Your Risks Under SCDDA
SCDDA non-compliance penalties include:
- Lost access to government contracts
- Penalty payments (up to €50,000)
- Fines (up to €800,000 or two percent of the average annual global turnover for companies earning over €400 million)
Your SCDDA Requirements
- Establish a risk management system
- Appoint a Human Rights Officer responsible for compliance with the requirements of the SCDDA
- Issue a policy statement in line with SCDDA goals
- Perform regular risk analysis
- Define preventative measures within the company’s business unit and for direct suppliers in order to avoid risk
- Take corrective action when risks are discovered
- Establish a complaints procedure
- Implement due diligence with regard to risks identified with lower tier / indirect suppliers
- Report on and document due diligence activities
Frequently Asked Questions About the SCDDA
Knowing what’s required of you under the SCDDA is important. Here are some of the most commonly asked questions about this law.
German companies with 3,000 or more employees are currently in scope of the SCDDA. This includes all companies that have their head office, principal place of business, or registered office in Germany, or via a German contract abroad. In 2024 this will be extended to companies with 1,000 or more employees.
Environmental Risks: Companies are required to comply with international treatieslike the Minamata Convention on Mercury, the Basel Convention on the illegal transboundary movement of electrical and electronic waste, and the Stockholm Convention on Persistent Organic Pollutants.
Human Rights Risks: Forced labor, child labour, unsafe working conditions, negative community impacts, etc.
The law targets both, along with a company’s overall supply chain. Additionally, to comply with the SCDDA, companies must clearly communicate expectations to their suppliers.
Companies must also conduct risk analyses and takecorrective action if a violation with an indirect supplier is found.
While the SCDDA only applies to German companies, it is part of a larger ESG trend.
Regulations like the UFLPA and proposals like the EU Forced Labor Ban are taking a hard look at global human rights and environmental risks.
Also, suppliers of German companies in scope of the SCDDA will be affected by the law.
“Substantiated knowledge” exists if the company has verifiable and serious information about a possible human rights or environmental violation through indirect suppliers. This can be interpreted both narrowly (e.g. direct complaints received through the company’s complaints procedure) and broadly (e.g. where there is public information about human rights violations in a geographical location where the company has indirect suppliers).
The primary responsibility of the “Human Rights Officer” role is to monitor the enterprise’s internal processes for fulfilling the obligations of the German SCDDA. They are also responsible for debriefing senior management on a regular basis (at least once per year) about their work. While the Act is not prescriptive about the level at which this role needs to function, it would typically be performed by someone in a technical mid-level manager role.