Paths Through the Labyrinth: Guide to the EU Supply Chain Act

Europe has further expanded its leadership role in recent years and has significantly influenced central issues such as human rights and sustainability. In this context, a crucial step is the recent introduction of the EU Supply Chain Act – the first official guidelines of this kind. But what does this mean in concrete terms? And what should companies pay attention to? This is explained by Robert Zehentbauer, Regional Vice President DACH at project44 in a guest article.

Von: Robert Zehentbauer

(Munich) The new EU law for the supply chain is clear: it applies to all companies operating in the European Union – regardless of their nationality. However, it only applies to companies with more than 500 employees and a turnover of over 150 million EUR. It mandates due diligence measures to identify and mitigate negative impacts of the supply chain on human rights and the environment. This also includes direct and even indirect suppliers further down the supply chain. This is a bold move to hold companies accountable for human rights and environmental violations. For these areas, they are to take full responsibility in their global supply chains.

Impacts of the EU Supply Chain Act

The law addresses various aspects. A major focus is on human and fundamental rights – such as the freedom of association, protection against discrimination, and the prohibition of child and forced labor. Another part of the guidelines deals with important environmental issues such as biodiversity, pollution, and climate change. Companies are required to publicly report on their due diligence measures. Additionally, they must provide complaint mechanisms for stakeholders. In case of violations of the requirements, heavy fines and exclusion from public tenders are threatened. Furthermore, civil liability lawsuits from affected interest groups are possible in these cases.

The new guidelines initiate a significant change in corporate responsibility. Due diligence processes are now required. It is no longer sufficient to only talk theoretically about such measures. Companies must actually take action and also provide evidence of this. This will certainly lead to higher costs, as implementing due diligence in complex supply chains requires resources and expertise. However, once the challenges are mastered, this can also have positive effects – such as improved supplier relationships or a gain in brand reputation. Thus, the new EU Supply Chain Act holds every company accountable and simultaneously promotes ethically positive sourcing and fair competition.

Opportunities and Chances

The course for an improved supply chain in the European Union has been set. Companies must comprehensively map their supply chains and optimize communication with suppliers. This also places a stronger focus on risk management. Potential abuses can thus be avoided and contained earlier. Legal risks to a brand’s reputation are thereby reduced. New technologies and collaboration with industry peers can streamline due diligence processes. Transparent data from platforms like project44 also support better visibility. This provides companies with more information that they can use for more accurate reporting. In this way, they can reliably comply with the new legal requirements.

With the new Supply Chain Act, the European Union has achieved a groundbreaking piece of legislation. Similar efforts are currently taking place internationally. The UN has introduced its own guiding principles for business and human rights. Likewise, the OECD guidelines for multinational enterprises provide a non-binding framework that some countries could use in developing their own regulations. There may be different priorities in some regions – for example, regarding which aspects of supply chain impacts should be prioritized. The varying emphasis on human rights and environmental issues can also lead to different approaches in individual countries.

Complex and Highly Demanding

The new EU Supply Chain Act is complex, and this can be discouraging at first glance. It is extremely challenging to implement the requirements for sustainable and responsible processes. However, if companies respond proactively, adjust their supply chain processes accordingly, or introduce supportive technologies, they will be prepared for the challenges in the modern supply chain.

Robert Zehentbauer is Regional Vice President DACH region at project44. He possesses extensive knowledge as a sales and logistics expert and has over three decades of experience in logistics, software, and IT. His career includes significant positions at Kühne + Nagel, Siemens Information Systems, and leading U.S. companies in logistics and supply chain software such as JDA Technologies, Descartes, and i2 Technologies.

www.project44.de