LKW auf einer Landstraße als Symbolbild für die Lieferkette
28.03.2024

Why is climate protection relevant in the supply chain?

In this blog post, we take a look at why climate protection is also a high priority in the supply chain from two perspectives. You will also find specific tips for decarbonizing your supply chain.

LkSG and CSDDD – when you hear these terms, the first thing that comes to mind is human rights due diligence in the supply chain, such as fair working conditions and protection against slavery.
Climate protection?
Perhaps only a second thought.
However, it should definitely not be neglected in the sustainable transformation of supply chains.
After all, this is where the majority of a company’s emissions are generated.
And that has consequences.
In this blog post, we take a look at why climate protection in the supply chain is also a high priority from two perspectives.
You will also find specific tips for decarbonizing your supply chain.

Climate protection in the supply chain – because it is required by law

The first reason is quite banal: Climate protection must be taken into account because it is quite simply imposed on certain companies by law.
The basis for current sustainability legislation is the Paris Climate Agreement.
With this agreement, almost 200 countries have committed themselves to the global 1.5° target and the reduction of emissions, among other things.
The Paris Climate Agreement is the basis for the European Green Deal a strategy with which the EU aims to become climate-neutral by 2050.
A whole range of strategies have been planned for its implementation.
The most important of these for purchasing are the German Climate Protection Act (GHG neutrality by 2045), the EUDR (deforestation-free supply chains), the CSDDD (EU supply chain law) and the CSRD (sustainability reporting).
Added to this is the “Fit for 55”-package, which aims to reduce net greenhouse gas emissions in the EU by 55% by 2030. This results, among other things, in the CBAM (CO2 tax) and a reform of EU emissions trading. In addition, Germany has introduced the LkSG which was developed on the basis of the National Action Plan for Business and Human Rights.

Darstellung: Auf dem Pariser Klimaabkommen bauen die meisten der aktuellen Nachhaltigkeitsgesetze und -regularien auf

All of these guidelines directly and indirectly oblige companies to prioritize climate protection in their supply chains.
For example, the CSDDD draft paper – in relation to the CSRD climate obligations – explicitly requires “that the company’s business model and strategy are compatible with the transition to a sustainable economy and with limiting global warming to 1.5 °C in accordance with the Paris Agreement and the goal of climate neutrality in accordance with [dem EU-Klimagesetz], including [der Ziele] for climate neutrality […].”(CSDDD draft of 15.3.2024 , Art. 15) So much for the dry legal perspective.
However, as we already wrote in the ESG Briefing, we at VERSO are convinced that anyone who does not take a holistic approach to the topic of sustainability strategy will only end up with bureaucratic red tape without any added value as a result of the requirements. So let’s take a look at why climate protection in the supply chain is incredibly important, even beyond legal obligations!

Climate protection in the supply chain – because it makes companies future-proof

Climate change poses risks for supply chains

The supply chain is the backbone of every company.
But it is also one of the biggest sources of greenhouse gas emissions.
Depending on the industry, up to 80% of a company’s total emissions are generated here alone.
By now, everyone should be aware that greenhouse gas emissions – especially CO2 – fuel climate change.
And this has consequences for the supply chain.
Because with global warming, storms, heavy rain, floods, but also heatwaves with droughts and fires are becoming more frequent worldwide.
These extreme weather events can damage, block or completely destroy production facilities and transport routes.
This results in delivery delays and production and harvest failures with considerable financial losses and frustration among customers.
On the other hand, there is the growing global demand for raw materials of all kinds. This is not just about rare earths or important metals, but also about very basic things such as drinking water and food.
And where resources become scarce, conflicts, tensions or even wars are not long in coming.
It is clear as daylight that this is a real problem for the local people on the one hand, but also for your supply chain on the other.
It is therefore in the interests of procurement to help curb climate change with climate protection measures along the supply chain.

Supply chain resilience with VERSO

Gain transparency, reduce dependencies, keep an eye on current crises: Find out how you can strengthen your supply chain with the VERSO Supply Chain Hub!

Customers and consumers demand sustainability

Sustainability – and therefore also climate protection – is becoming increasingly important for investors, customers and consumers when making purchasing decisions: 79% of consumers surveyed in a Capgemini study stated that they are changing their purchasing behavior in the interests of sustainability.
66% even responded that they specifically look for environmental friendliness when selecting products and services.
Sustainable, climate-friendly products are therefore a) becoming a competitive advantage.
But be careful: If it says climate protection on the label, it must really contain climate protection!
With the Green Claims Directive, false or vague environmental claims (greenwashing) lead to expensive fines.
Not to mention the loss of reputation for your company.
And even if the CSDDD no longer directly affects SMEs and companies can no longer simply pass on their due diligence obligations to their suppliers: The Business Development Bank of Canada found that 92% of large companies will demand clear ESG information from their suppliers.
ESG commitment is therefore also b) becoming a decision criterion when awarding contracts.

Measures for climate protection in the supply chain

In summary, we can therefore state the following: On the one hand, climate protection in the supply chain is a must because it is simply required by law in various forms.
At the same time, however, it also presents opportunities!
If you start decarbonizing your supply chain now, you will make it more resilient to climate change risks and their effects.
At the same time, you will meet the growing sustainability demands of customers and consumers.
And you protect yourself against rising costs, such as those associated with the carbon pricing that the CBAM places on imports.
The challenges associated with the sustainable transformation of the supply chain are therefore more than worth it.
Don’t you agree?
Last but not least, only one question remains: What does climate protection in the supply chain mean in practice?
You can find specific tips on reducing emissions in the supply chain in our article “Decarbonizing the supply chain: How companies can achieve their climate targets along the supply chain”.
Read on now!  

* This information is summarized editorial content and should not be construed as legal advice. VERSO accepts no liability.

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LKW-Fahrer als Symbolbild für die Lieferkette
04.03.2024

Decarbonizing the supply chain: How companies achieve their climate targets along the supply chain

Around 80% of total emissions are generated along the supply chain – the path to Net Zero therefore also requires clear climate targets for the supply chain. But targets alone are not everything. Read here to find out how to implement them.

In recent years, numerous companies have clearly felt that their supply chains are susceptible to crises.
As a result, more and more companies have committed themselves to a sustainable transformation of their business model.
The push for sustainable business practices also soon came “from the very top”: with the European Green Deal, the EU has set the ambitious target of climate neutrality by 2050.

