New guidelines for risk analyses under the German Supply Chain Due Diligence Act

The new German Supply Chain Due Diligence Act will enter into force in 2023, and many German and foreign in-scope companies are currently preparing intensively and with a lot of effort for the new, far-reaching due diligence obligations (read more here). Due to the practical challenges posed by the law and the uncertainties created by a number of its provisions, in-scope companies have been eagerly awaiting guidance from the competent enforcement authority, the Federal Office for Economic Affairs and Export Control (BAFA). So far, BAFA’s explanations have been limited to FAQs published in April this year (available in German here). To the disappointment of many, it took the authority until yesterday to provide its first guidelines (available in German here).

They deal with the obligation to conduct risk analyses as part of the companies’ risk management duties. As summarised in those guidelines, in-scope companies must at least annually conduct an appropriate risk analysis to identify human rights- and environment-related risks in its own business area and at its direct suppliers. Moreover, they must carry out risk analyses on an ad hoc basis if they (i) either expect a significantly changed or expanded risk situation in any part of their supply chains or (ii) if they get aware of a potential violation of human rights- or environment-related obligations at indirect suppliers.

Broken down by these types of analysis, the BAFA guidelines explain which steps the analysis should include, which procedure is recommended and what the results of an analysis might be. Furthermore, they include practical recommendations on how to prepare a risk analysis. BAFA also emphasises that all due diligence obligations are subject to the principle of proportionality and provides assistance in interpreting the criteria of proportionality mentioned in the Act.

The guidelines come at a time when many companies are already in the final stages of their preparation for the new obligations. Nevertheless, they will be interested to read how BAFA expects the risk analysis to be carried out and should compare this with their approach so far. Needless to say, BAFA’s interpretation of the law will be decisive for its enforcement.

Companies will also be interested in the other guidelines that BAFA is preparing and which will, inter alia, deal with the principle of proportionality and complaint procedures. We’ll provide an update in due course!