CSDDD vs GSCA supply chain new legal.pptx

CSDDD vs GSCA supply chain new lega

1. Directive on Corporate Sustainability Due Diligence vs german supply chain due diligence act 1 1

2. WHY- POLITICAL CONTEXT International commitments: Political priorities of the Commission - Green and just transition: And linked strategies : Biodiversity Strategy, Action Plan on a Circular Economy, Chemicals, Farm to Fork strategy, Strategy for financing the transition to a sustainable economy, EU Action Plan on Human Rights and Democracy, Trade Policy Review 2021, Decent Work Worldwide Communication 2022 etc… Strong call from stakeholders and the European Parliament and Council to take action Nearly 500 000 responses to public consultation Support for EU action on due diligence by NGOs and businesses 2

3. CURRENT SITUATION: International voluntary framework OECD Guidelines for Multinational Enterprises Government- backed recommendations on what constitutes responsible business conduct (RBC) Define risk- based due diligence as main tool to identify, prevent or mitigate risk Cover all areas of business responsibility (social, environ- mental and governance aspects) OECD Due Diligence Guidance for RBC , and sector- specific due diligence guidance provide practical 3 support to companies UN Guiding Principles on Business and Human Rights 31 principles developed by Prof. John Ruggie; endorsed by HR Council in 2011 Affirm (1) the state duty to protect against HR abuses; (2) the corporate responsibility to respect human rights; and (3) the need for access to remedy for victims of HR abuses linked to business activity Clarify that a core component of the corporate responsibility to respect is the concept of on- going HR due diligence ILO Tripartite Declaration of Principles concerning MNEs and Social Policy Only global instrument developed, adopted and supported by govern- ments, employers’ and workers’ organizations Provides guidance of how companies can contribute to decent work agenda Based on ILO Declaration on Fundamental Principles and Rights at Work which addresses forced labour, child labour, non- discrimination and freedom of association and collective bargaining

4. Key considerations when designing the scheme CULTURE OF NO HARM : Step up corporate due diligence culture of “do no harm”, make it a new norm worldwide and foster engagement with third country suppliers, avoid disengagement DEFRAGMENTATION IN THE SINGLE MARKET: Limit patchwork of rules, avoid administrative cost and burden CONSISTENCY: With existing rules on due diligence and sustainability reporting LEGAL CERTAINTY: Provide legal certainty and predictability as regards measures to be taken to prevent adverse impacts including in the value chain and as regards its consequences; ensure access to remedy TRANSPARENCY: Help companies reply to investors and consumers pressure PROPORTIONALITY: Ensure proportionality and feasibility by companies; help SMEs to face indirect impacts COLLABORATION: foster industry collaboration, build leverage 4

5. 5 Benefits FOR CITIZENS Better protection of human rights, including labour rights Healthier environment for present and future generations Increased trust in businesses More transparency enabling better informed choices Better access to justice for victims FOR PARTNER COUNTRIES Better protection of human rights and the environment More awareness about sustainability issues Sustainable investment Improved living conditions for people FOR COMPANIES • Harmonised legal framework in the EU, creating legal certainty and level playing field Better medium to long- term financial performance, cost reductions More innovation, first mover advantages in global markets, more competitiveness Attracting talent, customer loyalty Better access to finance

6. PERSONAL SCOPE: WHO LARGE EU LLCs + REGULATED FINANCIAL COMPANIES NON- EU COMPANIES SMALL AND MEDIUM ENTERPRISES GROUP 1 500+ employees and more than net €150 million of turnover* +/- 9,400 companies +/- 2,600 companies Micro companies and small and medium enterprises (SMEs) are not directly concerned by the proposed rules. GROUP 2 250+ employees and more than net €40 million of turnover*, operating in defined high impact sectors. +/- 3,400 companies +/- 1,400 companies The rules will apply to this group 2 years later than to group 1. * Worldwide turnover for EU companies and EU wide turnover for non EU companies 7