Transparency beyond one’s own nose

One of the pillars of the Green Deal is the CSRD, which obliges companies to report on sustainability.
This means that companies must disclose detailed data on the status quo, their goals and their sustainability measures.
With the ESRS, a set of rules has been introduced specifically to request this data.
However, seamless sustainability reports require one thing above all: 100% transparency.
And far beyond the boundaries of the company itself.
The LkSG, EUDR and CBAM alone demand supply chain transparency from companies.
In addition, the ESRS E1 standard (“Climate Protection and Climate Change”) in particular requires clear targets and strategic planning for all emissions associated with your company – right through to Scope 3.

Überblick zu den einzelnen Scopes: Scope 1 umfasst direkte Emissionen eines Unternehmens, Scope 2 umfasst indirekte Emissionen eines Unternehmens und Scope 3 umfasst alle Emissionen, die in der Wertschöpfungskette eines Unternehmens entstehen.

With an average of 80% of total emissions, the majority of a company’s emissions are generated along the supply chain.
Scope 3 emissions have the greatest impact on the carbon footprint.

The ESRS at a glance

With the new CSRD reporting obligation, the EU is also introducing uniform European standards for comparable sustainability reports – the ESRS.
Get an overview in the factsheet!

Your company therefore needs clear answers on the status of emissions along the supply chain – and how you can decarbonize your supply chain in a targeted manner. Do your suppliers keep an eye on their emissions, or do they not care? Can they provide you with data on this? And if not, do they at least intend to provide the necessary data in the future? Can you persuade them to work with your company to drive sustainability forward? Questions upon questions. Let’s take a look at how you can get answers.

4 steps to decarbonize your supply chain

Step 1: Estimate Scope 3 emissions

Get an overview of your suppliers and compile a list of expenditure and product groups. You can use this to estimate supplier emissions. If you lack precise data, you can initially fall back on average data for the sector. Make the distribution more precise as soon as you have primary data from the suppliers.

Step 2: Identify Scope 3 hotspots and assess suppliers’ climate maturity

Then categorize your suppliers according to their level of climate maturity. Supply chain tools such as the VERSO Supply Chain Hub make this possible via direct inquiries.

  • No maturity level available: Decarbonization strategy or measures are completely lacking.
  • Low level of maturity: Initial steps have been taken to reduce CO2, but no systematic approach yet.
  • Advanced maturity level: Concrete reduction measures are being implemented, but are not yet anchored in the business processes.
  • High degree of maturity: The supplier systematically implements decarbonization, reduction measures are firmly integrated into the corporate strategy.
  • Very high level of maturity: Sustainability has long been on the agenda.
    With innovative approaches and high standards, the supplier is leading the way as a prime example.

Indicators for this are, for example, the origin of raw materials, energy and resource efficiency, the use of renewable energies in production and transportation or verified (!) CO2 compensation projects. Another plus point would be, for example, the voluntary provision of a sustainability report. You now know how high the emissions load per supplier/product is and how seriously your suppliers are already taking the issue of sustainability. This gives you an overview of which suppliers need special attention and support when you later implement the strategy to achieve your decarbonization goals.

Step 3: Set climate targets, onboard suppliers

Set clear, science-based climate targets for your supply chain that are in line with the results of climate research and support the Paris Climate Agreement (limiting global warming to 1.5 °C). You can find industry-specific assistance from the Science Based Targets Initiative (SBTi), for example. The next step is the actual decarbonization of the supply chain. The SBTi recommends the following approach:

  1. Communication
  2. Cooperation
  3. Support
  4. Monitoring
  5. Reinforcement

Inform your suppliers about your climate targets for the supply chain and motivate them to cooperate. Our tip: Increase the chance of good cooperation by involving your suppliers in the target setting from the outset.

Net Zero is teamwork!

Step 4: Implement climate strategy

In the long term, you will only achieve your climate targets in the supply chain if you remain in close contact and support your suppliers in implementing the targets. This could look like this, for example:

  • Enforce specific measures – Walmart has supported its suppliers in switching to renewable energy, for example, which helped the Group achieve its supply chain emissions targets 6 years ahead of schedule.
  • Support with knowledge or resources – for example, you can increase
    Increase your suppliers’ sustainability expertise and therefore their level of climate maturity through training.
  • Stimulate competition among suppliers – by 2024, 92% of companies will require ESG data from their suppliers, according to a BDC study; over the next 5 years, they will also increase the number of criteria on which suppliers must report.

Also help your suppliers to optimize processes or even break completely new ground. Continuously monitor progress and make climate targets a fixed item on the agenda of your supplier meetings. After all, genuine sustainability requires transparency and honesty. But it also needs consistency. So make sure your suppliers understand this: Those who don’t participate will be kicked out sooner or later. Suppliers with a low level of maturity in particular will not be able to make the switch overnight. Nevertheless, they should show a long-term willingness to make production and transportation sustainable. After all, this will not only help the climate – but also the company’s own resilience.

How can I achieve the climate targets for my supply chain as easily as possible?

The more complex your supply chain is, the more difficult it is to collect all the necessary data, determine the status quo and monitor progress.
In discussions with our supply chain consultants, it becomes clear time and again that a lack of resources and incomplete data floating around make life difficult for procurement.
So how do you achieve your climate targets in the supply chain as simply and automatically as possible?

With the right tools! The combination of VERSO Climate Hub and VERSO Supply Chain Hub helps you to strategically manage your climate targets according to SBTi or ESRS:

  • The VERSO Climate Hub simplifies the calculation of your carbon footprint, taking into account the individual scopes.
  • With the VERSO Supply Chain Hub, you can automatically query the climate protection maturity level of your suppliers and obtain specific carbon footprints. These in turn help you to refine your climate strategy in the Climate Hub and make savings transparent.
  • You can then use the reporting function to create qualified reports in accordance with GRI/CSRD for the CDP or SBTi in no time at all.
Übersicht: So gelingt die Lieferketten-Dekarbonisierung mit den Tools von VERSO. VERSO deckt die Scope-3-Priorisierung, die Klimadatenerfassung, die Maßnahmen und das Klimareporting für die Lieferkette ab.

Please write to us. Together we will find a solution to help your company achieve its Net Zero goals!

* This information is summarized editorial content and should not be construed as legal advice. VERSO accepts no liability.

