Establishing an Effective Grievance Mechanism in light of the German Supply Chain Due Diligence Act
The German Supply Chain Due Diligence Act - Lieferkettensorgfaltspflichtengesetz (LkSG) – came into effect on 1 January 2023 for companies with over 3000 employees and will also become applicable for companies with over 1000 employees in 2024. The Act requires mandatory compliance on supply chain due diligence for companies headquartered in Germany as well as businesses with connections in Germany.
In accordance with the act, companies must establish robust policies and procedures – including providing a functioning complaints mechanism accessible to their workforce across the supply chain.
In complex international supply chains especially, there is limited direct access between business partners and various stakeholders who would be impacted by potential misconduct, such as employees, multiple tiers of suppliers, local communities, or other businesses. Establishing strong channels of communication between all parties proves to be beneficial in helping to mitigate and remedy potential impacts.
Grievance and Whistleblower Mechanisms are key for the prevention, detection, and remediation of corporate misconduct. They help in fostering responsible business conduct and business integrity, as well as prevent corruption and human rights violations that may arise.
What is a grievance mechanism and why is it important?
A grievance mechanism provides a clear, transparent and formalised process for addressing complaints by individuals or groups related to potential malpractices of a company across the supply chain.
The establishment of a grievance mechanism has multiple benefits:
- This open channel allows affected parties to directly communicate with businesses, instead of forcing them to choose between costly legal arbitrations or passive acceptance.
- It allows corporations to quickly gather information and listen to concerned parties directly. This information can help to identify patterns over time and enhances the risk management system ensuring corporate due diligence.
- Helps to address concerns of a wide variety early before they escalate – acting as an early warning system for companies.
- Helps provide remediation for malpractices in a simple and cost-effective way.
What makes an effective grievance mechanism?
Grievance procedures should be tailored to meet the individual needs of each organisation, bearing in mind the sector, country, culture, supply chain and workforce composition.
According to the UN Guiding Principles, the key elements to ensure an effective grievance mechanism are:
- Legitimacy – Is the mechanism trusted by its users? Is it accountable for the fair conduct of grievance processes?
- Accessibility – Is the mechanism known to all intended users? Does it provide adequate access for those who may face barriers to access?
- Predictability – Does the mechanism provide a clear and known procedure with an indicative time frame for each stage? Is the mechanism clear on the types of processes & outcomes available & means of monitoring implementation?
- Equitability – Does the mechanism ensure that parties have reasonable access to sources of information, advice & expertise necessary to engage in a grievance process on fair, informed and respectful terms?
- Transparency – Does the mechanism keep parties informed about the progress of their grievance? Does the mechanism provide sufficient evidence to build confidence in its effectiveness and meet any public interest at stake?
- Rights-compatibility – Do the outcomes and remedies accord with internationally recognised human rights?
- A source of continuous learning - Does the mechanism identify lessons for improving the mechanism and preventing future grievances and harms?
- Dialogue & engagement – Are the intended users consulted on the mechanism’s design and performance? Is dialogue used as a means to address and resolve grievances?
The criteria listed above provides a framework for the design, revision, or assessment of a grievance mechanism to help ensure its effectiveness. In light of the German Supply Chain Act (LkSG), companies must ask themselves these questions to ensure a well-functioning grievance mechanism.
Next steps
In addition to providing a credible channel for those seeking resolution, an effective grievance mechanism should act as a simple and cost-effective yet accessible means for a company to address concerns. It should serve to safeguard business interests & empower stakeholders, prevent corruption & human rights violations across supply chains, and foster responsible business conduct and business integrity.
For the Indo-German Corridor, Grievance Mechanisms hold promises. Given the labour, resource, and land-intensive nature of many key industries in India as well as the potential for social conflicts that goes along with it, establishing trusted lines of communication between companies and those impacted by their actions/witnesses of misconduct can create major benefits! The already existing mechanisms comprise different elements, are formalised or informal, and typically exist mainly for employees inside a company. Sometimes they are either sector-specific or issue-specific.
In cooperation with Alliance for Integrity (AFIN), IGCC SustainMarkets will pilot an Inter-Company Grievance Mechanism in 2023 offering the Indo-German Business Community an effective platform to ensure corporate due diligence, empower stakeholders and safeguard business interests!
Stay tuned!
