Regulations enforcing environmental and social protection in the value chain have increased worldwide over the last five years. Companies must now be prepared to report transparency on their practices to governmental institutions, extending beyond their business areas. This requires the right approach and support from technology.

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Regulatory pressure is increasing

In 2023, the "Supply Chain Due Diligence Act" (Lieferkettensorgfaltspflichtengesetz - LkSG) was introduced, requiring companies with more than 1000 employees (as of January 2024) in Germany to comply with due diligence requirements concerning human rights violations and environmental impacts. This applies not only to a company’s business activities but also to its extended enterprise network of suppliers. It is not an isolated case and reflects a trend over the last five years where regulatory pressure has increased globally. Some examples include:

  • The Modern Slavery Act – UK (2015)
  • Child Labour Due Diligence Law – Netherlands (2022)
  • LkSG / SCDDA – Germany (2023)
  • Corporate Sustainability Reporting Direcetive CSRD – Europe (2024)
  • Corporate Sustainability Due Diligence Directive CSDDD – Europe (forthcoming)

The intensity of the scrutiny, the scope and the fines are increasing significantly. The forthcoming European Directive (CSDDD) will now apply to companies with more than 500 employees in Europe. Furthermore, knowing your direct suppliers is insufficient; tier 2 and 3 transparency will be necessary.

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