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Stakeholder-Anforderungen von ESG-Informationen an KMU
12.02.2024

5 reasons why a sustainability report is also worthwhile for SMEs

Many companies – large and small – are affected by sustainability regulations such as the CSRD, the LkSG or the upcoming European supply chain law CSDDD. But what about those that are not subject to these regulations? Are they exempt from reporting?

Watch out: Not being directly affected does not mean that you do not have to deal with sustainability! We explain here why SMEs also have to provide sustainability data and what information is required.

Which stakeholders request ESG data from SMEs

1. business partners create transparency in the supply chain

Are you a supplier to another company?
Many SMEs supply larger companies that fall under the LkSG (Lieferkettensorgfaltspflichtengesetz) and are or will be affected by the EU CSRD (Corporate Sustainability Reporting Directive) and CSDDD (Corporate Sustainability Due Diligence Directive).
Large companies not only have to make their own ESG information transparent, but also that of their suppliers.
This means that you are also affected by the requirements of the regulations and will be asked by your customers for comprehensive sustainability information.
As a result, you have to undergo extensive due diligence checks, such as the EcoVadis sustainability assessment, which identifies potential risks for people and the environment in the supply chain.
Incidentally, it is not only you as a supplier who must provide evidence, but often also sub-suppliers.
Your customers are also bound by industry-specific guidelines and laws.
Sustainability information from the supply chain is also required from this side.
Examples of this include the Agricultural Organizations and Supply Chain Act (AgrarOLkG), the chemical industry standard or the industry-specific guidelines of the OEC.  

2. financial sector pays more attention to sustainable investments

SMEs that are supported by investors or have received project-related investments should definitely be prepared for ESG inquiries.
The reasons for this:

  • Due to the SFDR (Sustainable Finance Disclosure Regulation), financial market players and financial advisors are obliged to provide ESG information on financial products and services.
  • Investors are themselves capital market participants and must report on sustainability goals and positioning within the financial sector.
  • Rating agencies now also include ESG criteria in their investment ratings.
  • Prior to the final M&A transaction, the sustainability strategy is reviewed – if not already requested in advance, measurable sustainability indicators are required from you by then at the latest.

All information about the SFDR

The Sustainable Finance Disclosure Regulation (SFDR) is one of the EU’s levers for promoting a sustainable economy.
Get an overview of the SFDR, the categorization of financial products and the disclosure requirements with our factsheet.

3. banks require ESG disclosures in loan and funding procedures

If you want to apply for a loan or a grant from the bank, you will need a number of documents.
In the past, it was mainly about creditworthiness, business concept, collateral and the like.
Today, the issue of sustainability also plays a decisive role.
This is because banks need sustainability information from you when granting loans in order to meet the requirements of the European Banking Authority (EBA) and the German Federal Financial Supervisory Authority (BaFin).
In addition, banks are increasingly adhering to self-imposed frameworks and sustainable finance targets.
In practice, this means that lending costs are directly influenced by your ESG rating: better rating, cheaper loan.

This data decides on loans

Read this article to find out how ESG data affects financing and what data companies need to provide now to ensure their loan applications continue to be approved.

4. insurance companies also include ESG risks in their financial statements

Insurance companies also rely on and request ESG data from customers.
Two perspectives need to be understood here: Firstly, (re)insurers also fall under the CSRD reporting obligation.
They must therefore report on the status quo of their sustainability ambitions themselves.
This also includes the customer area, for which your insurer naturally needs information from you as a customer.
The second perspective is about the insurance risk when you want to take out a new insurance policy.
It is common practice here to first assess the risk potential of an insured person.
Sustainability risks are now also taken into account.
Anyone who does not have this issue on their radar may be classified as having a higher insurance risk and lower insurance benefits.  

5. customers and partners expect proof of ESG efforts

New partnerships, collaborations and tenders are increasingly demanding certifications that prove a company’s sustainability ambitions.
When you enter into negotiations, you need to be well prepared:

  • No Open Doors without ESG certifications: In addition to known information security standards, for example, certifications from the ESG sector are increasingly a prerequisite for a serious discussion.
    Go through the assessments at an early stage – they are often lengthy and cannot be “handed in quickly”.
  • Sustainability and ESG criteria in the tendering process: If there is a tender, your company could fall out of the selection process due to a missing or unsound sustainability strategy.
    You can prove this with recognized ESG certificates, among other things.
    With sustainability and ESG criteria in tendering processes, companies want to ensure that ecological and social standards are adhered to in the supply chain right from the start.

In addition to special ESG certifications, ESG criteria are also asked for in other quality standards that have a high priority in the industry and are actually “only” concerned with corporate processes:

  • Fairtrade
  • Organic certifications
  • Employer rankings
  • ISO standards

CSRD compliance made easy

From the CSRD basics to the finished report: Our practical software package guides you step by step to CSRD compliance!

How do SMEs best prepare for sustainability requirements from stakeholders?

As you can see, sustainability issues come from every corner.
You not only have to collect and communicate ESG data to fulfill legal requirements – keyword: LkSG, CSDDD and CSRD-compliant.
Your stakeholders also ask for this data for a variety of reasons.
The problem with these queries is that if SMEs are affected by one or more of these scenarios and are not prepared for them, this usually means a lot of work.
This is because very different information is required from different stakeholders.
They are confronted with different reporting standards and find themselves in a flood of questionnaires.
However, you can avoid these problems with a voluntary sustainability report.
It is best to report in accordance with a recognized standard that is suitable for your company, such as the DNK, the GRI Standards or the ESRS – the latter will enable you to meet the regulatory requirements of the CSRD in the future.
Frameworks such as the SDGs or the UN Global Compact also form a good basis for the sustainability report.
EFRAG is currently also working on its own voluntary standards(VSME) for SMEs, which are adapted to the size, resources and needs of these companies.
The advantages of a voluntary report in a nutshell:

  • As a rule, you already collect all the important data that you also need for other purposes.
    In the best case even in a single tool, in which you can also control measures and write the report.
  • In the case of inquiries, the report already contains most of the required information, giving you more time for detailed questions.
  • If you do have to report later, you are already optimally prepared for CSRD, LkSG and CSDDD!
  • Although this may sound like a lot of effort at first, the introduction of ESG structures brings with it great opportunities: innovation and long-term growth are promoted, risks are minimized and, not to forget, you also consolidate and strengthen relationships with your customers.

