The Act On Corporate The Due Diligence Obligations In Supply Chains For Turkish Suppliers And Innovations Brought By This Law

Through this law, for the first time, concrete directives were introduced for companies in all sectors for compliance

Prepared with the aim of preventing human rights violations in the supply chains, the law, known as the Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz – LkSG), was passed by the Federal German Parliament on June 11, 2021. The law entered into force on January 1, 2023, and for the first time, concrete directives were introduced in terms of compliance for companies in all sectors.

Long before the LkSG came into force, the United Nations (UN) had adopted guiding principles that defined minimum social and ecological standards for business and human rights. Subsequently, the German Federal Government prepared the National Action Plan on Business and Human Rights 2020 (NAP 2020) in 2016 based on these guiding principles of the UN. The content of this action plan specifically included the determination of the social and ecological obligations and liabilities of companies and assurance of the competitiveness of German companies against other companies.

NAP 2020 was designed to be implemented by companies on a voluntary basis. The aim of the action plan was that over 50 per cent of companies with more than 500 employees meet these requirements by the end of 2020. Yet, by the end of 2020, only about 17 per cent of companies were able to meet these requirements. Due to the failure to reach the 50 per cent target, it was accepted by the German Federal Parliament that a legal regulation should replace the voluntary basis introduced by NAP 2020, and thus the Act on Corporate Due Diligence Obligations in Supply Chains was made. In parallel with Germany, the European Union is also working on a directive on due diligence obligations. The EU directive brings more comprehensive regulations compared to the Act on Corporate Due Diligence Obligations in Supply Chains, and more obligations will be required to be met in the event that the EU directive is implemented.

LkSG is a legal framework that regulates the due diligence obligations to be fulfilled by the companies on their own and within the scope of their supply chains

The Act on Corporate Due Diligence Obligations in Supply Chains is a legal framework that regulates the due diligence obligations to be fulfilled by the companies on their own and within the scope of their supply chains. Companies are obliged to fulfil the obligations imposed by the social and ecological minimum standards defined in LkSG to all their suppliers (direct suppliers) with whom they have a direct contractual relationship. This obligation is not a one-off practice, meaning that compliance with minimum standards should be checked regularly by the companies.

Besides direct suppliers, the companies should also take action against indirect suppliers, in the event that there are sufficient indications that human rights or environmental obligations have been violated by an indirect supplier. Indirect suppliers, as specified in the law, refer to suppliers that do not have a direct supply relationship with the company but are required by the company for the production of a product or the provision of a service.

LkSG aims to protect human rights and the environment through due diligence obligations brought to companies and supplier

LkSG aims to protect human rights and the environment through due diligence obligations brought to companies and suppliers. The purpose of the law is not only the supply and delivery of raw materials and products but also the provision of services. Within the scope of the Act on Corporate Due Diligence Obligations in Supply Chains, the concept of the supply chain includes all the steps a company to provide its products or services, from the extraction of raw materials to their delivery to the final customer. It does not make any difference in terms of LkSG that companies take such steps with direct or indirect suppliers at home or abroad, in their own business field. For direct suppliers, a risk analysis should be carried out with regard to human rights and environmental risks in terms of LkSG, which
should be repeated regularly. In the case of the identification of the risks, preventive measures should be urgently taken for suppliers.

A typical example of these preventive measures is the reorganization of contracts with suppliers in this direction. In case of indications of human rights and environmental risks in indirect suppliers, a risk analysis should also be made for indirect suppliers and a roadmap should be prepared on how to take preventive measures determined by the company. In addition, a plan should be drawn up on how
the violation can be prevented, terminated, or minimized in this situation.

LkSG adopted by the German Federal Parliament on June 11, 2021

There are differences in terms of the implementation time of the obligations brought by the LkSG. Compliance must be achieved until January 1, 2023, at the latest by companies with over 3,000 employees, and until January 1, 2024, by companies with over 1,000 employees. This number is valid for German companies, and there is no numerical limitation for Turkish companies, which are defined by this law as direct or indirect suppliers. Liabilities brought to companies by LkSG are briefly as follows: Conducting risk analysis on human rights and environmental risks, appointing a human rights officer, establishing company policy, determining preventive measures regarding the company’s field of activity, determining preventive measures for direct suppliers, identifying remedial measures in case of violation of human rights and environmental obligations, establishing a complaint procedure, fulfilling due diligence requirements regarding risks at indirect suppliers, documenting all these measures, preparing and publishing a report on the fulfilment of due diligence obligation.

In terms of Turkish companies, which are acting as direct or indirect suppliers in commercial activities with Germany, the audit and examination process is important in terms of determining whether the obligations brought by LkSG are fulfilled and completing possible deficiencies.