09.09.2024

Compliance in the supply chain: How the bicycle industry is mastering the task

Sustainability regulatory obligations are increasing and compliance in the supply chain is becoming ever more important. Read our article to find out how companies fullfil the ESG requirements for the supply chain and how VERSO specifically supports the bicycle industry in this task.

The economy is undergoing a profound change. More and more companies are integrating sustainability into their business models. This topic is also becoming increasingly important in the bicycle industry – especially in relation to the supply chain, as this is where the greatest risks and the greatest impact of bicycle manufacturers lie.

Two factors play a key role. Firstly, many companies are launching sustainable initiatives to improve their environmental footprint. This enables them to generate business value and Competitive advantages.

On the other hand, regulatory pressure is growing – including throughtheCSRD reporting obligation, the CO2-border-adjustment mechanism CBAM and the EUDR regulation for deforestation-free supply chains. Compliance with sustainability requirements is becoming mandatory.

CSRD, EUDR and CBAM: New requirements for compliance in the supply chain

There are numerous new requirements in the area of sustainability that also affect the bicycle industry. The CSRD, the EU directive on sustainability reporting, plays a major role. Companies have to provide extensive ESG information – and not only consider their own company, but also the supply chain. We have summarised what exactly is required in our blog post „CSRD and the supply chain”. However, the industry is also confronted with new obligations arising from the use of certain raw materials. For example, companies are subject to the EUDR because rubber is used for bicycle tyres. By using CO2-intensive materials such as aluminium or steel, companies may also be affected by CBAM. Both regulations include an assessment of certain raw materials as well as a documentation and reporting obligation. Those who create transparency here and thus address the risks identified have created the basis for fulfilling almost all requirements and compliance in the supply chain.

Compliance in the supply chain: the challenge of a complex supply chain

Cycling is – apart from walking – the most environmentally friendly form of transport: emission-free, quiet, efficient and climate-friendly. However, this only applies to pedalling. When it comes to the production of bicycles, especially e-bikes, the balance is somewhat different.

In addition to emissions – including CO2-intensive materials – the use of high-risk materials also plays a role. “Raw materials for motors, electronics and batteries are associated with major sustainability risks,” explains Klaus Wiesen, Head of Sustainable Supply Chain at VERSO. In addition, the bicycle industry often has complex supply chains. This makes it all the more important to create transparency with regard to these issues and reduce risks.

The complexity of the supply chain results from the large number of players involved in the production of the numerous components of a bicycle or e-bike. These players are distributed internationally, which results in different framework conditions and long transport routes.

Compared to conventional bicycles, e-bikes bring additional challenges. New technologies and raw materials for the drive and battery have become relevant in production. Here, bicycle manufacturers are competing with industries such as the IT sector, with which they previously had little contact.

The growing importance of transparency and data management

“Transparency in the supply chain is the key to complying with current and future regulations,” emphasises Klaus Wiesen. Many VERSO customers have voluntarily established corresponding processes before they are obliged to do so by regulations such as the Supply Chain Act (LkSG).

Riese Müller is a pioneer in the bicycle industry and aims to be the most sustainable company in the e-bike sector by 2025. With the VERSO Supply Chain Hub the company creates the necessary transparency in the supply chain and promotes its suppliers in terms of sustainability. Riese Müller is also improving risk management and supply chain mapping to ensure compliance in the supply chain.

However, not all companies in the bicycle industry are that advanced. A key problem is the collection and management of data along the supply chain. Smaller manufacturers in particular have some catching up to do.

“Many companies have hardly collected any structured data, which now presents them with considerable challenges if they want to fulfil the requirements of CSRD, CBAM, EUDR and other regulations,” says Klaus Wiesen. This is where VERSO comes in and offers solutions to support companies in realigning their processes and fulfilling the requirements.

Compliance in the supply chain: benefiting from the network

VERSO is the bicycle industry’s leading platform for sustainability in the supply chain. Their customers include German companies such as Riese Müller as well as international manufacturers – for example from the Netherlands, Switzerland and the USA.

“As there is a large overlap in the supplier base in the bicycle industry, our customers benefit from the networks created and stored in our software,” explains Klaus Wiesen. All customers also benefit from learning effects from previous projects. VERSO integrates new regulations into its software at an early stage to ensure future compliance in the supply chain.