Step-by-step to the sustainability report

A meaningful sustainability report can be quite a challenge. Where do you start? What data is important? And how should the CSR report be published? Our practice-oriented playbook answers your questions.

Do you want to be prepared for the next request?

The voluntary sustainability report puts you ahead of the game!
If you have any questions about the sustainability report or the legal requirements, we are here for you – with over 12 years of experience in sustainability management.

* This information is summarized editorial content and should not be construed as legal advice. VERSO accepts no liability.

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  • Pragmatic all-in-one solution for ESG reporting, climate and supply chain management
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  • Developed with expertise from 12+ years of sustainability management
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Mountainbiker in einem Bergwald – Symbolbild für Nachhaltigkeit in der Lieferkette des Reifenherstellers Schwalbe
26.04.2023

Taking a holistic approach to responsibility – Interview with Felix Jahn from Schwalbe

Since Schwalbe was founded in 1922, the family-run company Schwalbe has stood for innovation, quality and responsibility. In this interview with Felix Jahn, Head of Sustainability at Schwalbe, you can find out what makes Schwalbe environmentally and socially responsible and how VERSO supports Schwalbe in achieving more sustainable supply chains.

7 questions for Felix Jahn, Head of the Sustainability Department at Schwalbe

1. what characterizes responsibility at Schwalbe?

Our vision is to lead the way in the development of environmentally friendly products.
We are pioneering innovations in the circular economy and taking responsibility for future generations.
For example, we take back our used products via specialist retailers and recycle them in the production of new inner tubes and tires.
We will be presenting the first tire produced from the recycled material from the tire recycling process, among other things, at Eurobike this year.

2. how would you describe your mission when it comes to responsibility?

We try to take a holistic approach to the issue of responsibility, which is why we have defined four areas of action for ourselves: One is the product field of action – this includes environmentally friendly products, but also our recycling systems.
We have the company field of action; this includes our cradle-to-cradle building here, for example, as well as the promotion of our employees and our mobility concept.
We have another important area of activity – social commitment.
As a family-run company, we have strong roots here in our region, but we also look beyond our own backyard, as our supply chain is global.
And that’s why our fourth area of activity is the supply chain.
We are very proud of our Fair Rubber project.

3. what next fields of action have you defined at Schwalbe in the area of sustainability?

For us, the next few years will be characterized by significantly reducing emissions here locally, but also particularly in our global supply chain.
At the same time, we are trying to offer our recycling systems throughout Europe and continuously increase the use of renewable and recycled materials.
And, of course, we want to create transparency in our supply chain.

4. the supply chain is part of the 4 pillars of responsibility at Schwalbe.
What does responsibility mean with regard to your supply chain?

We work on a transparent and traceable supply chain to protect our stakeholders and meet our high standards.
We have a strict code of conduct to ensure human rights, labor and environmental protection.
We actively seek dialog with our stakeholders, with the partners in our supply chain, in order to know what is happening where.
A good example of this is our involvement with Fair Rubber e.V. – the Fairtrade association for natural rubber.
By working together, we have been able to enter into a close exchange with the small farmers of natural rubber in order to improve their working and living conditions bit by bit.
We are also very proud of the fact that we have been working with our production partner, Hung A from Korea, for 50 years.
We produce in Indonesia and Vietnam and are very well informed about the situation on the ground and know all the processes.
We work together with VERSO to transfer this self-image to our suppliers.

5. how did you become aware of VERSO and why did you choose the VERSO Supply Chain Platform?

We got in touch with VERSO (formerly sustainabill) two years ago via a customer and were able to get to know the platform very well.
In the meantime, VERSO has established itself as the industry standard in the bicycle industry.
That’s why it was very clear to us that VERSO would be our partner when we really got going with the topic of responsibility in the supply chain.

6. how do you rate the VERSO Supply Chain Platform and which functions do you find particularly useful?

VERSO enables us to reduce our workload enormously because manual documentation is largely eliminated.
And that helps us in the digitalization of our Green KPIs.
The platform is very easy to understand and intuitive to use.
Above all, the visualization of the supply chain helps us to build an understanding of our partners.
With VERSO, we can easily record and evaluate data and export it even faster.
In addition, VERSO Support is always there for us and can support us.
It is also interesting to note that as a user of the VERSO supply chain platform, we basically have a dual role.
We are both a registered supplier on the platform and a VERSO customer.
In other words, we serve our customers on the platform with our company data and at the same time request company data from our suppliers via the platform so that we can gain insight into our supply chain.

7. what are your plans for the future in the area of responsibility and what role does the supply chain play in this?

We already collect and reduce our emissions here on site, but we are well aware that the majority of our emissions are generated in the supply chain.
That’s why we want to work even more closely with our suppliers in future to make progress, take responsibility together and achieve our goals.
With regard to our supply chain, this also means that we want to address the relevant upstream suppliers after surveying our Tier 1 suppliers.
We take a holistic approach to responsibility.
This starts at the beginning of the supply chain, through production and use to beyond the life cycle of the product – closing the circle.

Whitepaper:
Risk management for sustainability in the supply chain

How to implement the requirements of the Supply Chain Act in a future-proof way through digitalization and collaboration!

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Mann sitzt nachdenklich am Laptop – die Risikoanalyse für das LkSG ist mit vielen Fragen verbunden
11.01.2023

Kickstart LkSG – This is what matters

The LkSG came into force on January 1, 2023. We have summarized the current information on the law for you.

The much-discussed Supply Chain Due Diligence Act (LkSG) came into force for companies on January 1, 2023.
In addition to clarifying some basic questions in order to prepare for the Supply Chain Due Diligence Act, it is important to stay informed about important innovations.
We have summarized the latest information on the law.  

Important deadlines for compliance with the law

By when must the due diligence obligations be fulfilled?

Companies that have been subject to the Supply Chain Act since January 1, 2023 do not yet have to have fully complied with all due diligence obligations.
Only the responsibility for monitoring risk management must already be defined and the complaints mechanism established.
All other obligations only need to be implemented in the course of the first audit year.
If your company has fewer than 3,000 and more than 1,000 employees at German locations, it will not be subject to the law until January 1, 2024.

When does the reporting obligation apply?

The following applies to all reports that are to be submitted to the Federal Office of Economics and Export Control (BAFA) and published on the company’s website between January 1, 2023 and June 1, 2024: BAFA will not verify the submission of the reports to BAFA and their publication until the deadline of January 1, 2025.
Further information and detailed answers can be obtained from the BMAS.

