New legal obligation for German companies and their suppliers

The Act on Corporate Due Diligence in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG), which Germany adopted in mid-2021, will come into force on January 1, 2023 and will apply to German companies employing more than 3,000 employees. From January 1, 2024. it will also apply to those employing 1,000 or more employees.

On the basis of this Act, an obligation was introduced for German companies to take responsibility for activities carried out by their partners, which threaten human rights and the environment, whether it is the acquisition of input components that German companies further process or the sale of their final products.

Important information is that the Act will apply to all Serbian companies that have business cooperation with German companies.

Pursuant to this Act, German companies will have to establish processes within which they will identify potential risks to human rights and the environment within their supply chains, perform their assessment, introduce preventive measures and steps to eliminate the identified risks, and will also have to submit reports on how they fulfill their obligations. These obligations will be reflected on companies from the supply chain, which will inevitably have to participate in this entire process of identifying and eliminating risks, and also introduce some new, required procedures in their own business processes as a necessary step in eliminating the previously determined risk.

Financial penalties are foreseen for the violation of legal provisions, as well as measures such as a three-year ban on concluding contracts in the framework of public procurement.

The EU Directive, which is being prepared and whose adoption is expected in 2023, has similar intentions. It will be binding for all companies registered on the territory of the European Union, if they fall into one of the two groups defined on the basis of the number of employees (more than 500 or 250) and the turnover achieved worldwide (more than 150 or 40 million EUR). However, the Directive will also apply to companies that are established outside the EU, but within the EU they generate turnover within one of the two mentioned groups.

Considering the expected impact of these legal changes on Serbian companies as well, the Serbian Association of Employers will continue to monitor developments in this area and to report on it to its members and the domestic economic scene.

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