Leveraging supply chain ompliance as a chance for the bicycle industry

The regulations are not only associated with additional tasks. They also open up new opportunities for companies.

One example is risk management. Companies in the bicycle industry have suffered particularly badly from supply bottlenecks in the past. Resilience in the supply chain has therefore become an important issue. By identifying risks (e.g. political instability, natural disasters or human rights violations), a company can take measures to minimize or avoid the impact of these risks. This ensures robust supply chains.

Bicycle manufacturers’ customers often attach great importance to sustainability. Those who fulfill the compliance requirements show that their company takes responsibility for ethical and environmentally friendly standards in the supply chain. This creates trust, provides a competitive advantage and contributes to the long-term success and good reputation of the brand.

Avoiding reputational damage and penalties also plays a role. Companies that do not fulfill their regulatory obligations must expect sanctions. We have summarised possible penalties in the blog post „Sanctions at a glance: The cost of mistakes in reporting and implementing sustainability” for an easy overview.

Holistic sustainability management at VERSO

In order to fulfill the requirements, companies should prepare for the new regulations at an early stage. Thanks to our expertise in the bicycle industry (among others) VERSO is the ideal partner. “With the VERSO Supply Chain Hub we have been supporting our customers for years with transparency in the supply chain and the fulfillment of their due diligence obligations. Our software solution enables optimized preparation for current and future regulations,’ emphasizes Klaus Wiesen.

The supply chain harbors the greatest risks and has the greatest impact in the bicycle industry. However, a holistic view of a company is necessary, particularly with regard to CSRD. This includes the upstream and downstream value chain as well as the company’s own business activities. VERSO offers an all-in-one solution here.

With the VERSO ESG Hub you can collect all relevant data and create a meaningful sustainability report. With the Climate Hub the corporate carbon footprint is calculated and a climate strategy is mapped. The VERSO sustainability experts will support you throughout the entire process. Furthermore, you can gain additional know-how about sustainability in our VERSO Academy courses.

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13.08.2024

The most important questions and answers on EUDR

The EU regulation for deforestation-free supply chains (EUDR) aims to prevent the ongoing deforestation in order to protect biodiversity and reduce greenhouse gas emissions. In this article, we answer the most important questions about the EUDR.

What is the EUDR?

After the USA, Germany was the world’s largest importer of green coffee in 2019. In 2018, Germany was also one of the largest importers of raw cocoa and was the European leader in per capita cocoa consumption. Let’s broaden our view a little. The EU is the second largest importer of soy, much of which is used as animal feed.
And even if imports are falling in some areas (e.g. tropical timber), one thing is certain: together with other high-income countries such as the USA and China, Europe is one of the world’s largest importers of raw materials and goods that drive global deforestation.

In the last 30 years, we have lost an area of forest worldwide that is larger in total than the European Union. Forest degradation and deforestation are still progressing at a tremendous rate, which only exacerbates global warming and biodiversity loss.

However, the growth of prosperity and the economy cannot be endlessly expanded at the expense of the environment. As early as 2013, the EU therefore put an initial stop to deforestation with the EU Timber Regulation (EUTR ) (implemented in Germany by the Timber Trade Security Act (Holzhandels-Sicherungsgesetz – HolzSiG)). However, the standards and enforcement of the EUTR have been repeatedly criticized as weak.

As part of the Green Deal, the EU is now tightening its measures with the EUDR. The initial introduction, placing/provision on the EU internal market and export of certain goods for which forests have been cleared or forest ecosystems damaged since the beginning of 2021 will soon be prohibited. Regardless of whether this forest is located in Thuringia, Romania or Brazil.

When does the EUDR come into force?

The EUDR is set to affect the first companies from 30.12.2024. The scope of application will then be gradually expanded in a similar way to the CSRD and CSDDD. From 30.12.2024: companies that meet at least two of the following criteria (large and medium-sized enterprises – referred to as “non-SMEs” in the EUDR)

> 50 employees
> 10 million € turnover
> 5 million € Balance sheet total

From 30.06.2025: Companies that meet at least two of the following criteria (small and micro enterprises – referred to as “SMEs” in the EUDR):

< 50 employees
< 10 million € turnover
< 5 million € Balance sheet total

Who is affected by the EUDR?