7. PERSONAL SCOPE: High impact sectors for Group 2 companies Which sectors? GARMENT & FOOTWEAR: Manufacture of textiles, leather and related products including footwear and the wholesale trade of textiles, clothing and footwear AGRICULTURE: Agriculture, forestry, fisheries including aquaculture, manufacture of food products and the wholesale trade of agricultural raw materials, live animals, wood, food and beverages MINERALS: Extraction of mineral resources, manufacture of basic metal products, other non- metallic mineral products and fabricated metal products and the wholesale trade of mineral products and fabricated metal products, the wholesale trade of mineral resources 8

8. Human rights and environmental adverse impacts Identifying, preventing, bringing to an end, and accounting for negative human rights and environmental impacts in company’s own operations, subsidiaries and value chains (‘established business relationships’) . Toolbox of appropriate measures 9 What obligations? SPECIAL: CLIMATE CHANGE Group 1 companies: adopt a plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement. In case climate change is identified principal risk for company’s operations, include emission reduction objectives. Directors variable remuneration linked to their contribution to long- term sustainability. CORPORATE DUE DILIGENCE DUTY DUTIES FOR DIRECTORS Due diligence: setting up and overseeing the due diligence processes and integrating due diligence into the corporate strategy. Report to the board. Duty of care: when fulfilling their duty to act in the best interest of the company, take into account the human rights, climate change and environmental consequences.

9. How does Human Rights and Environmental Due Diligence work? PROVIDE FOR or COOPERATE IN REMEDIATION WHEN APPROPRIATE 6 IDENTIFY &ASSESS ADVERSE IMPACTS IN OPERATIONS, SUPPLY CHAINS & BUSINESSRELATIONSHIPS CEASE, PREVENT OR MITIGATE ADVERSE IMPACTS 3 TRACK IMPLEMENTATION AND RESULTS 4 COMMUNICATE HOW IMPACTS ARE 5 2 ADDRESSED 1 EMBED RESPONSIBLE BUSINESS CONDUCT INTO POLICIES & MANAGEMENT SYSTEMS

10. 11 What are the obligations for companies and their directors in different Groups? GROUP 1 Full due diligence obligation All sectors Plan to ensure that their business strategy is compatible with limiting global warming to 1.5 °C in line with the Paris Agreement CSRD reporting* Directors` duty of care * GROUP 2- Phase- in 2 years Due diligence only for severe adverse impacts High impact sectors CSRD reporting* Directors` duty of care* * Not applicable for non EU companies

11. HOW: implementation & public enforcement 12 Complaint mechanism to be set up by company Affected persons, trade unions, CSOs Administrative supervision MS supervisory authorities Complaint mechanism “substantiated concerns” Sanctions European Network of Supervisory Authorities Civil liability Obligation of means Own operations, subsidiaries and established business relations ‘safeguard’ for liability in value chains beyond Tier 1 Burden of proof on claimant Overriding provisions Internal complaint proceedings

12. 13 CSDD Support toolbox Guidelines Model contractual clauses Member States' support EU support Industry schemes Model clauses to help implement/cascade due diligence in the supply chain For high- impact sectors General guidelines for implementation Dedicated websites/platforms Financial support for SMEs Building on existing EU support tools Both in the EU and third countries Team Europe One- stop shop Facilitation/collection of Member States’ and other sectoral tools on supply chain transparency and sustainability reporting Supporting multi- stakeholder and industry schemes including guidance for assessment Joining forces with Member States to support the implementation of CSDD in value chains

13. CONTENTS 13 Who is this guide for? Due diligence: What’s it about? Why the supply chain matters The business case for due diligence (supplier perspective) Legal developments: State of play Legislature: German Act on Corporate Due Diligence in Supply Chains ( LkSG ) – five steps Why should suppliers prepare for due diligence? Due diligence requirements Due diligence in five steps: A supplier’s perspective Step 1: develop a strategy Step 2: perform a risk analysis Step 3: take action Step 4: measure and report Step 5: manage complaints Conclusion: basics of being a good supplier Checklist: getting ready for supply chain due diligence Implementing due diligence 1 2 3

