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Opportunities and challenges of global business relationships - A look at the supply chain from a compliance and CSR perspective
BME-Competence Center Service Law, Compliance & Conflict Management
02/22 2019 // International

Opportunities and challenges of global business relationships – A look at the supply chain from a compliance and CSR perspective

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The demands on companies regarding Corporate Social Responsibility (CSR) and sustainability have risen rapidly in recent years. At the same time, the risks of reputational damage and business losses are growing. Negative reports of environmental violations or inadequate working conditions at business partners in the supply chain can lead to massive image losses not only in Germany.

Reviewing and monitoring Corporate Social Responsibility (CSR) compliance measures is therefore becoming increasingly important for companies to minimize risks in the supply chain and at the same time benefit from innovation potential. A brief insight into the current developments in CSR is intended to help purchasing and supply chain managers find their way around the "compliance jungle" in the international supply chain.

Already today, companies can voluntarily submit to CSR regulations of OECD, ILO or UN Global Compact. In recent years, increased social awareness for transparency in the supply chain has resulted in increased pressure on companies, especially on purchasing and the supply chain. This applies not only to critical sectors such as the textile industry, where tragic fire disasters occurred due to catastrophic working conditions.

For all companies that import conflict minerals into the EU and thereby exceed certain threshold values, the Conflict Minerals Regulation will apply from 01 January 2021 at the latest. This Regulation obliges companies to implement appropriate compliance measures in the supply chain. These include, for example, the deployment of a compliance officer in the supply chain, the establishment of a whistleblower system and risk management measures tailored to CSR risks. As these are structural measures, companies would do well to start implementing them already now.

Since 2017, companies listed on the stock exchange in Germany which employ more than 500 employees, as well as credit institutions, financial service providers and insurance companies have also had a real need for action. Here, the disclosure requirements of the CSR Directive must be complied with, according to which entrepreneurial measures with regard to environmental, social and employee concerns as well as respect for human rights and the fight against corruption and bribery must be published. In doing so, companies have to explain, for example, the concepts pursued for the prevention of human rights violations or the fight against corruption, including the due diligence processes applied, plus the significant risks and negative effects associated with their own business activities and business relationships. This mere reporting obligation could indirectly force companies to introduce appropriate compliance measures with regard to CSR issues in the supply chain. Otherwise, companies would face the risk of being criticized for their inaction. There would also be the risk of stricter liability standards in case of wrongdoing. Key concepts are likely to include, in particular, comprehensive risk analyses and thorough screening of business partners within the supply chain.

But also non-listed companies, in particular SME´s, which are not yet subject to the CSR reporting obligation, should consider the implementation of CSR measures. In the future, smaller companies within the supply chain are likely to be put under increasing pressure by companies subject to the CSR reporting obligation to maintain appropriate measures. The BME Competence Center is receiving an increasing number of enquiries from member companies that are looking for solutions together with the BME.

Therefore, smaller companies should also consider a risk analysis in the future. Every company has to ask itself critically:

Which risks does the company face?

If customers and the supply chain are limited exclusively to Germany, issues such as human rights and child labor will pose a lower risk. If, on the other hand, a company regularly has production carried out in emerging markets, the risks are already higher. Voluntary commitments are urgently recommended in order, on the one hand, to meet the requirements of market-dominating contractual partners and, on the other hand, to comply with the company's own duties of due diligence in order to reduce the associated liability risks for its own company.

These new CSR laws are only the beginning of a development that will increasingly regulate former soft-law CSR obligations by law. Companies that maintain business relationships with companies subject to reporting requirements will also at least indirectly be subject to the new stricter CSR obligations.

The BME Competence Center supports its member companies in an advisory capacity in fulfilling legal requirements, including the performance of BME supplier compliance audits.

These commitments to CSR measures are increasingly being passed through the entire supply chain by means of compliance and audit clauses. The overlapping of CSR obligations and existing compliance management systems is remarkable: One of the important pillars of compliance programmes is the prevention of corruption, which is also a fundamental principle of CSR. As part of the statutory CSR reporting obligation, companies must explain their measures to prevent corruption in concrete terms. In particular, compliance elements that are already an integral part of a well-established supply chain compliance, such as guidelines, training, audits, clauses, business partner checks and risk analyses, must therefore be reported on.

CSR and compliance functions in companies will therefore have to work more closely together in the future. The overlap in content can also be used as an opportunity to rethink the distribution of tasks and responsibilities within companies. Every company is required to check from a compliance and CSR perspective whether the supplier or business partner complies with the compliance requirements or how the company can strengthen its supplier relationship by supporting the suppliers in establishing and implementing suitable compliance measures.

The BME Competence Center will be happy to answer any further questions you may have.

Authors:
BME Competence Center
Service Law, Compliance & Conflict Management
Noreen Loepke and Dr. Tobias Teicke, Comfield

Contact

BME-Competence Center Service Law, Compliance & Conflict Management
Noreen Loepke
Head of Legal Services/ Legal Advisor
+49 6196 5828-117
noreen.loepke(at)bme.de

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