Having just worked through the administrative requirements of the GDPR, new reporting requirements and legal regulations are casting their shadows ahead. The Supply Chain Act has already arrived in Germany and has either a direct or indirect impact on your own company. Many companies are just looking for the right way for themselves here and what really needs to be fulfilled.

But the wave of regulation does not end there. In the coming years, a large number of necessary reports will come up for medium-sized companies. This may involve simple proof of ESG (environmental, social, governance) activities, which are required by lenders when granting loans, or even larger sustainability reports, which are currently being discussed in the EU and will certainly become mandatory reporting for many companies by 2025 at the latest.

Dealing with customer requirements

On 01.01.2023, the Supply Chain Satisfaction Obligations Act (LkSG), or also popularly known as the Supply Chain Act, came into force in Germany. Currently only companies with more than 3,000 employees are affected and from 2024 companies with more than 1,000 employees.

At the present time, therefore, very few medium-sized companies are directly affected by the statutory reporting requirement. BUT CAUTION!

The legally obligated companies already pass on the requirements to their suppliers, who are indirectly obligated to provide information to their customers about social and environmental grievances in their supply chain. AND to take measures to remedy precisely these.

Practical example:

A small company with about 150 employees is a supplier for several companies that are affected by the LkSG and is also a supplier of suppliers.

Each customer sends its own questionnaires to the company in order to meet the requirements imposed by law or by the customer.

How should the company respond to each individual request and questionnaire? Should it use a tool specifically tailored to the LkSG and hire new employees with experience in the sustainability field to operate and maintain it?

This approach requires a high financial investment and the tool is also only an isolated solution. But why an isolated solution?

Outlook for medium-sized businesses

The Supply Chain Act is only the beginning of the story. In the next few years, based on the LkSG, the „Supply Chain Due Dilligence Directive“ (CSDD) will be introduced, which will then be mandatory for companies with up to 50 employees. Furthermore, a CSR reporting obligation for non-capital market-oriented companies is also in the draft for 2025, the „Corporate Sustainability Reporting Directive“ (CSRD). Here, too, there will be new disclosure requirements that go beyond those of the LkSG or CSDD. The obligation for CO2 balancing will also be extended.

The solution: outsourcing?

It does not make economic sense for every company to hire its own sustainability officer and also to buy one or more system solutions on the fragmented software market.

It is possible to make use of an external sustainability manager, comparable to an external data protection officer.

If you would like to learn more, please contact us.