Hot Topic | February 2024

Insight

Impact of EU supply chain laws on US companies

A German supply chain due diligence act is already effective, with an EU-wide directive in the final stages of approval.

Bryce Ehrhardt

Bryce Ehrhardt

Managing Director, Dept. of Professional Practice, KPMG US

Marissa Gerdes

Marissa Gerdes

Senior Manager, Dept. of Professional Practice, KPMG US

More governments are seeking to regulate activities within supply chains with new laws aiming to prevent and mitigate environmental and social risks within company supply chains. Our Hot Topic takes a look at two such instances in the EU: the German Supply Chain Due Diligence Act (SCDDA), which took effect in January 2023, and the EU’s proposed Corporate Sustainability Due Diligence Directive (CSDDD). 

 

Applicability

Relevant dates

German Supply Chain Due Diligence Act 

  • Jan 1, 2023 – SCDDA took effect for companies with > 3,000 employees in Germany 
  • Jan 1, 2024 – Scope broadened to companies with > 1,000 employees in Germany 

EU’s Corporate Sustainability Due Diligence Directive 

  • Feb 2022 – Proposed CSDDD presented to the European Parliament and Council of the EU for approval 
  • Dec 2023 – Parliament and Council reached a provisional agreement 
  • 2024 and beyond
    • The provisional agreement needs to be endorsed and formally approved by the Parliament and Council. The vote in the Council was postponed in February 2024 with no new date scheduled for the vote.
    • Companies may need to comply with a final CSDDD as early as three years following its entry into force. 

Key impacts

Despite the SCDDA and proposed CSDDD being non-US directives, US and other non-EU companies would be impacted if they meet certain scoping criteria that are discussed in our Hot Topic.

Determining whether you have to comply

  • The SCDDA applies to companies (either headquartered or with a domestic branch in Germany) with > 3,000 employees (beginning 2023) and > 1,000 employees (beginning 2024) in Germany.  
  • The provisionally agreed CSDDD would cover more companies and be based on revenue and/or number of employees. For example, it would apply to non-EU companies that generate over €150 million net revenue in the EU, irrespective of whether they have a subsidiary or branch in the EU. 

Where to look within your supply chain?

  • The SCDDA applies to the entire supply chain of in-scope companies, which includes the actions of the company in its own business areas and the actions of direct and indirect suppliers.  
  • Companies subject to the provisionally agreed CSDDD would be required to assess a broader range of upstream value chain activities extending beyond direct suppliers. 

What risks are considered?

  • The SCDDA aims to prevent or mitigate human rights and environment-related risks; and end violations of both human rights and environment-related obligations.  
  • Companies subject to the provisionally agreed CSDDD would be required to assess a broader range of environmental impacts including, for example, adverse impacts on biological diversity, unlawful disposal of waste and pollution from ships. 

Reporting

  • The SCDDA requires and the provisionally agreed CSDDD would require annual reporting on due diligence measures.

 

Report contents

  • Fast facts, impacts and actions
  • Background
  • Global implications
  • Germany’s Supply Chain Due Diligence Act: scoping, obligations, reporting and noncompliance
  • The EU’s proposed Corporate Sustainability Due Diligence Directive: scoping, obligations and reporting, timeline, comparison to Germany’s SCDDA, interactions with other EU legislation  

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