The EUDR is product-based. Any company that trades in products or raw materials that fall within the scope of the EUDR is affected. A distinction is made between affected companies:

Market participants: companies that import/export relevant products into/out of the Union market for the first time
Traders: companies that make relevant products available on the Union market

Which products are covered by the EUDR?

The new deforestation regulation affects the following raw materials and products manufactured using these raw materials:

Wood
Palm oil
Coffee
Cocoa
Beef
Soy
Rubber

The regulation does not provide for any thresholds or volume values. Incidentally, the list of affected raw materials is to be expanded in the future.

Overview of the goods affected by the EUDR directive

What conditions must products fulfill under the EUDR?

Starting with the implementation phase: Import, trade and export of the above-mentioned raw materials and their derived products on the EU internal market are only permitted, if these three conditions are met:

Deforestation-free:The products were manufactured without converting natural forest into agricultural land or tree plantations after 31.12.2020. This also applies if deforestation was considered legal in the country of origin!
Production in accordance with the relevant rights of the country of origin: This concerns both environmental protection and human rights. Species protection measures, anti-corruption measures, labor rights, the UN Declaration on the Rights of Indigenous Peoples, trade law, etc. have been complied with.
Due diligence declaration available:A risk assessment has been carried out for the product, the due diligence obligations have been complied with and there is no or only a negligible risk of deforestation.

Are there any exceptions?

Yes, there are some exceptions to the EUDR:

100% recycled goods, i.e. goods made from raw materials/consequential products whose life cycle is already complete anyway
Packaging materials used solely to support, protect or carry goods
Operating instructions
Bamboo products

Products that were produced before the EUDR came into force on 29.06.2023 are also exempt from the EUDR.
However, this does not apply to wood products, as these were previously covered by the EUTR.

What requirements does the EUDR place on my company?

Under the new Deforestation Regulation, companies that are the first to place a raw material or downstream product on the market (“operators”) must carry out a risk assessment, mitigate risks and submit a due diligence declaration via the EU “Traces” system. Traders who trade or process the raw materials or goods downstream on the EU market may then be able to refer to the reference numbers in the due diligence declaration. If the due diligence declaration is missing, the traders must of course provide it themselves. Large traders must also verify the risk assessment on a random basis. The EUDR also introduces a documentation and reporting obligation. As the Deforestation Directive also differentiates between “SMEs” and “non-SMEs” for traders and market participants, there is also a gradation here: implementation is simplified for SMEs (according to the EU Directive) through a narrower list of obligations. Among other things, they have to provide less information about their upstream and downstream supply chain and do not have to submit a public EUDR report. You should therefore check which categories your company falls into and which specific obligations you are subject to.

The requirements of the EUDR – step by step

1. Collect data

Get a precise overview of your goods and raw materials. This includes information such asprecise descriptions, quantities, suppliers and countries of origin. The EUDR also requires the geolocation of all properties on which the raw materials concerned were produced – including the time or period of production. Not only in the future, but also retroactively until 31.12.2020. This is to ensure that no deforestation has actually taken place on the land in question. You should also obtain proof that all rights are protected in the country of origin.

2. Carry out a risk assessment

The aim is to assess the deforestation risk of newly imported products and raw materials. Criteria for risk assessment include the country of origin, the deforestation dynamics in this country, the political/social situation or the complexity of the importing company’s supply chain. The EU provides a benchmarking system that categorizes producer countries according to risk classes. According to the EUDR, only products with no or negligible risk may be traded on the EU internal market.

3. Reduce risks

If you have identified risks in your supply chain, these must now be reduced as far as possible.
Develop a new code of conduct together with your suppliers as well as adaptable strategies and control measures.
Check compliance, e.g. through supplier audits or by requesting additional documentation.

4. Document and report

Furthermore, the EUDR also introduces an internal documentation obligation and a reporting obligation. A due diligence declaration or confirmation of EUDR compliance must be enclosed with each batch of affected goods, which customs will check on a risk basis. With the exception of “SMEs”, all companies are also obliged to publicly report on the risk assessment, due diligence process and measures taken. If your company falls under the EU Sustainability Reporting Directive (CSRD), you can handleEUDR reporting via the CSRD report.

Steps to implement the EUDR in your company

Does the EUDR provide for sanctions?

Yes. Planned sanctions include:

Skimming off profits unlawfully made as a result of non-compliance with the EUDR
Fines in proportion to forest damage and value of goods, but at least 4 % of annual turnover
Confiscation of goods or products
Temporary import bans
Exclusion from public funds and public tenders
Naming and shaming

What is the best way to implement the EUDR?