Practical guide to LkSG compliance

How to implement the risk analysis according to the LkSG efficiently and legally compliant – in 6 steps.

How should the term “appropriateness” be interpreted?

In addition, the BAFA has explained the principle of appropriateness stipulated by the Supply Chain Act in more detail in a new guidance document.
According to this, companies are generally obliged to observe due diligence obligations within their supply chains in a manner that is appropriate (for them) in order to prevent, minimize or eliminate human rights or environmental risks.
The aim of this is to give each company the necessary discretion and room for maneuver with regard to the implementation of due diligence obligations.
According to the LkSG, companies do not have to guarantee that their entire supply chain is completely free of human rights violations or environmental damage.
Rather, they must ensure that they take appropriate measures according to their individual business activities to identify and address potential risks.
The due diligence obligations of the LkSG therefore establish a duty of care for companies.
However, should a breach occur in the domestic business area, remedial action must be taken immediately.
The duty of care alone is not sufficient here.  

What is the assessment of appropriateness based on?

According to LkSG § 3 para.
2, the appropriateness of an action that complies with the duty of care is based on the following criteria:

  1. Nature and scope of the company’s business activities
  2. The company’s ability to influence the direct perpetrator of a human rights or environmental risk or the violation of a human rights or environmental obligation
  3. Typical expected severity of the violation, the reversibility of the violation and the likelihood of a violation of a human rights-related or environmental obligation
  4. Nature of the company’s causal contribution to the human rights or environmental risk or to the violation of a human rights or environmental obligation

There is no fixed order for these appropriateness criteria.
Instead, companies must decide on an ongoing basis how and in what order to address them, based on their individual risks and violations.
The principle of appropriateness is closely linked to that of effectiveness.
Accordingly, companies may only make an appropriate selection from effective measures.  

How is the vulnerability risk assessed?

In principle, the more susceptible a company’s business activities or supply chain structure is to human rights or environmental risks, the greater the efforts that can be expected of this company to prevent, stop or minimize these violations.
The factors listed below serve as examples for assessing the respective vulnerability risk:

  • Activities in or procurement from risky countries
  • Activity in or affiliation to a risky sector
  • Contact with conflict minerals
  • Use of hazardous machinery and/or chemicals
  • High proportion of low-skilled, manual work

 

What needs to be considered in the risk analysis?

In addition, companies are obliged to carry out an appropriate risk analysis.
In this case, the criteria of appropriateness control the varying intensity of the investigative efforts.
Here, too, it can be generally said that a correspondingly more intensive risk assessment must be carried out for high-risk suppliers.
It is, of course, inadmissible to limit the risk analysis only to players over whom there is direct influence.
You can find out more about risk analysis in our practical guide LkSG Compliance.
Would you like to find out more? Get in touch with us.  

* This information is summarized editorial content and should not be construed as legal advice. VERSO accepts no liability.

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Klaus Wiesen, Head of Sustainable Supply Chains bei VERSO
05.01.2023

The importance and future of sustainable supply chains: Interview with Klaus Wiesen

In this interview, Klaus Wiesen, Head of Sustainable Supply Chain at VERSO, answers relevant questions on the challenges and solutions for more sustainability in supply chains and the role of the supply chain in the future viability of companies.

Companies currently have to deal with several requirements. In addition to the German Supply Chain Act, the CSRD, which has been in force since 2024, is on the table, while CBAM and EUDR also pose new challenges. The CSDDD is on the horizon. In this interview, Klaus Wiesen, Head of Sustainable Supply Chain at VERSO, answers relevant questions on the challenges and solutions for more sustainability in supply chains, the role of the supply chain in the future viability of companies and how the VERSO Supply Chain Hub supports the implementation of sustainability requirements and legal requirements such as the LkSG or the CSRD now and in the future.  

7 questions for Klaus Wiesen on challenges and opportunities in the supply chain

1. Why is the supply chain so important for protecting the climate and human rights?

On average, more than 80 per cent of CO2 emissions in the value chain come from the supply chain. The supply chain also plays a key role when it comes to respecting human rights and protecting biodiversity. Sustainable companies and sustainable products are only possible with a sustainable supply chain – which makes the supply chain a decisive factor for the future viability of companies.

2. What obligations do companies face with regard to their supply chains now and in the future?

The obligations are extensive. A lot has happened in terms of regulation. For example, the CSRD (Corporate Sustainability Reporting Directive) requires companies to report extensively on their commitment to sustainability, with the supply chain forming an important part of the reporting. In addition, the member states have agreed on the EU Supply Chain Act (European Directive on Corporate Sustainability Due Diligence) and the EU law to stop deforestation has been passed. Last but not least, the German Supply Chain Act, the “Lieferkettensorgfaltspflichtengesetz” (LkSG), came into force on January 1, 2023. All of this ensures that companies are required to procure in a way that takes climate neutrality, environmental protection and respect for human rights fully into account. The biggest challenge for companies in fulfilling the upcoming obligations is that a supply chain cannot be made sustainable in the blink of an eye. The transition to a sustainable supply chain takes time. Accordingly, sustainable procurement cannot be achieved in a one-off project, but the path to it requires new structures within the company and continuously ties up resources. It is important that companies start early enough. Due to the current crises, however, the opposite is often the case: the issue of sustainability is put off for as long as possible. This will backfire on companies later on.

3. What are the most important steps in achieving sustainable procurement and which departments should be involved?

In purely organisational terms, purchasing should always be involved with a central function, especially as purchasing typically maintains the most intensive contact with suppliers. It is therefore important to build up sustainability expertise in purchasing – in addition to close coordination with the CSR department, if this already exists in the company. For procurement, this is an opportunity to reposition itself strategically within the company.
Transparency is also required in the supply chain: where are the suppliers’ production sites located and who is the right contact person for sustainability at suppliers? Which sustainability standards do the suppliers fulfil? And do their own suppliers in turn purchase from sustainable sources? In most cases, companies do not have the answers today.

4. How can such transparency be achieved across the supply chain?

One key to transparency is co-operation with suppliers. It is no longer just information on price or quality that needs to be obtained from suppliers. Sustainability information is also required. And not just one-off information on how risky suppliers are. A continuous assessment and development of suppliers in terms of sustainability is required. Many companies shy away from the effort involved in collecting data – for fear of high costs and negative reactions from suppliers. At VERSO, however, we see every day that the effort involved in collecting data via our cloud platform is minimal – both for our customers and for suppliers – and the feedback from suppliers is positive.