14. Who is this guide for? 14 Large companies increasingly need to demonstrate their sustainability performance , both in terms of environmental and social/human rights matters. In doing so, they may react to vocal demands from civil society, investors and/or consumers, as well as to legal developments on mandatory due diligence. Key to increasing sustainability performance is the implementation of supply chain due diligence mechanisms . Over the course of these processes, large companies commonly pass on sustainability requirements , request information from suppliers on their sustainability performance and/or carry out audits. Context Objective This quick guide aims to help suppliers understand and respond to customer requests in such a way as to make sure that their organization benefits from the process, too. The focus lies on the due diligence process large companies are legally requested to follow (in Germany) and on the implications that this has for suppliers. For each step of the due diligence process, suppliers are made aware of the expectations their customers will (likely) have, how they can best prepare for these challenges and benefit from the process . Are your German/European customers asking you to provide them with information on the environmental and human rights risks of your business operations and supply chain? Are your customers requesting that you implement human rights and/or environmental management processes to demonstrate your sustainability performance? Do you want to communicate your sustainability credentials to important stakeholders (investors, customers, consumers) to maintain and improve your reputation and/or your business relationships?

15. Due diligence: What‘s it about? The idea behind „supply chain due diligence“ is that companies are assumed to bare responsibility for what happens in their supply chains. Supply chain due diligence helps businesses identify risks related to human rights and environmental matters in their supply chains and take measures to mitigate or avoid them in the future. The main process elements are the identification of risks , the implementation of preventative and remedial measures , as well as having documentation and reporting systems. 15 Key reference documents are the United Nations Guiding Principles on Business and Human Rights and the OECD Due Diligence Guidance for Responsible Business Conduct .

16. Why does the supply chain matter? © LfU / Referat xx / Bearbeiter / Datum 16 As the illustration shows for large companies, the supply chain is typically where the greatest environmental and human rights impacts (and thus opportunities for improvements / risk mitigation ) exist . Supply chain data is vital to large companies who wish to pursue sustainability strategies and monitor KPIs. For example, carbon emissions data, resource usage, etc. Further information The Atlas on Environmental Impacts – Supply Chains provides an overview of environmental “hot spots” in the supply chain of selected industries. With the  CSR Risk Check  from the Helpdesk Business & Human Rights, in cooperation with MVO and UPJ, you can filter by raw materials, services or products and countries. The result is an overview of potential environmental and human rights risks based on more than 2,700 sources. Stages of the value chain Sourcing of raw materials Manufacturing of semi- finished goods (indirect suppliers) Direct suppliers Car manufacturing company (own production site ) Total Greenhouse gases 8 % 54 % 28 % 10 % 140 megatonnes CO 2 e Air pollution 7 % 57 % 30 % 6 % 0,2 megatonnes NO 2 Water consumption 21 % 23 % 18 % 38 % 1800 million m 3 water Land use 91 % 4 % 3 % 2 % 3 million ha Distribution of environmental impacts along the value chain (example of vehicle manufacturing)

17. The business case for due diligence (Supplier perspective) 17 Supply chain due diligence is a driver of economic, social and environmental added value. The business case for supply chain due diligence for suppliers is based on three key value drivers . Better supplier assessments/ratings An increasing number of companies include robust sustainability criteria in their supplier assessments. Anticipating them and being prepared ensures a better supplier rating, which will eventually lead to more contracts, better customer-supplier relationships and the potential to charge higher prices. Innovation driver Meeting or anticipating increasing customer requirements can lead to product or service innovations. For example, offering products with recycled or biodegradable materials can be very attractive for customers promoting circularity in their value chain (e.g. in the automotive industry). Sales growth Sustainability helps to highlight the value of a supplier’s offer to the customer. Revenue growth through new products or services and/or higher prices.

