Answer ... Supply Chain Act: Implementing the United Nations Guiding Principles on Business and Human Rights, the legislature passed the Supply Chain Act in June 2021. According to this law, companies have duties of care with regard to human rights and the environment in their supply chains. For this purpose, companies must:
- establish an appropriate risk management system; and
- in particular, appoint an internal officer for monitoring this system.
Companies must:
- conduct a risk analysis for themselves as well as their suppliers;
- remedy any violations of human rights or environmental obligations which are identified;
- establish a procedure for filing complaints, which allows employees to report human rights violations; and
- publish an annual report on their compliance with their obligations under the Supply Chain Act.
The law came into force on:
- 1 January 2023 for companies with at least 3,000 employees; and
- 1 January 2024 for companies with at least 1,000 employees.
In February 2022, the European Commission presented a draft comparable to the Supply Chain Duty Act at the EU level with even stricter regulations than German law (eg, environmental harm and climate targets are given greater consideration). The regulations under this draft will apply to companies with more than 250 employees and a net turnover of more than €40 million.
Whistleblower Act: In future, whistleblowers will be protected more effectively. The EU WhistleBlower Directive (2019/1937/EU) is due to be implemented into national law. The legislative process in Germany is currently underway. The draft provides that internal and external reporting hotlines must be set up for the reporting of violations within the company. Reporting must also be possible anonymously. In addition, whistleblowers are protected from negative consequences of their actions.
Corporate Sustainability Reporting Directive (CSRD): In April 2021, the European Union presented a proposal to update the CSRD. The European Union aims to become the first climate-neutral continent by 2050. For this purpose, the sustainability reporting of companies will be adapted.
The draft was adopted by a large majority in the European Parliament on 10 November 2022 and finally came into force in January 2023. The directive must be transposed into national law within 18 months.
The CSRD aims to expand the reporting requirements to include additional information on ESG issues. This is intended to increase the influence of the reporting company on sustainability aspects and, vice versa, the impact of sustainability aspects on the development and performance of the reporting company. The reporting obligation will be mandatory. The European Union is currently developing reporting standards for sustainability reporting. With these standards, the European Union intends to specify the requirements for future reporting.
Currently, large listed companies must issue a non-financial declaration addressing aspects related to:
- environmental, labour and social issues;
- respect for human rights; and
- the fight against corruption and bribery.
The scope of the CSRD will be considerably wider. In future, all companies listed on a regulated EU market will be affected, as well as non-capital-market-oriented companies that exceed two of the following three criteria:
- annual turnover of €40 million;
- a balance-sheet total of €20 million; and
- an average of 250 employees.
From 2026, capital markets-oriented small and medium-sized companies will also be required to issue a sustainability report (first report in 2027).
Corporate Governance Code: The Corporate Governance Code was recently updated. The amended Corporate Governance Code came into force on 27 June 2022. Listed companies will have to comply with the new requirements for the first time as of the next (annual) declaration of compliance.
According to the new Corporate Governance Code, the internal control and risk management system must be geared towards sustainability-related concerns.
Further, the company strategy must provide information on how the company’s economic, ecological and social objectives will be implemented in a balanced manner; while corporate planning must include sustainability-related objectives in addition to financial objectives. The management board must, among other things, systematically identify and assess the risks and opportunities for the company associated with social and environmental factors, as well as the social and environmental impacts of the company’s activities.
Also, the supervisory board must monitor certain sustainability aspects, while its competence profile must include expertise on sustainability issues of importance to the company. In addition, the professional qualifications of the members of the audit committee of the supervisory board must be:
- expanded to include knowledge and experience in sustainability reporting; and
- included in the corporate governance statement.