5. How does VERSO support data collection along the supply chain?

VERSO provides support at various levels: In view of the many regulatory requirements, it is very challenging for companies to define the scope of the required information. In addition, the requirements are dynamic and new laws and standards are constantly being added. Sustainability standards are currently still in their infancy. The scope of the data query must therefore be continuously supplemented or adapted. The VERSO Supply Chain Hub receives standardized self-disclosures on all relevant sustainability requirements. The questionnaires are sent automatically, data is collected and evaluated. In addition to information on which sustainability requirements a company fulfills, VERSO also helps to create transparency in the upstream supply chain. This is where the risks are sometimes greatest. If the company procures high-risk raw materials, it is essential to create transparency for the supply chains of the raw materials.

6. What opportunities does sustainable supply chain management offer, even if your own company is not affected by the LkSG?

First of all, companies that are not covered by the LkSG will most likely have to fulfil reporting obligations in accordance with the CSRD, which also applies to capital market-oriented SMEs. And the European Supply Chain Act also applies to more companies than the LkSG. But regardless of whether companies are affected by regulation or not, there are many reasons for sustainable supply chain management: I currently see the greatest opportunity in differentiating ourselves from the competition – precisely because corporate customers and consumers are paying more attention to this. In addition, the crisis has shown that companies with sustainable procurement are more resilient, meaning they have had fewer supply disruptions. And with rising CO2 prices and the planned ‘Carbon Border Tax’ (CBAM), companies that are already implementing climate targets for the supply chain will be affected by significantly lower cost increases.

7. To what extent can companies position themselves for the future with VERSO when it comes to sustainability requirements in the supply chain?

Our promise to our customers is that all sustainability requirements for the supply chain can be covered with VERSO now and in the future. The VERSO Supply Chain Hub already covers the topic of due diligence as required by the LkSG as well as climate protection and the recording of CO2 footprints, biodiversity or simply the question of where certain raw materials come from. The platform therefore offers the ideal starting point for meeting the reporting requirements of the CSRD, the EU Supply Chain Act or the EU law to stop deforestation. And, of course, to go beyond regulatory requirements and differentiate yourself from the competition.

Practical guide LkSG Compliance

Find out how to implement the risk analysis in accordance with the LkSG efficiently and in line with legal requirements.

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Risikoanalyse nach LkSG: Das sagt das BAFA – Symbolbild von Frachtcontainern
11.10.2022

LkSG-Risikoanalyse: Was sagt die Handreichung des BAFA?

„Risiken ermitteln, gewichten und priorisieren – Handreichung zur Umsetzung einer Risikoanalyse nach den Vorgaben des Lieferkettensorgfaltspflichtengesetzes“, so lautet der Titel der sehnlichst erwarteten Handreichung des Bundesamtes für Wirtschaft und Ausfuhrkontrolle (BAFA). Im Fokus der Handreichung steht die Risikoanalyse der menschenrechtlichen und umweltbezogen Risiken im eigenen Geschäftsbereich und in der Lieferkette.

Abstrakte, konkrete und anlassbezogene Risikoanalyse

Nach dem LkSG müssen Unternehmen nach § 4 LkSG ein angemessenes und wirksames Risikomanagement einrichten, um menschenrechtliche oder umweltbezogene Risiken oder Verletzungen zu erkennen. Diese Risikoanalyse ist jährlich bzw. anlassbezogen durchzuführen (§ 5 LkSG Abs. 4).

In Bezug auf die regelmäßige Risikoanalyse führt das BAFA eine wichtige Unterscheidung ein:

Die abstrakte Risikoanalyse

Hier wird aufgrund vorhandener Stammdaten, Einkaufsvolumen und ggf. unter Einbezug von Risikodaten eine erste Priorisierung vorgenommen. Diese Risikoanalyse reicht allerdings alleine nicht aus, sondern ist durch die konkrete Risikoanalyse zu plausibilisieren.

Die konkrete Risikoanalyse

Hier werden die Ergebnisse der abstrakten Risikoanalyse plausibilisiert. Hierbei spielt der spezifische Kontext, das heißt auch individuelle Primärinformationen über die Lieferanten, eine wichtige Rolle. Risiken sollen gewichtet und priorisiert werden und so das Gefahrenpotenzial eingeschätzt werden. Hierbei spielen Eintrittswahrscheinlichkeit und Schwere der Verletzung eine wichtige Rolle.

Die anlassbezogene Risikoanalyse

Des Weiteren ist anlassbezogen eine Risikoanalyse durchzuführen. Dies gilt entweder bei Veränderung der Geschäftstätigkeit oder bei substituierter Kenntnis von Verletzungen einer menschenrechtlichen oder umweltbezogenen Pflicht bei einem oder mehreren mittelbaren Zulieferern.

Darüber hinaus enthält die Handreichung hilfreiche Informationen zu den Daten, die zur Beschaffungsstruktur erfasst werden sollten sowie im Anhang II einen Überblick über Umsetzungshilfen (Berichte und Leitfäden) für die Ermittlung von menschenrechtlichen und umweltbezogenen Risiken.

Whitepaper:
Risikomanagement für Nachhaltigkeit in der Lieferkette

So setzen Sie die Anforderungen des Lieferkettengesetzes durch ­Digitalisierung und Kollaboration zukunftsfähig um!

Wie unterstützt VERSO die verschiedenen Risikoanalysen?

Sowohl für die abstrakte als auch für die konkrete Risikoanalyse sind eine Vielzahl von Daten effizient einzuholen und auszuwerten. Unsere Cloud Plattform unterstützt hier optimal.

Abstrakte Risikoanalyse: Wesentliche länderbasierte Risikoindizes sind in der VERSO Supply Chain Plattform integriert und können mittels einer Heat Map übersichtlich ausgewertet werden. So können Sie ihre Lieferantendaten zielgerichtet ergänzen.

Konkrete Risikoanalyse: Hier unterstützten wir im Kern, indem Sie Lieferanten mit abstrakten Risiken ganz einfach in die Überprüfung geben können, und mittels Selbstauskünften und Nachweisen eine Aussage zu den getroffenen Maßnahmen zur Risikominimierung erhalten. Die kritischen Lieferanten lassen sich dann anhand der geographischen Lage der Betriebsstätten und den verbundenen Länderrisiken und der Beschäftigtenzahl noch weiter priorisieren.

