Keeping a close eye on human rights

In Germany, the Act on Corporate Due Diligence in Supply Chains (in German and hereafter abbreviated to LkSG) came into force on 1 January 2023. It obligates companies domiciled in Germany to respect human rights in their own business operations and those of their suppliers and to appoint a Human Rights Officer. At Krones, this position is held by Peter Steger who heads the Corporate Sustainability Team. The issue is nothing new for him because Krones has over the past few years already established a human rights management system focusing on prevention and correction. The Sustainability Team are now busy scrutinizing the processes already in place for compliance with the new act and modifying them as needed, together with the specialists from Purchasing, Human Resources and Sales.

Mr Steger, Ms Schwinghammer, when I hear “Supply Chain Due Diligence Act”, fair trade coffee or bad working conditions in Asian sewing factories and in mining spring to my mind. Which areas are particularly relevant to Krones in terms of human rights?

Steger: Before I go into detail, I would like to emphasise two aspects of the LkSG that are frequently overlooked. Firstly, the act applies not only to suppliers but to a company’s own operations as well. And secondly, it covers not only human rights and labour legislation but also certain obligations to preserve our natural environment in order to protect people.

Human rights can be violated in many areas. For Krones, one of the areas entailing a potential risk is the sites where we carry out work, for example. When we hear about a possible violation of labour legislation or human rights on a site, we have to follow up on the matter. That means we start by asking what exactly was observed on that site, next we check what is actually going on there and then clarify whether we need to take action, and if so, what we must do. One example in this context would be compliance with occupational safety regulations. The LkSG also considers this to be a high-focus issue of human rights due diligence.

Schwinghammer: We believe it’s vital to provide in-depth training for our employees on labour legislation and human rights. They have to know which processes are considered critical and internalise that it is both good and important for Krones to report their observations. In this way, we prevent both people from being harmed and damage to our company’s reputation.

Steger: Steel is another example here. As a plant and machinery manufacturer, Krones purchases thousands of tons of stainless steel, and smaller quantities of steel and aluminium. The dealers from whom we buy these raw materials are at the end of a relatively long supply chain which begins in a mine. By law, we are basically responsible for Tier 1, meaning our direct suppliers. With steel, that’s mainly the dealers. But the biggest risks of human rights violations do in most cases not lie with them. Steel production itself is also subject to stringent legal standards in many countries. So the real risks actually lie with the mines, and even though the LkSG says we bear only indirect responsibility for that, we have to keep our eyes open and our ears tuned and be alert to potential violations.

In the final analysis, the primary goal pursued by both the Supply Chain Due Diligence Act and the human rights management system at Krones is to protect people. We want to help all people get away from precarious human-rights situations, no matter what stage of our value chain they work in, and correct the circumstances involved. Peter StegerHead of Krones Corporate Sustainability

What will Krones change or introduce in the wake of the act?

Steger: I believe it is very important to point out that in the final analysis the primary goal pursued by both the Supply Chain Due Diligence Act and Krones is to protect people. It’s not a question of creating more red tape or judging suppliers solely by their home country’s ranking – to name just two of the typical concerns. We want to help people get away from precarious human-rights situations and correct the circumstances involved.

And I would also like to emphasise that Krones does not start from scratch here: The issue of human rights has already been firmly anchored in our Compliance and Sustainability Departments for several years now. The LkSG helps us to systematically scrutinise the processes we’ve put in place. We will not throw everything overboard but will rather pull certain levers to fine-tune some parameters or add hitherto absent due-diligence safety nets to our system, to make sure no aspect of human rights is overlooked.

Schwinghammer: The LkSG demands that a risk analysis be performed every year and defines specific topics for it, such as child labour or forced labour. The first step of the risk analysis is purely data-based, meaning certain key statistics for sectors or countries are compiled from databases. The result shows us the risks in our supply chain and in our subsidiaries deserving of prioritisation, risks to which we will have to pay special attention in order to ensure that preventive action is taken, such as social audits, e-learning or human-rights training courses. We have recently rolled out a training programme targeting employees who are in regular contact with third parties, for example on sites, in Human Resources or in Purchasing.

We are adapting our earlier risk analyses to comply with the LkSG standard. The act includes certain points that we had previously not explicitly categorised under human rights. For example, that safety and security personnel must not be deployed to exert pressure, or pollutants that are harmful to the health of the people living in the region.

We think it is important to liaise closely with the teams of Compliance, Purchasing and Supplier Management. Signing of vendor codes is mandatory, as are due-diligence checks at regular intervals.

We believe it’s vital that our employees know which processes are considered critical and internalise that it is both good and important for Krones to report their observations. Sophie SchwinghammerHuman rights expert in the Corporate Sustainability Team

How can people report their suspicion to Krones? 

Steger: An active reporting culture is crucially important to us, most of all to make sure that nobody is afraid of bringing up a suspicion. The principal goal is to protect people from harm and damage – so better make one report too many than one too few.

Everybody, no matter whether he or she is working for Krones or a third party, can be sure to remain anonymous when reporting an incident relating to environmental law or human rights through our Krones Integrity System or directly by email.

Are you getting any response from suppliers yet?

Steger: Since the act is still quite new, we’re currently seeing the whole spectrum of feedback. That ranges from “If the government wants me to do something, they should get in touch with me themselves and not send my customers instead,” right through to companies sending us documents and processes, not least in the hope that this will have a positive effect on their order intake.

I believe it is important to emphasise that this is not about blocking suppliers prematurely. After all, the act aims to improve things for people. So there is nothing to be gained from just dropping a difficult contracting party at the slightest suspicion. Rather, we will have to take a closer look in cases indicated in the risk analysis by the country of origin, for example. What does the human-rights situation look like on the spot? What is the management’s attidude? What processes have been put in place? If we find there is in fact a problem, we will attempt to solve it in mutual consultation with the supplier concerned. After all, we want to bring about an improvement.

Does the LkSG also involve customer relationships?

Schwinghammer: For our customers, we are a supplier within the meaning of the LkSG. But there have not been many queries as yet. Most of our customers are networked with us anyway and have our scorecards.

The German LkSG does not obligate us to scrutinise our customers in regard to human rights. But the draft of the CSDDD – Corporate Sustainability Due Diligence Directive – also includes the customer side. Such downstream issues have already been considered in Krones’ sustainability and human rights management systems. In due-diligence checks, we would see any violation of environmental law, for example, and then discuss further action with the sales people concerned.