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More responsibility in global supply chains: Duty as an opportunity for companies

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Coffee from South America, raw materials for batteries from Africa, medicines from India: This year in spring, the effects of the corona pandemic showed just how closely intertwined the global economy is. This has once again raised awareness for the responsibility of companies for social and environmental standards, some of which have set up their production facilities in developing and emerging countries. Therefore, Germany currently discusses a supply chain law that is intended to establish binding regulations. "Companies should already be dealing intensively with this topic. This is the only way to actively participate in the specific design of due diligence obligations", recommends Carolin Baier, research assistant at the Chair of Controlling and Auditing at the KU. In the context of her doctoral thesis, she investigates challenges connected to the implementation of responsible entrepreneurial action. In an article for the journal "Der Betrieb", she discusses the challenges and opportunities that arise from the implementation of due diligence in business practice.

 "Up to now, the concept of due diligence has been based on personal responsibility and self-management – for example, on the basis of OECD guidelines. However, both at European and national level, we have come to the sobering result that a voluntary commitment to protect human rights and environmental standards is not enough", says Baier. At least for individual sectors – such as the trade in wood or so-called conflict minerals – there are indeed binding agreements at EU level, but an overarching regulation is still lacking. Therefore, the EU Commission has announced a draft for a European supply chain law for 2021. The Federal Ministry for Economic Cooperation and Development in Germany is also working together with the Federal Ministry of Labor and Social Affairs to develop a draft at national level. Trade associations criticize that a national regulation could constitute a competitive disadvantage.

"A European solution would indeed make sense, especially for internationally operating companies. But the implementation of due diligence obligations not only poses challenges for companies, it also opens up opportunities", emphasizes the economist. For example, companies are currently confronted with a large number of country-specific and thematic regulations along their supply chains. Legal regulations on due diligence could reduce this complexity, lead to legal certainty and contribute to fair competitive conditions.

In addition, companies should understand fulfilling due diligence obligations as part of a comprehensive risk management process. It must be in the company's own interest to identify and assess risks along the supply chain. "The longer the value chain from third countries to the company, the more complex it is to obtain information. Successful supply chain controlling can counteract supply bottlenecks, especially in times of crisis", explains Baier. In this context, close exchange with employee representatives, civil society organizations and industry associations is particularly important. Business partners, investors and end consumers are increasingly demanding binding proof that human rights and environmental standards are being adhered to. Companies could not only contribute to sustainable development by ensuring transparent processes with their supplier network, but also enhance their reputation.

"As the world's third largest importing country, Germany plays an important role in the interplay of global supply chains. With an ambitious supply chain law, the German government could take on a pioneering function and play a major role in shaping a European legislative initiative”, says Baier.

Further reading:
Carolin Baier: “Strengere Sorgfaltspflichten für verantwortungsvolle Lieferketten?“ in: ‘Der Betrieb’ (No. 35, 31.8.2020; p. 1801-1805).