With VERSO. Our Supply Chain Hub offers you a seamless end-to-end process for all EUDR requirements – from risk identification to the creation of your CSRD report in the ESG Hub. Find out more:

EUDR compliance with VERSO

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

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17.06.2024

CSRD and supply chain: What purchasing needs to consider

The CSRD with its ESRS standards is not only a lot of work, it also has a major impact on companies: This is because you have to make extensive ESG disclosures – and not only look at your own company, but also at the supply chain. Read here what purchasing departments need to consider and what opportunities and risks arise from the EU directive.

The CSRD (Corporate Sustainability Reporting Directive) has applied to the first companies since January 2024, and others are gradually being added.
Ultimately, around 50,000 companies in Europe will be obliged to publish a report with comprehensive information on ESG (environmental, social and governance) issues.
The ESRS, the European Sustainability Reporting Standards, were also introduced with the CSRD.
For the first time in the EU, they provide a standardized framework for the preparation of a sustainability report – in simple terms: which ESG information is required and in what form it must be reported.
It is important to note that the reporting obligation not only relates to the company itself, but also extends to the entire value chain. In this blog post, we look at the upstream value chain – i.e. the supply chain.
And this is where companies subject to CSRD reporting requirements can quickly run into problems: they need a lot of information from their suppliers and the data situation is often inadequate – according to the Bertelsmann Stiftung’s Sustainability Transformation Monitor 2024.
With VERSO, you can master this challenge.
Our Supply Chain Hub creates transparency in the supply chain and enables you to analyze risks, develop targeted measures and comply with reporting obligations.
We will now take a closer look at these disclosure requirements within the framework of the CSRD and the impact on purchasing.

CSRD and supply chain: What needs to be reported?

The CSRD demands a lot from companies: the ESRS comprises around 1150 data points and over 100 of these relate to the supply chain.
Purchasing is therefore an important player in the reporting process.
The information involved can be roughly summarized as follows: The ESG report must contain information on environmental and social IROs (impacts, risks and opportunities) in the supply chain as well as measures related to the IROs.
If your company is affected by the LkSG, you will probably recognize some disclosure requirements and can realize synergies: This is because some BAFA requirements overlap with the ESRS.

Bei den ESRS gibt es sektorunabhängige Standards und sektorspezifische Standards. Die Sektorunabhängigen Standards teilen sich in die Bereiche Allgemeines, Umwelt, Soziales und Unternehmensführung. Die Allgemeinen Standards sind verpflcihtend für alle Unternehmen, die Themenstandards sind je nach doppelter Wesentlichkeit berichtspflichtig oder nicht.

But what does this mean in detail?
To answer this question, let’s take a closer look at some ESRS standards and clarify how they relate to the supply chain.

ESRS E1 – the climate protection standard

The name says it all: ESRS E1 is about climate protection – in your company and in your supply chain. Your company must therefore not only disclose its own greenhouse gas emissions, but also the CO2 emissions in the upstream and downstream value chain – i.e. in Scope 3. Incidentally, the majority of companies generate the most emissions in this category.
E1 also requires companies to set themselves climate targets.
Transparency about the targets and measures of their own suppliers is crucial in this respect.

ESRS E5 – Resource utilization and circular economy

The supply chain naturally plays an important role in ESRS E5, as many resources are obtained or processed here.
For example, the CSRD asks for:

Measures to avoid the generation of waste
Resource utilization
Measures to promote the circular economy
Cooperation or initiatives to improve the recyclability of products and materials

ESRS S2 – Workforce in the value chain

The fact that the ESRS S2 also relates to the supply chain and entails disclosure obligations is already in the name, so to speak.
Among other things, the CSRD is concerned here with how your company fulfills the due diligence obligations.
This means How do you Ensure compliance with human rights, labor standards andgood working conditions at suppliers ?The CSRD does not require much more than the LkSG. You should also show whether there is a complaints management or whistleblower system for workers in the supply chain, how you handle complaints and resolve any problems raised.

ESRS S3 – Affected communities

The ESRS S3 addresses the impacts that your company’s operations, products or services, and upstream and downstream value chains have on “affected communities”.
This refers to people and groups who live or work in the same area as a company.
The standard also explicitly refers to impacts on indigenous peoples.
Impacts can arise, for example, from truck transportation, the extraction of raw materials or controversial land use.

