This past January 2023, Germany’s Supply Chain Act came into effect bringing with it a strong focus on human rights and ESG factors.
All impacted organizations must now closely monitor their supply chains to ensure human rights are being respected throughout.
Organizations that must comply with the German legislation are all those with more than 3000 employees, meaning approximately 900 German companies. Starting in 2024, the Supply Chain Act will also impact organizations with more than 1000 employees.
The Supply Chain Act lists 11 internationally recognized human rights that organizations can no longer overlook: the prohibition of child labour, slavery and forced labour, the disregard of occupational safety and health obligations, withholding an adequate wage, the disregard of the right to form trade unions or employee representation bodies, the denial of access to food and water, the unlawful taking of land and livelihoods, amongst others.
The Federal Office of Economics and Export Control (BAFA) will be in charge of enforcing these new legislation. Organizations must supply mandatory reports and can also be prone to “risk-based inspections”. If impacted organizations violate this new legislation, the economic consequences may be severe, with fines of up to 8 million euro or up to 2% of annual global sales.
On an EU level, a supply chain legislation of similar sorts is still being worked out by the European Parliament, but requirements are likely to be stricter than the German’s.
The Importance of Supply Chain Risk Management
Major regulatory frameworks, like Germany’s Supply Chain Act, put under the spotlight the importance of supply chain risk management (SCRM) as well as ESG factors. Although, geographically tied to one country, laws like this one echo across borders and have major implications in global business operations.
Having a supply chain risk management program in place is important precisely for scenarios like this, as it allows organizations to identify and mitigate potential risks that could disrupt business operations.
Enabling the organization with the capabilities necessary to proactively identify and manage risks is key. Pairing these with an ESG framework can deliver huge competitive benefits to the business. At Mitratech, we have created an ESG Risk Framework consisting of 16 ESG Megatrends, based on various ESG expert sources. These Megatrends have been further broken down into 95 additional sub-trends, which contain more than 300 individual data points.
Building strong risk management practices that contemplate SCRM and ESG can elevate an organization’s resilience and boost their agility.
The Role of Technology in SCRM
GRC technology solutions can be powerful business partners that enable organizations with the capabilities necessary to identify, assess, monitor, mitigate risks and so much more. Some key value drivers when considering GRC technology are:
Real-Time Monitoring and Full Organizational Visibility
Cutting-edge GRC technology can provide real-time monitoring and full visibility of both the internal and external environments of an organization.
Data Analytics
Next-generation GRC solutions deliver valuable data analytics that ensure risk-aware decision-making.
AI & Machine Learning
GRC technology, powered by AI & Machine Learning, can intuitively identify risks, understand and interpret documents, perform Monte Carlo simulations, calculate Value-at-Risk within minutes, automate risk management processes reducing human error, and so much more.
Complement your reading with our article: Through The Looking Glass – Supply Chain Risk Management for a deep-dive into the global supply chain risk management landscape, tackling supply chain risks and the intersection between TPRM and SCRM.
Furthermore, watch the latest episode of Mitratech’s Morning Coffee Show for more on vendor risk management, from regulatory pressures and resource constraints to automation, best practices and beyond.
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