Supply chain law for SMEs: mastering indirect impact

Since 2023, the Supply Chain Due Diligence Act (LkSG) has required large companies to fulfill human rights and environmental due diligence obligations along their supply chains. From 2024, the limit will fall to 1,000 employees in Germany, meaning that more companies will be obliged to implement these obligations. However, the law also has an impact on smaller companies that are not directly covered by the LkSG but act as suppliers for companies that are obliged to do so.

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Why smaller companies should also comply with the LkSG requirements

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The LkSG stipulates that obligated companies must work closely with their direct and indirect suppliers in order to fulfill all necessary due diligence obligations. For suppliers, this means that they must contribute to the risk analysis and implementation of preventive measures and meet certain compliance standards, depending on customer requirements. Companies that engage in this cooperation benefit from long-term partnerships and a competitive advantage when awarding contracts.

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Requirements for indirectly affected companies

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Even if companies with fewer than 1,000 employees are not subject to direct statutory reporting obligations, they can be prepared for the following measures to facilitate cooperation with companies subject to the LkSG:

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• Risk management: Support in identifying and monitoring risks along the supply chain.
• Preventive and remedial measures: Implementation of measures to minimize identified risks.
• Provision of information: Documentation and provision of relevant data for risk analysis and the fulfillment of due diligence obligations.
• Participation in the complaints procedure: Participation in the establishment and documentation of a system for complaints about breaches of due diligence obligations.

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Support from Tacto: solutions for LkSG compliance in SMEs

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For medium-sized companies that have a direct or indirect relationship with companies subject to the LkSG, Tacto offers a comprehensive solution to support compliance requirements. Our platform helps companies to manage their compliance workload efficiently and to record all relevant data in a structured manner:

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• Automated supplier queries: Facilitates the querying and tracking of compliance issues with all relevant suppliers.
• Efficient risk assessment: Identifies potential risks in the supply chain and supports the implementation of due diligence obligations.
• Ongoing documentation: Ensures that all measures and results are recorded and documented centrally in order to be prepared for customer requirements.

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Conclusion: opportunities for SMEs

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The LkSG not only brings challenges for SMEs, but also opportunities to improve supply chain transparency and actively implement compliance standards. In many cases, obligated companies will need to work with their suppliers in order to fulfill their own legal due diligence obligations. Companies that are prepared for the requirements and work cooperatively with LkSG-obligated customers can secure competitive advantages and build long-term relationships.

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If you would like detailed information on the requirements for indirectly affected companies, download our white paper"Supply Chain Act for SMEs: Mastering indirect effects" now.

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