18. Legal developments: State of play (selection) There is a growing body of laws on mandatory human rights and environmental due diligence in Europe and internationally. The latest case is the German Act on Corporate Due Diligence in Supply Chains. 18 Approval of German Supply Chain Due Diligence Act Entry into force of German Act on Corporate Due Diligence in Supply Chains EU regulation on Conflict Minerals entered into force 2011 2016 2017 2018 2019 2020 2021 2022 2023 UK Modern Slavery Act entered into force French Loi de Vigilance entered into force US Executive Order on the Global Magnitsky Human Rights Accountability Act entered into force Dutch Child Labour Due Diligence Act entered into force Australian Modern Slavery Bill entered into force EU Due Diligence law expected in 2022. 2015 UN Guiding Principles on Business & Human Rights published … German National Action Plan for Business and Human Rights published Further information on EU and international developments on mandatory due diligence can be found at: shiftproject.org/ resource / mhrdd-europe-map /

19. Legislature: German Act on Corporate Due Diligence in Supply Chains – five steps Core process elements of the Act: Supply Chain Due Diligence Part 2: Due diligence requirements 19 The German Act on Corporate Due Diligence in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG) law imposes mandatory obligations on certain companies operating in Germany to establish, implement and update due diligence procedures . It applies along the entire supply chain. Context From 2023, the Act initially applies to enterprises with at least 3,000 and, from 2024, additionally to enterprises with at least 1,000 employees in Germany. It places enterprises that have their central administration, principal place of business, administrative headquarters, statutory seat or branch office in Germany under the obligation to respect human rights by implementing defined due diligence obligations . The due diligence obligations apply to an enterprise’s own business area, to the actions of a contractual partner and to the actions of other (indirect) suppliers . If enterprises fail to comply with their legal obligations, administrative fines may be imposed. An authority will be equipped with effective enforcement instruments to monitor an enterprise’s supply chain management.

20. Due diligence in five steps: A supplier‘s perspective © LfU / Referat xx / Bearbeiter / Datum 20 Measure and report: Ask yourself what you have achieved and communicate on your progress. Develop a strategy: Evaluate your existing company principles and see how you can align them with the new requirements. Adjust your policy statement accordingly . Manage complaints: Assess existing complaints channels and improve the relevant processes if necessary . Perform a risk analysis: Get an overview of your business activities and conduct a risk analysis. Take action: Based on your analysis, create an action plan and implement risk-based measures. 1 5 4 2 3 Source: https://kompass.wirtschaft-entwicklung.de/en/due-diligence-compass/

21. Step 1: Develop a strategy 21 Context Companies directly affected by the German Act on Corporate Due Diligence in Supply Chains ( LkSG) must adopt a policy statement on their human rights strategy. The policy statement must cover the procedure for complying with human rights and environmental due diligence obligations in the supply chain (due diligence process), the specific risks and the company's human rights and environmental expectations of its employees and suppliers. How to act as a supplier Familiarize yourself with international reference documents so that you can communicate with your customers on an equal footing. Essential human rights reference instruments are: Universal Declaration of Human Rights; United Nations human rights covenants; and Core labor standards of the International Labor Organization (ILO). Review your existing corporate policies and adapt them as needed. In doing so, make sure to pay attention to the requirements for a policy statement a set out by the LkSG. Also remember to make your suppliers aware of the issue. Especially if – as a direct supplier – your customers ask you to consider sustainability issues in the deeper supply chain and to pass on requirements. Implications for suppliers The wording of the LkSG in regard to the policy statement also points the way for adjustments of supplier contracts. The law indicates that preventive measures must be implemented, including "the contractual assurance of a direct supplier that it will comply with the human rights-related and environmental requirements demanded by the company's management and address them appropriately along the supply chain" (§6 para. 4 LkSG). Further information Consult your industry association or an industry initiative to see if they can provide you with a template for human rights (and environmental) policy statements. The guide "How to develop a human rights policy" provides information on developing a human rights policy statement. The information portal "Business and Human Rights Resource Centre" provides information from corporations that have published a human rights policy statement.