ESRS G1 – Company policy

With regard to the supply chain, your company must
ESRS G1, your company must disclose the following:

Management of relationships with suppliers, payment practices, in particular with regard to late payments to small and medium-sized enterprises
Strategies for detecting and preventing corruption and bribery, including training for suppliers

However, you do not have to provide information on every standard in your CSRD report.
This depends on whether a topic is material for your company.
VERSO offers you an AI-supported materiality analysis here.
In our white paper “All information on the ESRS” you will also find further detailed information on the European standards, in particular on the transition periods.

CSRD and the supply chain: opportunities and risks for procurement

The CSRD is a major challenge – we can’t hide that and we don’t want to.
With almost 1200 data points, ESRS reporting is a mammoth task.
It is complex and resource-intensive.
But with the right support, you can manage it – we will be happy to assist you with the sustainable transformation.
What’s more, the CSRD doesn’t just end with a sustainability report.
The fact that your company is systematically addressing the issue of sustainability opens up great opportunities.
The double materiality analysis and reporting will make opportunities and risks in the supply chain more visible.
This enables your company to address these in a targeted manner.
Sustainability requirements can trigger innovations, such as the use of environmentally friendly materials or the optimization of logistics processes.
Many customers also tell us that the reporting process has enabled them to get to know their suppliers even better.
The increased transparency ensures better and more sustainable supply chain practices.
By working closely together, you strengthen long-term partnerships and thus improve the stability and efficiency of the supply chain.
The reporting process promotes digital development.
Software specialized in CSRD, LkSG and CBAM requirements helps monitor the supply chain and ensures compliance with legal requirements.
It can collect and process the necessary large volumes of data.

How does CSRD influence purchasing and the supply chain?

CSRD has a major impact on purchasing and requires a high degree of transparency and responsibility.
Your company must collect and provide detailed information and comply with legal due diligence obligations in relation to environmental and social standards.
This includes a new assessment in the purchasing process to ensure that suppliers comply with sustainability requirements.
So you need to be even more careful about who your company does business with.
Teamwork is also required when it comes to climate change.
Climate change and extreme weather will affect us all.
That’s why we need to act together to slow down climate change and reduce its impact.
Climate protection measures must not stop at the gates of your own company: Together with your suppliers, you can implement initiatives that help reduce greenhouse gas emissions.
You can find specific tips for decarbonizing your supply chain in the blog post “Why is climate protection in the supply chain relevant?”.

How VERSO supports you in implementing the CSRD

VERSO offers you the all-in-one package for implementing the CSRD.
The EU directive makes the topic of sustainability in the supply chain even more relevant, as companies must now also report robustly on sustainability activities in the supply chain.
The VERSO Supply Chain Hub helps procurement to record the necessary data in the supply chain, monitor suppliers and provide the required reporting key figures with minimal effort.
We round off the package for implementing your CSRD obligations with additional software solutions and consulting services.
With VERSO, you can carry out an AI-supported materiality analysis.
In the ESG Hub, you collect all relevant data and create a meaningful sustainability report.
The Climate Hub supports you with your carbon footprint and decarbonization strategy.
And in the VERSO Academy, you will acquire the necessary knowledge about CSRD and ESRS.

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

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15.05.2024

Sanctions at a glance: The cost of mistakes in reporting and implementing sustainability

A slap on the wrist and, if it becomes public, a brief outcry from the public: until a few years ago, companies didn’t have to worry too much if they put sustainability on the back burner or engaged in greenwashing. This is now a thing of the past. Read here about the consequences if the new requirements are not implemented correctly – and get tips on how to do it right!

Some simply lack an overview of their own data.
Others are overwhelmed by the numerous requirements of the new ESG regulations.
Still others underestimate the effort involved and start far too late.
And then, of course, there are companies that try to cover up their lack of commitment to sustainability with falsified information.
The possible reasons for inadequate implementation of the new regulations in sustainability, climate and supply chain management are as varied as the people who implement them for their companies.
Until a few years ago, there were hardly any consequences.
There might have been a shitstorm and a few calls for a boycott, but over time – or a lot of PR work – these soon petered out.
However, with the introduction of the new regulations and guidelines for sustainable business practices, which are being rolled out across Europe as part of the Green Deal, this is now a thing of the past.
Errors and misrepresentations can be expensive.
How expensive exactly?
We have summarized this for you in this article – including recommended reading to help you get it right!

