The EU has been preparing new legislation on questions pertaining to supply chains with respect to (but not limited to) sustainability. A number of these rules are already in place in Germany, and may have impact on Czech entities.
A new law came into force in Germany last that goes by the name of “Lieferkettensorgfaltspflichtengesetz” (Act on Due Diligence in Supply Chain Relations); as of this year, its scope has been broadened to newly also affect companies that are established in Germany or maintain a branch in Germany and employ more than 1,000 people. The law seeks to codify rules for a more efficient adherence to human rights standards, environmental standards, and other standards in the realm of sustainability on the level of entire supply chains between companies within the purview of the Act. Undertakings which form a part of such supply chains must perform a due diligence exercise at their suppliers to identify and address, based on the outcome of their analysis, any breach of relevant rights and obligations in connection with their business.
The new Act does not narrowly focus on formally associated companies (such as parent and subsidiary, corporate groups, etc.), but instead defines the supply chain as any chain between suppliers and customers whose relations are strictly limited to trading. Given the close commercial ties between Czechia and Germany, it is conceivable that not a few Czech entities may be required to observe due diligence pursuant to this German law.
Initially, the scope of the new law was limited to the supply chains of companies incorporated in Germany with more than 3000 employees. However, as of 1 January 2024, the staff size criterion was relaxed to a mere 1000+ employees. Failure to adhere to the rules set out in the Lieferkettensorgfaltspflichtengesetz exposes companies to new sanctions – i.e., in particular, fines of up to EUR 800,000 or 2% of average annual worldwide turnover, but also e.g. a ban on participation in public procurement in Germany for three years.
In any case, the Act on Due Diligence in Supply Chain Relations will not remain a German specialty within the EU for long. The Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859 (also known as Corporate Sustainability Due Diligence – CSDD) will soon come into force, having been approved by European Parliament in April this year and signed into law on 13 June 2024. All that is left is to wait for publication of the Directive in the Official Journal of the EU, whereupon the Czech Republic will be among those who are obliged to transpose this piece of European legislation into their national law.
Source:
Act on Due Diligence in Supply Chain Relations
Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859