Anlassbezogene Risikoanalyse: Unser Lieferketten-Mapping ermöglicht die schnelle Überprüfung von Risiken bei substantiierter Kenntnis von Verstößen bei mittelbaren Zulieferern. Ergänzen Sie ihre Risikoanalyse zudem jederzeit für neue Geschäftsbereiche, in dem Sie neuen Lieferanten auf die Plattform einladen.


* Bei diesen Informationen handelt es sich um redaktionell zusammengefassten Content, der nicht als Rechtsberatung zu verstehen ist. VERSO übernimmt keine Haftung. 

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In 10 Schritten auf das Lieferkettengesetz vorbereiten
30.09.2022

Prepare for the Supply Chain Act in 10 steps

The Supply Chain Duty of Care Act, or Supply Chain Act (LkSG) for short, has been in force since January 1, 2023. We have answered some important questions for you.

Since January 1, 2023, the Supply Chain Due Diligence Act, or Supply Chain Act (LkSG) for short, has been in force to regulate corporate responsibility for compliance with human rights in supply chains for the first time. To help you navigate and prepare for the regulatory developments surrounding the LkSG, we have answered some important questions for you.

Questions and answers on the Supply Chain Act

1. Why does Germany need a supply chain law?

In the course of globalization, German companies source raw materials and products from all over the world. In addition, investments are made in foreign production and distribution facilities and goods are exported worldwide. In the process, human rights and environmental protection violations are occurring more and more frequently. These have their origins in the constantly increasing competitive and price pressure to which globally active companies are exposed. Up to now, companies have only borne minimal responsibility for the impact of their business activities abroad. Attempts to voluntarily implement protective measures against human rights and environmental protection violations have failed miserably. A binding framework is therefore needed to oblige companies to take greater care with regard to these issues.

2. which human rights and environmental standards must be taken into account by companies in this context?

The Supply Chain Due Diligence Act obliges German companies to comply with internationally recognized human rights abroad as well. This includes, for example, the right to physical integrity, the prohibition of forced and child labor and the right to health. With regard to the environmental standards to be observed, the locally applicable regulations on environmental protection and individual environmental standards from international agreements apply.

3. which companies are affected by the Supply Chain Act?

The law will be introduced in stages, starting on 01.01.2023. Initially, German companies with more than 3000 employees will be affected. From 01.01.2024, the scope will be extended to companies with more than 1000 employees. Even if smaller companies (SMEs) are not yet directly covered by the Supply Chain Act, they can be required to implement due diligence obligations as suppliers to affected companies.

Risk management in the supply chain

Implement the Supply Chain Act in a future-proof way: with a holistic, risk-oriented approach. Find out more in the whitepaper.

4. What are companies liable for?

Companies should not only take responsibility for damage caused by themselves, but also for damage caused along the supply chain by subsidiaries, important business partners or suppliers. Transparency within the supply chain is therefore more important than ever before. In principle, however, companies are only liable for damage where they have acted negligently or deliberately breached their duty of care.

5. must business relationships be terminated in the event of violations?

That is not the goal. The primary aim is to permanently anchor awareness of human rights and environmental protection measures within the supplier companies. Business relationships are only to be terminated completely if a serious human rights violation has been identified that persists even after a deadline has been set.

6. What does the Supply Chain Act mean for the competitiveness of affected companies?

The Supply Chain Act will bring more fairness to competition. At present, companies that act conscientiously are at a competitive disadvantage compared to companies that act irresponsibly due to higher costs. This is to be prevented with uniform rules for all.

7. What impact can the LkSG have in the producing countries?

The Supply Chain Act is primarily intended to protect local people. The legislation is intended to improve working conditions for employees in production facilities, as companies are then obliged to comply with social and environmental standards. Residents living in the vicinity of the factories will also benefit if, for example, they are no longer allowed to exceed certain exhaust emission values.

Factsheet: EU Supply Chain Act vs. LkSG

The EU Supply Chain Act (en. Corporate Sustainability Due Diligence Directive (CSDDD)) is to become the European framework for the German Supply Chain Act. You can find everything you need to know in the factsheet.

8. Who controls the law?

Compliance with and implementation of the law is monitored by the Federal Office of Economics and Export Control (BAFA). Companies are obliged to submit their report at least four months after the end of the financial year. In addition, the authority has the possibility, among other things, to specify concrete actions to companies, summon persons, demand information and impose fines of up to EUR 50,000 for enforcement.

9. What penalties do companies have to fear?

Failure to comply with the legal obligations could result in fines of up to 8 million euros, or 2% of annual global turnover for companies with an annual turnover of more than 400 million euros. For the time being, the German law does not provide for civil liability, although this is likely to change with legislation at European level.

10. how can the VERSO Supply Chain Platform simplify the implementation of the LkSG?

Recurring requirements such as risk analyses, implementation of preventive measures or the annual reporting obligation are effort drivers for purchasing, as they require the collection and evaluation of supplier data. With the automation of the VERSO Supply Chain Platform, considerable resources can be saved and an efficient, holistic implementation of the LkSG and all ESG topics can be guaranteed. The VERSO Supply Chain Platform enables a future-proof approach with which purchasing organizations are also optimally prepared for future requirements such as the CSRD and the EU Supply Chain Act. Contact us to find out how VERSO can help you capture the necessary data in your supply chain, qualify suppliers and provide the necessary reporting metrics with minimal effort.

 

* This information is summarized editorial content and should not be construed as legal advice. VERSO accepts no liability.

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Containerschiff als Symbolbild für Lieferketten
30.08.2021

Erklärung für das Lieferkettengesetz: Was Unternehmen beachten müssen

Nachhaltigkeitsaspekte beeinflussen immer stärker das Einkaufsverhalten der Kunden. Unternehmen müssen deswegen auch in ihrer Lieferkette auf Themen wie CO2-Reduktion und Einhaltung von Menschenrechten achten. Experte Klaus Wiesen gibt eine Erklärung, welche Unternehmen vom Lieferkettengesetz betroffen sind und was sie beachten müssen.

Für welche Unternehmen gilt das Lieferkettensorgfaltspflichtengesetz, kurz das Lieferkettengesetz? Und ab wann?