22. Step 2: Perform a risk analysis © LfU / Referat xx / Bearbeiter / Datum 22 Context In many industries, especially in manufacturing, human rights and environmental risks are primarily located upstream in the value chain. Suppliers in particular are therefore called upon to provide information so that transparency along the supply chain is strengthened and suitable measures for prevention and remediation can be implemented. How to act as a supplier Start with a focus on your main business activity. To do this, you should look at existing data sources - because risk assessments are already available for a large number of environmental and human rights issues. In view of customers' information requirements, it is helpful to prepare an overview of the topics that are relevant for your company (and thus also for your customers). Sustainability standards (certificates, labels, etc.) and the classification of their performance as instruments for implementing your own due diligence processes are helpful so that you can respond to queries from customers (e.g. in the context of self-disclosures). Implications for suppliers If your company has created clarity about the human rights and environmental risks in your own company and your value chain, this can be a valuable preparation when your customers enter into dialogue with you in this regard, and strengthen the customer relationship significantly. Further information With the  CSR Risk Check  from the Helpdesk Business & Human Rights, in cooperation with MVO and UPJ, you can filter by raw materials, services or products and countries. The result is an overview of potential environmental and human rights risks based on more than 2,700 sources. The study "Respect for Human Rights along Global Value Chains" offers insights into the human rights risks along the value chains of German companies of different sectors.

23. Step 3: Take action © LfU / Referat xx / Bearbeiter / Datum 23 Context Based on the risk analysis, companies must implement or review appropriate preventive and remedial measures. This applies, for example, to the selection and monitoring of suppliers, the creation of codes of conduct, the implementation of training courses, and also sustainable contract design. How to act as a supplier Suppliers will likely be involved in the customer's due diligence management or prevention measures as part of reviews (via self-disclosures or audits). Review the customer's (new) Code of Conduct or self-disclosure and check whether you can meet the sustainability requirements listed. Find out whether customers use industry solutions or cross-industry supplier platforms for supplier verification and familiarize yourself with them. Make sure that you have employees in your company who can handle customer inquiries professionally. Evidence of management system codes and certificates strengthens the credibility of your self-disclosure. Audits should be prepared with sufficient lead time. Suppliers should not only think about auditing issues, but also about sharing knowledge and experiences with customers and perhaps initiating joint projects, e.g. regarding products or logistics solutions. Implications for suppliers If the risk analysis identifies relevant risks within a supply chain, preventive measures must be taken. These can relate to suppliers (usually direct suppliers, but possibly also indirect ones ). Measures can include such things as: Amendment of contractual provisions with suppliers (e.g. in the form of renegotiations), requiring the supplier to comply with human rights and environmental standards. Obligation of the supplier to adhere to these compliance standards in the downstream supply chain as well. Regular reviews of existing and future suppliers with regard to their ability to comply with due diligence requirements. Further information The  Decent Work Toolkit for Sustainable Procurement  by the UN Global Compact provides practical guidance and examples for improving working conditions in the supply chain.

24. Step 3 deep dive : Supplier self-disclosure Answering the questionnaire: Detail and accuracy in filling out the self-disclosure form create transparency and communicate competence to your customer, enabling targeted action in the event of grievances. Internal responsibility: A trained sustainability officer as the person in charge and primary contact person for buyers can ensure the quality of the information you provide in the self-disclosure. This also facilitates communication processes with the buyer. Documentation: Evidence of codes and certificates of management systems strengthen the credibility of your self-disclosure. They provide the customer with important information about already existing guidelines, which play a role in the supplier evaluation, as well as for the subsequent supplier development. 24 Further information Industry benchmarks can help you understand sustainability requirements. The World Benchmarking Alliance provides a free and publicly available sustainability benchmark that rates companies on their sustainability performance and contribution to achieving the global Sustainable Development Goals (SDGs).