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

Sanctions for EU taxonomy, CSRD and SFDR

As far as uniform sanctions are concerned, the trio is unfortunately still rather incomplete.
This is because the three directives have yet to be transposed into national law.
Each EU member state must independently determine the extent to which it wishes to sanction errors in financial and non-financial reporting.
In line with the CSR-RUG – the predecessor of the CSRD – errors in reporting in accordance with the CSRD, SFDR and EU taxonomy will presumably also be penalized in accordance with §331 and §334 HGB.
In figures, this means

Prison sentences of up to 3 years
For members of authorized representative bodies or supervisory boards of a corporation: prison sentences of up to 3 years; companies face fines of up to 2 million euros or twice the economic benefit they have derived from the incorrect report – whichever is higher.
For capital market-oriented companies: Fines of up to 10 million euros, 5 percent of annual turnover or twice the economic benefit – the highest amount is also chosen here.

On top of this – as the fermented icing on the cake, so to speak – there may also be legal action for breach of competition law, exclusion from public procurement procedures and “naming and shaming”, i.e. public disclosure including loss of reputation.
loss of reputation.
Important to know: Only intentional errors and errors due to gross negligence are punishable.
Incidentally, the Auditors’ Association wants to relax the CSRD for auditors: With a cap on the amount of liability and limited liability for gross negligence.
However, this demand has been heavily criticized – so there is still some way to go here.
From 2025, the first court proceedings will show the exact direction of sanctions for breaches of the EU taxonomy, CSRD and SFDR. Read more:

Sanctions for LkSG and CSDDD

CSDDD

After a long back and forth, an agreement was reached in March 2024 on the CSDDD; the European supply chain law.
Here, too, there is still some time before it is transposed into national law.
However, the liability and sanction framework in the event of a breach of the due diligence obligations for people and the environment enshrined in the CSDDD is already clear.
Affected companies are liable for all damages that occur along the upstream supply chain due to inadequate or missing risk prevention or remedial measures – unless these are caused by a business partner.
In other words:

If your company knows about irregularities and ignores them, supervisory authorities can impose fines of up to 5% of global turnover.
Civil liability will also be introduced.
Those affected can therefore assert claims against your company with the help of NGOs or trade unions, for example.
There is also the threat of naming and shaming and exclusion from public procurement.

LkSG

In contrast to the CSDDD, there is no civil liability under the German Supply Chain Act.
However, there are expensive fines if the legal obligations are not complied with.
Under the LKSG, these include environmental and human rights due diligence obligations towards indirect suppliers and, if known, also towards direct suppliers.
Under the LkSG, risks must also be identified, documented and then eliminated or at least minimized.
Otherwise there is a risk of fines of up to 8 million euros.
For companies with an annual turnover of more than 400 million euros, the fine increases to up to 2% of annual global turnover.
And: companies can be excluded from public procurement. Read more:

Factsheet: CSDDD vs. LkSG
Factsheet: Risk management in the supply chain
Practical guide: LkSG compliance
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EU ETS and CBAM sanctions

EU ETS

With the EU Emissions Trading System (EU ETS), the EU aims to cap the emissions of the member states.
Companies only have a certain amount of freedom to emit emissions – otherwise certificates must be purchased.
Non-compliance could result in fines:

100 euros per metric ton of CO2 equivalents emitted without a certificate

In order to avoid certificate prices on the one hand and sanctions on the other, some companies relocated their production to non-EU countries (“carbon leakage”).
The CBAM was therefore also introduced as part of the EU ETS reform.

CBAM

Since January 2024, the CBAM reporting obligation has applied to all companies that import certain emission-intensive goods from non-EU countries.
The so-called “climate tariff” supplements the EU ETS – and entails a whole range of possible sanctions:

Transitional phase: If the CBAM report is incomplete, contains incorrect information or is not submitted at all, or is not corrected after being requested to do so, a penalty of 10 to 50 euros per ton of unreported emissions will be imposed.
Implementation phase: In accordance with the EU ETS, fines of EUR 100 per tonne of CO2 equivalent are imposed for missing certificates.
Anyone importing CBAM goods without the status of authorized user must expect even higher penalties.
In addition to the financial sanctions, it is also possible that the “Authorized Declarant” status will be withdrawn – the company concerned would then no longer be allowed to import CBAM goods from 2026.

