Due Diligence in Supply Chains – a look at the Czech Republic

published on 15 September 2022 | reading time approx. 4 minutes

In summer 2021, the Federal Republic of Germany passed a law on corporate due dili­gence in supply chains (the Supply Chain Act), joining other European and non-European countries (e.g. the Netherlands, the UK and the USA) that have already enacted legislation addressing this area. In the Czech Republic, there is currently no comprehensive legislation regulating ethics and due diligence in supply chains.

This is another reason why the EU, given its obligation to stand up for and promote EU values, seeks to unify, or at least harmonise legislation in the Member States.

However, it cannot be said that the Czech Republic has not addressed this issue at all – for example, the “Council for Quality of the Czech Republic” plays an important role here, although its efforts have not yet resulted in the enactment of new legislation in this area. The Council is an advisory and coordinating body of the Czech government, dealing with the issue of Corporate Social Responsibility (CSR). The Quality Council proposes national CSR action plans, which are subsequently adopted by the government. These plans are intended to form the basis for the dissemination and promotion of CSR-related concepts within the Czech economy. The aim is to raise awareness of CSR at Czech companies. The agenda of the Council for Quality of the Czech Republic also includes a National Action Plan for Business and Human Rights, which covers a period of five years and aims to link business activity and human rights.

This is another reason why various methods for the prevention of unfair practices within supply chains are increasingly coming into play in the Czech Republic, and why corporate decision-makers are giving greater attention to sustainability.  

One of the most common tools for the prevention of undesirable conduct are so-called codes of ethics or codes of conduct. These are documents that Czech companies draft themselves in order to lay down certain prin­ci­ples that the companies that drafted such codes undertake to observe. Such documents typically set forth principles in the area of environmental protection and rules to be adhered to in business relationships. With such a code or codes, a company can also make a commitment, for example, not to tolerate discrimination against employees in supply chains, to report suspected corruption or to refrain from doing business with suppliers and other business partners who are involved in money laundering or support terrorism through their activities.

In most cases, however, the codes in question focus on the protection of the human rights of employees at the "lower levels" of the supply chain. With such documents, a company can ensure that a supplier respects the rights of workers to a decent working environment and decent working conditions, and that the supplier also complies with health and safety regulations at work. For example, a code may stipulate that adequate breaks between work shifts and adequate sanitary conditions for employees must be observed.

Codes of conduct may be attached to contracts between business partners or suppliers, and by signing the contract containing the code, both parties agree to comply with it.

Compliance with a Code of Conduct may be enforced. In most cases, this is accomplished by directly inspec­ting certain facilities (those of suppliers, etc.) for compliance with the regulations in question. Such inspections may be announced or unannounced. The buyer (the company trading with the supplier) may carry out the checks itself, or it may use an independent party to do so. Independent inspections are provided by various companies, including international ones, such as TÜV Süd or Intertek.  

If violations of the rules stipulated in the applicable Code of Conduct are found during inspections, the com­pa­ny has two options: The first is to encourage the supplier to remedy the deficiencies in its conduct – for example through additional training. Or there is also the possibility of terminating the contract with the supplier (if, for example, the training did not have the desired effect).

In addition to the legal provisions in effect in the Czech Republic, there are also certain international standards and norms that also regulate CSR. These international standards and norms are not binding and compliance with them is voluntary. One of these standards is the Tripartite Declaration of Principles concerning Multinational Enterprises (MNE Declaration). This Declaration is intended to ensure that companies also comply with international principles relating to labour standards (e.g. they take into account UN resolutions and the UN Guiding Principles on Business and Human Rights).

In addition, many Czech companies are involved in the framework of international CSR and sustainability instruments and standards. In this respect, the proposal for a new EU Directive on corporate due diligence in the field of sustainability, presented by the Commission at the end of February 2022, is also of great signi­fi­cance for large companies in the Czech Republic, especially for large and multinational companies that exceed certain thresholds as concerns the number of employees and global annual turnover (€150 million and more). For these companies, the directive will impose obligations not only in the area of human rights, but also with regard to environmental protection. Such obligations will also be required to be enforced within supply chains.

Other international CSR programmes and standards that many Czech companies comply with include the SA8000 certification standard, which specifies certain requirements in the areas of child labour, occupational safety and health and with regard to discrimination in the workplace, and the ISO 26000, ISO 9000 and ISO 14000 recommendation standards.

It is therefore clear that Czech companies are increasingly taking voluntary measures to implement and uphold sustainability and CSR. Nevertheless, this issue should be regulated more comprehensively by law, whether for reasons of better enforceability or at least in the interest of greater clarity. It can be assumed that, on the basis of the new EU directive, the Czech Republic will join Germany and other countries that have already enacted such laws.