This paper deals with the burdens and benefits for companies of an upcoming Due Diligence Act on supply chains. The focus is put on the supply chain law in Germany and in Europe. In the first step, fundamental terms and theories concerning the supply chain law are presented referring to the German and European Due Diligence Act putting both in a relationship by illustrating similarities and differences between them. Subsequently, various kinds of burdens and benefits of the supply chain law are assessed from the viewpoint of companies in general. Finally, both up and downsides of impacts on companies are going to be considered in a direct comparison ending in a conclusion.
Volkswagen factory near internment camps for Uyghurs in Xingjiang, child labour on toxic cobalt and lithium mining plants, exploitative and polluting fast fashion industry. These are only few of the numerous conditions that companies cause in their environment through supply chains. According to the International Labour Organization, in 2020, almost 1 in 10 children worldwide is in child labour, accounting for 160 million children worldwide. Companies have grown their supply chains internationally while gaining high profits and also exploiting developing countries. At the same time, one of the largest and most effective levers to preserve the environment and to avoid human rights violations are supply chains. Therefore, making supply chains more sustainable is one key task companies are confronted with the upcoming mandatory human rights and environmental due diligence regulations.
Although there are several voluntary guidance approaches with the aim of minimizing and avoiding human rights violations and environmental harm such as the United Nations Principles for Business and Human Rights, also referred to as the "Ruggie Principles", current results are disappointing regarding the implementation of this concept. That is why more and more countries are enacting regulations in order to ensure more sustainable supply chains. Following other European countries, the German parliament recently has passed the “Supply Chain Due Diligence Act” or in short, the supply chain law. As highly suggested and expected, the European parliament has drafted a European solution as called European Due Diligence Act. These recent developments imply both, new challenges and opportunities for companies that again have caused a major divergence of views of various stakeholders.
Table of Contents
1 Introduction and objectives of the term paper
2 Theoretical background and interrelations
2.1 The term of sustainability and supply chains
2.2 German Supply Chain Act
2.3 European Supply Chain Act
2.4 Relationship between the German and the European Supply Chain Act
3 Assessment of burdens for companies
3.1 Economic burdens
3.2 Political and social burdens
4 Assessment of opportunities for companies
4.1 Economic opportunities
4.2 Social opportunities
4.3 Environmental opportunities
4.4 Impacts on Human Rights
5 Discussion and conclusion
6 Bibliography
Objectives and Core Topics
This term paper examines the burdens and benefits for companies resulting from the implementation of mandatory due diligence regulations regarding supply chains, specifically focusing on the legislative developments in Germany and the European Union.
- Theoretical foundations of sustainability and supply chain management
- Comparison between the German "Lieferkettensorgfaltspflichtengesetz" and the European Due Diligence Act
- Analysis of economic, political, and social burdens for companies
- Evaluation of economic, social, and environmental opportunities for corporate entities
- Discussion of strategies for companies to adapt to mandatory due diligence requirements
Excerpt from the Book
3.1 Economic burdens
When analyzing companies’ concerns about a new mandatory regulation of supply chains more in detail, potential economic burdens play a significant role (Franke, 2021). As the Due Diligence Act, the German one as well as the European one, requires companies to “audit each supplier for compliance with human rights and environmental standards,” the cost per supplier relationship is expected to rise (Felbermayr et al., 2021, p.3). Additionally, there is the risk that human rights violations are not detected right away and later when revealed leading to fines or bans from public procurement (Felbermayr et al., 2021).
Furthermore, supply chains are often extraordinarily complex “with numerous stages involving multiple actors are often rather impenetrable for the companies responsible for analyzing them” (Maihold et al., 2021, p.4). It is also important to mention that according to Müller and Siakala most serious socio-ecological grievances often do not occur at direct suppliers (tier-1 suppliers), but further upstream in the supply chain (n-tier suppliers) (Müller & Siakala, 2019). The analysis of n-tier suppliers, taking responsibility for the entire supply chain and the mere dynamic nature of supply relationships pose substantial challenges for companies due to financial and administrative burdens, which SMEs in particular are often hardly able to perform (Siakala & Müller, 2020). Therefore, supporters of the supply chain may overestimate the influence a company can exert since this depends heavily on the company's individual negotiating position that in turn is influenced by a variety of several factors such as the supplier selection and many more (Siakala & Müller, M., 2020).
Summary of Chapters
1 Introduction and objectives of the term paper: Outlines the socio-ecological necessity for supply chain regulations and defines the research scope regarding the German and European legislative approaches.
2 Theoretical background and interrelations: Establishes conceptual definitions for sustainability and SCM, while detailing the progression from the German Supply Chain Act to the proposed European framework.
3 Assessment of burdens for companies: Examines the financial, administrative, and political challenges companies face when implementing mandated due diligence and monitoring compliance across global supply chains.
4 Assessment of opportunities for companies: Highlights potential competitive advantages, long-term risk reduction, and improvements in reputation and transparency arising from sustainable supply chain adherence.
5 Discussion and conclusion: Synthesizes the perceived impacts on business models and concludes that while administration poses significant challenges, the legislation serves as a necessary investment for long-term viability.
Keywords
Supply Chain Law, Due Diligence Act, Sustainability, Lieferkettensorgfaltspflichtengesetz, Supply Chain Management, Human Rights, Economic Burdens, Corporate Responsibility, ESG, Value Chain, Risk Management, Competitive Advantage, Small and Medium Enterprises, Transparency, Globalization
Frequently Asked Questions
What is the primary focus of this research?
The research focuses on analyzing the economic, social, and political burdens and benefits that mandatory due diligence laws impose on companies within the context of the German and future European regulatory environments.
What are the central themes discussed in the paper?
The central themes include the evolution of supply chain management, the specific requirements of the German Supply Chain Act, the comparative analysis with the European proposal, and the balance between administrative costs and environmental/social opportunities.
What is the objective of the study?
The primary objective is to elaborate on and examine the impact of these legal mandates on companies, identifying whether they function primarily as a burden or as a strategic opportunity for survival and business model adaptation.
Which scientific approach is utilized?
The work utilizes a descriptive and analytical approach, synthesizing existing literature, legislative texts, and industry surveys to provide a comparative analysis of different due diligence regulations.
What characterizes the main body of the work?
The main body systematically contrasts the "burdens" of compliance (such as supply chain audits and administrative costs) against "opportunities" (such as enhanced reputation and market competitiveness) in a structured, chapter-based evaluation.
How can the work be summarized through Keywords?
The work is characterized by terms like Supply Chain Law, Due Diligence, Sustainability, ESG, and Corporate Social Responsibility, reflecting the intersection of legal, economic, and ethical dimensions in business.
How does the German Supply Chain Act differ from the European proposal?
The European proposal is generally described as more stringent, aiming for broader scope regarding indirect suppliers and including elements such as corporate civil liability which are largely excluded from the German law.
Does the paper consider the survival of small businesses?
Yes, the paper explicitly addresses that these regulations pose significantly higher administrative and operational burdens for Small and Medium Enterprises (SMEs) compared to larger corporations.
What is the "negative list" approach mentioned?
It is a proposed cost-effective alternative for monitoring, which would focus on centrally identifying and capturing only those companies or suppliers specifically proven to be involved in human rights or environmental violations.
- Citar trabajo
- Anonym (Autor), 2022, Burdens and Benefits of a Supply Chain Law for Companies. The "Lieferkettengesetz" and the "European Supply Chain Act", Múnich, GRIN Verlag, https://www.grin.com/document/1337442