Good to know: As a CBAM applicant, you will have noticed that there was a delay in activating the registration options.
As a result, the first CBAM reports could not be submitted on time.
According to the Federal Environment Agency, however, this delay will not be penalized. Read more:

Sanctions with the EUDR

Supply chain officers and buyers must prepare for even more sanctions.
At the end of 2024, the directive for deforestation-free supply chains – the EUDR – will come into force.
If you place products on the EU internal market that have been produced without deforestation, you could face the following penalties under the directive:

Skimming off profits unlawfully made as a result of non-compliance with the EUDR
Fines in proportion to forest damage and value of goods, but at least 4 % of annual turnover
Seizure of goods or products
Temporary import bans
Exclusion from public funds and public tenders
Inclusion in a public list incl.
Information on the violation

Also important: If you do not have the relevant geo-information and proof of origin for your goods, you will no longer be allowed to import them into the EU once the EUDR comes into force.
Keep this in mind now if you are ordering goods that you want to import into the EU internal market from 2025. Read more:

What companies can expect with the EUDR

Sanctions under the Green Claims Directive

There is already a whole range of regulations on environmental claims and environmental labeling systems on the market.
The Green Claims Directive will be added shortly.
It is specifically aimed at advertising claims that make a product or company appear more sustainable than it actually is.
False green claims are punished as follows:

Fines of at least 4% of the annual turnover
Exclusion from public procurement
Recovery of the revenue that your company has generated through the false statements.

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To ensure that companies do not approach the sustainable transformation too carelessly, the EU provides for “effective, proportionate and dissuasive” measures in any case.
In view of the possible sanctions, we are happy to believe this – and help you to correctly implement the guidelines and regulations that apply to you.
Not only our top software, but also our experienced consultants and our specialized partners are at your side.
Feel free to get in touch with us!

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ESG-Ziele müssen auch von Führungs- und Kontrollorganen (Unernehmensführung, Vorstand, Aufsichtsrat) mitgetragen und erfüllt werden. Sonst drohen durch CSRD, LkSG, CSDDD und Co. empfindliche Strafen.

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Developed with expertise from 12+ years of sustainability management
Trusted by 250+ customers

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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.

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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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.

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:

Communication
Cooperation
Support
Monitoring
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: Anyone who doesn’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.

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

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07.11.2023

Fit for CBAM: background, key data and requirements

On October 1, 2023, the CBAM – the Carbon Border Adjustment Mechanism – became mandatory for many companies in the EU. This article will give you a quick overview of how the CBAM works and how you can prepare your company specifically for the new requirement.

To get started: What is the CBAM?

CBAM (“Carbon Border Adjustment Mechanism”) is the official title of the new Regulation EU 2023/956.
To understand the background to this regulation, it is best to go back to 2005.
This was the year in which the European Emissions Trading Scheme (EU ETS) was introduced; the European instrument for implementing the Kyoto Protocol.
In order to actually achieve the climate protection targets set, the EU has adapted the emissions trading system several times – most recently in 2021, as part of the Fit for 55 package.
The EU ETS aims to limit emissions with a cap and trade system.
An upper limit is set for the amount of emissions that companies are allowed to emit.
If these are not sufficient, allowances can be purchased.
This has been a problem in recent years.
In order to avoid the strict EU requirements and the associated costs, some companies have relocated their CO2-intensive production to countries with no or lower CO2 prices.
This phenomenon is also known as “carbon leakage” or “relocation of CO2 emissions”.
The CBAM now wants to counteract this. The goals at a glance:

General strengthening of emission reduction measures
Encouraging the reduction rather than displacement of emissions in production
Protection of companies producing in the EU from competitive disadvantages

After publication on August 17, 2023, the CBAM officially came into force on October 1, 2023.
Anyone importing emission-intensive goods into the EU is now obliged to purchase offsetting CBAM certificates.
For the time being, however, companies are granted a transitional period.
We’ll take a closer look at this in a moment – but first an important question: who does the new CO2 border adjustment system actually apply to?

Who does the CBAM apply to?