Das Gesetz gilt ab 2023 für Unternehmen mit Hauptsitz in Deutschland und für in Deutschland registrierte Unternehmen mit über 3000 Mitarbeitern. Ab 2024 liegt der Schwellenwert bei 1000 Mitarbeitern. Indirekt sind aber sehr viel mehr Unternehmen betroffen: Entweder als Zulieferer, der Anforderungen von unter das Gesetz fallende Kunden erfüllen muss, oder als Unternehmen, das in Sachen Nachhaltigkeitsstandards mit größeren Wettbewerbern mitziehen sollte.

Die neuen Sorgfaltspflichten beziehen sich auf verschiedene Ebenen der Lieferketten. Welche sind das?

Die Lieferkette bezieht sich auf alle Produkte und Dienstleistungen eines Unternehmens. Das Gesetz umfasst das Handeln des eigenen Geschäftsbereichs und das der unmittelbaren Zulieferer sowie in einigen Fällen auch der mittelbaren Zulieferer.

Ich empfehle Unternehmen aber, sich nicht in den Details des LkSG zu verlieren. Entscheidend ist es, jetzt ein robustes Risikomanagement in Einklang mit den UN Guiding Principles (UN-Leitprinzipien für Wirtschaft und Menschenrechte) aufzubauen, und so auch Anforderungen anderer nationaler Gesetze sowie des kommenden Gesetzes auf der EU-Ebene an die menschenrechtliche Sorgfaltspflicht zu erfüllen.

Die neuen Sorgfaltspflichten beziehen sich auf verschiedene Ebenen der Lieferketten. Welche sind das?

Die Lieferkette bezieht sich auf alle Produkte und Dienstleistungen eines Unternehmens. Das Gesetz umfasst das Handeln des eigenen Geschäftsbereichs und das der unmittelbaren Zulieferer sowie in einigen Fällen auch der mittelbaren Zulieferer.

Ich empfehle Unternehmen aber, sich nicht in den Details des LkSG zu verlieren. Entscheidend ist es, jetzt ein robustes Risikomanagement in Einklang mit den UN Guiding Principles (UN-Leitprinzipien für Wirtschaft und Menschenrechte) aufzubauen, und so auch Anforderungen anderer nationaler Gesetze sowie des kommenden Gesetzes auf der EU-Ebene an die menschenrechtliche Sorgfaltspflicht zu erfüllen.

Die betroffenen Unternehmen müssen künftig eine Risikoanalyse ihrer Lieferkette vornehmen. Auf welche möglichen Missstände müssen sie dabei achten?

Unternehmen müssen in der Risikoanalyse menschenrechtliche und umweltbezogene Risiken beachten. Menschenrechtliche Risiken können zum Beispiel Kinderarbeit, Zwangsarbeit oder missachteter Arbeitsschutz sein. Auf die Umwelt bezogen sind das beispielsweise die Verschmutzung von Luft oder Gewässern, aber auch das unsachgemäße Entsorgen von Abfällen.  

Mit welchen Konsequenzen müssen Unternehmen rechnen, wenn sie die neuen Regeln des Lieferkettengesetzes nicht (rechtzeitig) einhalten?

Verstößt ein Unternehmen gegen das Gesetz können je nach Schwere des Verstoßes Geldstrafen bis zu 8 Millionen Euro verhängt werden. Für Unternehmen mit einem Jahresumsatz von mehr als 400 Millionen Euro kann die Strafe bis zu 2 Prozent des jährlichen Umsatzes betragen. Außerdem droht der Ausschluss von öffentlichen Auftragsvergaben.

Doch es geht um viel mehr, als nur Strafen zu vermeiden. Es droht der Verlust der Wettbewerbsfähigkeit, sollte Nachhaltigkeit nicht ernst genommen werden. Somit sollten Unternehmen das Gesetz als Chance sehen, sich jetzt für die Zukunft aufzustellen. 

 

Welchen Schritt sollten Unternehmen als Erstes machen, um die neuen Regeln ab Inkrafttreten einzuhalten?

Zunächst sollten die Verantwortlichkeiten im Unternehmen festgelegt werden. Das LkSG erfordert das Benennen einer oder eines Menschenrechtsbeauftragten. Doch ich empfehle, es nicht dabei zu belassen. Es gilt insbesondere, den Einkauf miteinzubeziehen und Prozesse für eine nachhaltige Beschaffung zu etablieren.

 

Auch auf europäischer Ebene wird über ein Lieferkettengesetz diskutiert. Müssen deutsche Unternehmen dann mit noch schärferen Regeln rechnen?

Ja, davon ist auszugehen. Das Thema Nachhaltigkeit in der Lieferkette wird aber nicht nur durch dieses Gesetz weiter an Bedeutung gewinnen. Der fortschreitende Klimawandel   erfordert die Dekarbonisierung von globalen Lieferketten, weshalb fast jedes Unternehmen tätig werden muss. Und wer Nachhaltigkeit in der Lieferkette adressiert, sollte sich nicht nur auf einen Nachhaltigkeitsaspekt beschränken.

Egal ob Klimaschutz oder menschenrechtliche Sorgfaltspflicht, es bedarf dafür zum einen klarer Prozesse und zum anderen Transparenz in der Vorlieferkette. Hat man diese Grundlagen erreicht, lassen sich alle Nachhaltigkeitsthemen proaktiv managen.

Consulting

Klaus Wiesen

Klaus Wiesen ist Head of Sustainable Supply Chains bei VERSO. Er war Mitgründer von sustainabill, das nun als Teil von VERSO unseren Kunden dabei hilft, Transparenz in Lieferketten zu bringen und so Risiken zu managen, Menschenrechte sicherzustellen und Klima-Emissionen zu verringern. Vor der Gründung von sustainabill war er Teamleiter beim Wuppertal Institut, einem international führenden Think Tank für anwendungsorientierte Nachhaltigkeitsforschung. Klaus Wiesen ist außerdem einer von neun Nachhaltigkeitsexpert:innen beim 12-Wochen-Programm der VERSO Academy.

Klaus Wiesen, Head of Sustainable Supply Chains bei VERSO

* Bei diesen Informationen handelt es sich um redaktionell zusammengefassten Content, der nicht als Rechtsberatung zu verstehen ist. VERSO übernimmt keine Haftung. 

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