Germany: Enforcement authority BAFA releases guidelines on implementing risk analyses in the context of the Supply Chain Act
[English summary translation provided by Business & Human Rights Resource Centre]
From 2023, the Supply Chain Act will require certain businesses headquartered in Germany to perform human rights and environmental due diligence. This new legislation will be crucial in upholding human rights and environmental standards in business and help prevent and mitigate future violations. To do this, companies must establish effective risk management systems, including analyses of potential risks in their own operations and their supply chains. The Federal Office for Economic Affairs and Export Control (BAFA) has now released the first in a series of guidelines for relevant businesses.
The handout includes a summary of essential requirements set out by the law as well as practical measures to be implemented by businesses developing functional risk management systems. These include:
- Emphasis on transparency in a company’s process of analysing risks, for example, comprehensive documentation and assessment of the chosen tools and methods used.
- Guidance on the different types of risk analyses (e.g., regular and ad-hoc analyses) and the change in perspective required, i.e., typical business risk analyses usually address a company’s commercial risks rather than its impact on human rights and the environment.
- Outline of a multi-step strategy to identify, mitigate and prevent risks, while also approaching potential risks using a system of prioritisation and weighting.
- Guidelines explaining the need for companies to detail the structure of their operations and in particular their supply chains, giving at least basic information about their suppliers and downstream firms as well as their business relationships and the operational systems they employ.