25. Step 3 deep dive : Preparing for an audit Hotspot identification: You should know the risks in your business operations and in your supply chain. Your information can be cross-checked with the auditor. This increases your credibility in continuously improving your manufacturing or service processes. Employee preparation: The sustainability officer (if any) should prepare your employees for the upcoming audit. Preparation includes explaining the audit process, rights and responsibilities when interviewing employees, and possible consequences for the company. Employee training: Training employees and management personnel to follow established Codes of Conduct and standards should not occur just prior to auditing, but immediately upon the implementation of management systems. Regular follow-up trainings ensure active integration into everyday business life. © LfU / Referat xx / Bearbeiter / Datum 25

26. Step 4: Measure and report © LfU / Referat xx / Bearbeiter / Datum 26 Context The fulfillment of due diligence obligations must be documented. In addition, a report on this must be prepared and published annually. This report must be submitted to the competent authority. How to act as a supplier Bundle information and present key figures: as a basis for your own reporting, but also for passing on information to customers. As a rule, relevant data should already be available, for example on internal training or supplier audits. Various guides and initiatives can help you communicate externally (see “Further information”). Implications for suppliers Many large companies require specific information from their suppliers as part of their sustainability reporting. This is further reinforced by the reporting requirement in the LkSG. It therefore makes sense to familiarize oneself with reporting requirements and to regard them not as an obligation but as a guide. Suppliers should also take into account that customers specifically ask for key figures to be included in their sustainability reporting. Further information Environmental and human rights issues are already reflected in reporting standards like the  guidelines of the Global Reporting Initiative  (GRI). The  "UN Guiding Principles Reporting Framework"  is a guide for companies that want to report in accordance with the UN Guiding Principles on Business and Human Rights. 

27. Step 5: Manage complaints © LfU / Referat xx / Bearbeiter / Datum 27 Context Companies shall establish, implement and publish a grievance mechanism in writing through which (potentially) affected persons and persons who have knowledge of possible violations can point out human rights risks and violations. How to act as a supplier To increase the reach of your grievance mechanism, even setting up a dedicated email address or phone number and communicating on your own website can help. Establishing grievance mechanisms is increasingly being addressed at the industry level. Whether as a central or complementary solution for your company, check with your industry association before developing your own new solutions. Also ask your customers specifically; perhaps your grievance system can be linked to that of your customer. If negative human rights impacts occur that your company has caused or contributed to, your company must develop or participate in measures to redress them. Implications for suppliers This is relevant for indirect suppliers insofar as the established grievance mechanism must be set up It needs to be set up in such a way that it also allows persons to point out human rights or environmental risks as well as violations of human rights-related or environmental obligations that have arisen as a result of the economic actions of an indirect supplier. Further information The  UN Guiding Principles on Business and Human Rights  have defined eight criteria to determine the effectiveness of human rights grievance mechanisms. Use this as a checklist to help you focus and gradually improve your mechanism.  Interpretive Guide of the Office of the High Commissioner for Human Rights (OHCHR) (p 63 ff)  

28. Conclusion: Basics of being a good supplier Supplier reviews are important for the customer to ensure sustainability standards in the supply chain and to select and develop suppliers accordingly. Suppliers should therefore strive to comply with sustainability standards in order to maintain or even expand contractual relationships and to gain economic advantages. In addition, suppliers can use the review directly to disclose or identify grievances and opportunities for improvement and to initiate appropriate measures. Information and ideas from customers can, for example, lead to improvements in employee health protection. The exchange of experience with customers can also lead to joint projects, for example on more sustainable products/materials or more efficient and environmental-friendly logistics solutions. © LfU / Referat xx / Bearbeiter / Datum 28

29. Checklist: Getting ready for supply chain due diligence © LfU / Referat xx / Bearbeiter / Datum 29 Are you aware of your existing corporate policies and how they match the (new) requirements of your customers ? Have you gathered existing data on human rights and environmental risks? (e.g. purchasing or compliance data) Do you have an overview of already existing standards and certificates that you follow / have? Do you have key figures on your sustainability performance available that you can communicate to your customer? Have you familiarized yourself with the main human rights reference instruments? Do you have existing informal or formal complaint channels that you can improve? Have you reached out to your customers who are directly affected by due diligence laws to discuss the topics mentioned?