The German Supply Chain Due Diligence Act, which became effective on January 1, 2023, is currently stirring up controversy. Supporters see the regulation primarily as a necessary instrument to motivate companies to act more sustainably and make improvements in terms of human rights, working conditions, fair pay, etc. Others argue that the legislation will not bring about any noticeable changes in society and will also lead to high bureaucratic hurdles for companies.
What do German companies think of the new legislation and are they sufficiently prepared for it? To address these questions, Miebach Consulting, in collaboration with GS1 Germany, conducted a study with nearly 500 participants in the summer of 2022 to determine the attitude of German businesses toward the upcoming regulations, as well as what measures have already been taken or are planned.
In general, the study participants' expectations of the Supply Chain Due Diligence Act can be described as positive, although not everyone is yet willing to pay the price for sustainability. Almost half of the participants stated that the legislation will have a positive impact on the environment and society or can contribute to fair competition. On the other hand, 41% of companies focus on the increasing administrative burden and higher costs, especially since the specific requirements of the law are unclear to many companies and responsible employees.
In contrast to highly regulated industries, transparency in the supply chain in particular could become a challenge for companies from less regulated industries. While there is often still sufficient transparency for Tier 1 suppliers, data on human rights- or environment-related obligations, such as records of weekly working hours, appropriate minimum wages, but also the handling of environmentally harmful substances and products, are often not available for Tier 2 and Tier 3 suppliers.
“Despite the possible additional costs and efforts, regulation via the Supply Chain Due Diligence Act is, in our view, an important instrument to motivate companies to be more sustainable. While more than 30% have already introduced sustainability-related measures due to customer requirements, regulations are the second most important driver for companies to start sustainability initiatives with 25%” - says Anastasiia Omelchuk, Consultant, Miebach Consulting GmbH.
In particular, many companies cite the (upcoming) legislation in Germany and even stricter regulations at the European level as the main reason for introducing a sustainability strategy. 18% name their employees as the most important driver for sustainability.
Over 60% of participating companies say they are optimistic about their preparation measures for the Supply Chain Due Diligence Act and are not making any major changes within their current supply chains or with suppliers. According to the study participants, 43% of the companies are already working on their action plan as well as measures in preparation for the law coming into force. For example, one of these actions is to work with current suppliers to ensure they are compliant with the new legislation.
Collaboration between supply chain partners is a particularly important measure with regard to the Supply Chain Due Diligence Act. However, despite numerous examples of effective sustainability collaboration, this option is still often neglected. For example, approximately 40% of study participants indicate that they primarily pursue collaboration between internal departments to promote sustainability. The data on collaboration with tier-1 suppliers (25%) and consulting firms (15%) show a positive trend, but the collaboration is still too hesitant in the context of the new law’s requirements for transparency along the entire supply chain.
“In addition to cross-company collaboration, standardization in data exchange will play a crucial role for companies in the future to enable transparency and sustainable actions. The digitalization of business processes is an important requirement for this” - says Thomas Krebs, Senior Principal, Miebach Consulting GmbH.
The study can be requested from Ralf Hoffmann (firstname.lastname@example.org) or by using the form on this page (link).