, manage supplier relationship and optimize. Amidst the Carbon Border Adjustment Mechanism (CBAM), procurement professionals can act as below to address challenges and opportunities: Evaluating Suppliers' Carbon Footprint: Procurement professionals must assess suppliers' carbon footprint to gauge environmental impact and risks related to CBAM compliance. This involves collecting emissions data and prioritizing low-carbon suppliers. Negotiating Carbon Clauses in Contracts: Incorporating carbon clauses is essential for CBAM compliance. Procurement teams must collaborate with legal and sustainability experts to draft enforceable provisions, reducing legal and financial risks. Establishing Clear Communication Channels for CBAM Compliance: Effective communication is crucial for transparency and collaboration. Procurement professionals should establish clear protocols and maintain open dialogue with suppliers. Supplier Relationship Management for Collaboration and Accountability: Strategic partnerships with environmentally responsible suppliers are key. Effective supplier relationship management fosters collaboration and drives sustainable growth. Diversifying Sourcing: Procurement teams must assess their current supplier base and identify dependencies on regions or suppliers that may face higher carbon costs under CBAM. By diversifying their sourcing strategies, businesses can reduce their exposure to potential disruptions and risks associated with carbon pricing. This may include exploring alternative suppliers from regions with lower carbon footprints or investing in partnerships with suppliers committed to sustainability practices. Investing in Alternative Suppliers: Beyond diversification, businesses should actively invest in building relationships with alternative suppliers who can offer more sustainable sourcing options. This investment may involve conducting thorough assessments of potential suppliers, negotiating contracts that align with CBAM requirements, and fostering long-term partnerships built on shared sustainability goals. By cultivating a robust network of alternative suppliers, businesses can enhance their flexibility and resilience in the face of regulatory changes and market uncertainties. Leveraging CBAM software: Digitalization plays a crucial role in data collection from suppliers, calculate CBAM related emissions, run plausibility check and report preparation in XML format in just few clicks. Such streamlined approach can quickly ease the burden and the data can be easily integrated to overall procurement process. Check SupplyOn’s CBAM Reporting Software here. Supply chain optimization in the context of CBAM involves not only adapting to new regulatory requirements but also proactively building resilience through diversification, investment in alternative sourcing, and leveraging software technologies. By embracing these strategies, businesses can navigate the complexities of CBAM compliance more effectively and position themselves for sustainable growth in the evolving regulatory landscape.Incorporating sustainability into supply chain practices goes beyond mere compliance with CBAM regulations. It involves a holistic approach aimed at combining CBAM, Supply Chain Law, Human Rights Due Diligence, CSRD Reporting, Product Carbon Footprint measurement all part of one strategy to succeed in long run. Conclusion: In the CBAM era, procurement tackling such ESG related topics in strategic manner is essential for businesses to ensure compliance, drive sustainability and be efficient with your resources across the supply chain. To learn more how SupplyOn can empower your sustainable procurement organization, contact our ESG experts here.

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The most popular articles at a glance

Integrating Carbon Border Adjustment Mechanism (CBAM) in Procurement Strategies

Lieferkettengesetz compliance checklist for SMEs

LkSG risk management: Excel vs. SupplyOn Software