CBAM initially affects all companies that import the following groups of goods in pure or processed form from non-EU countries:

Iron and steel
Cement
Fertilizer
Aluminum
Hydrogen
Electricity

The EU reserves the right to adapt regulations and product groups until 2026.
The scope of application will therefore be extended in the future.
The new regulations cover both direct production emissions and indirect emissions from the manufacture of primary products or the electricity required.
In contrast to the recently introduced CSRD, the CO2 border adjustment mechanism does not differentiate between turnover and employee figures.
The new system is therefore mandatory for almost all companies in the manufacturing and production industry, provided they import from third countries.

Infografik: Diese Warengruppen sind vom CBAM betroffen (verarbeitet und in Reinform): Eisen und Stahl, Zement, Düngemittel, Aluminium, Wasserstoff und Strom. Die Pflicht gilt unabhängig von Mitarbeiterzahl und Bilanz / Erlösen.

Are you affected? What your company has to do now

Let’s move on from theory to practice.
After coming into force on October 1, 2023, a transition period began.
During this period, your company is only required to report.
By 2030, all products that are subject to EU emissions trading should be included in the CBAM.

Zeitstrahl: Fristen und Phasen vom CBAM 17.08.2023 Veröffentlichung CBAM-Durchführungsverordnung 01.10.2023 Inkrafttreten, Beginn der Übergangsphase 01.01.2024 Beginn der Berichtspflicht
01.04.2024 Ende der Möglichkeit, Standardwerte für THG-Emissionen zu verwenden
01.01.2025 Registrierungspflicht für CBAM-Anmelder 01.01.2026 Beginn der Implementierungsphase & Zertifikatehandel

CBAM reporting obligation: requirements and timetable

Until the end of the reporting phase, you are required to create quarterly updated reports on the goods you have imported.

This belongs in the CBAM report

Even if it sounds like a lot of work: Stick to your obligations and check your supply chains.
The CBAM Regulation provides for “proportionate and dissuasive sanctions” in the event of non-compliance.
Even in the transition phase, penalties of 10 to 50 euros per non-reported tonne of CO2 emissions are envisaged.

Das gehört in den CBAM-Bericht: Ab 1.10.2023 Quartalsbericht einen Monat nach Quartalsende. Zu berichten sind Stammdaten Ihres Unternehmens, CBAM-Accountnummer, Anzahl und Art importierter Waren, spezifische CBAM-relevante THG-Emissionen, CO2-Ausgleichspreis im Herkunftsland Ab 31.5.2026: CBAM-Erklärung zum Vorjahr (Startjahr 2026) Zu berichten sind Gesamtmenge importierter Waren, Gesamtmenge grauer Emissionen jeder Warengruppe, Gesamtzahl der CBAM-Zertifikate die den Grauemissionen zugeordnet sind – minus des im Ursprungsland entrichteten CO2-Preises

Compensation obligation and certificate trading

From 01.01.2026, the following applies: All emissions that your company has not yet offset in the country of origin of your goods must now be taxed.
To do this, you first need a CBAM registration authorization for your company’s branch.
Only “approved registrants” will be entitled to purchase certificates and import CBAM goods from 2026.
You can then purchase unlimited certificates for your company on a central platform.
It is up to the applicant to calculate the necessary compensation and purchase a corresponding quantity of certificates.
The price is based on the weekly average price of EU ETS certificates.
In principle, you should always have enough certificates available to offset at least 80 percent of the imported goods.
The certificates are valid for two years and can be surrendered.

The CBAM is here – VERSO helps

As you can see: With the CBAM regulations, your company once again has a lot on its plate.
What is intended to be a sensible and above all important step for the environment and the economy is in practice associated with a lot of bureaucracy and effort – especially when it comes to collecting all the necessary data.
With VERSO, you can avoid the data chaos.
In the CBAM module of the Supply Chain Hub, you can automatically and efficiently record all the data that the new CO2 border adjustment system requires of you.
Watch a free demo now to see how it works:

Simply record CBAM data

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

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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.

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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.

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:

Nature and scope of the company’s business activities
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
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
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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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.

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The most important questions and answers on EUDR

What is the EUDR?

Checklist for sustainable procurement

When does the EUDR come into force?

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Which products are covered by the EUDR?

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The requirements of the EUDR – step by step

1. Collect data

2. Carry out a risk assessment

3. Reduce risks

4. Document and report

Does the EUDR provide for sanctions?

What is the best way to implement the EUDR?

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

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