The Supply Chain Due Diligence Act (LkSG) at Funk

The Supply Chain Due Diligence Act (LkSG) aims to ensure human rights and environmental standards along the entire supply chain. To this end, it defines a number of protected legal statuses, the impending violation of which is to be prevented by comprehensive due diligence.

According to § 6 (2) of the LkSG, every company that falls within the scope of the LkSG must adopt a policy statement on its human rights strategy. This statement must describe how the company fulfils its due diligence obligations in its own business operations and throughout its supply chain. The human-rights-related and environmental risks that have been identified as a priority on the basis of the risk analysis must be stated. Finally, the human rights strategy policy statement defines the expectations with respect to human rights and the environment that a company places on its employees and suppliers in the supply chain.

The international guidelines for the protection of human rights and the environment are reflected in the German Supply Chain Due Diligence Act in § 2 (2) and (4) LkSG. Accordingly, Funk commits itself in particular to:

• comply with the prohibition of slavery and child and forced labour;
• comply with the provisions on occupational health and safety and working hours;
• recognise the right of all employees to form representative bodies for employees, to strike, and to conduct collective bargaining;
• equal treatment of all employees, free from any discrimination;
• provide a fair wage, at least equal to the minimum wage established by applicable law;
• not to cause harmful changes to the soil, water pollution, air pollution, harmful noise emissions or excessive water consumption;
• comply with the prohibition of causing harmful changes to the soil, water pollution, air pollution, harmful noise emissions or excessive water consumption;
• comply with the prohibition on the use of private and public security forces if this threatens to violate human rights;
• comply with the prohibition on adversely affecting human rights in a particularly serious manner through other conduct;
• comply with the prohibition of the production of mercury-added products and the use of mercury and mercury compounds in manufacturing processes as well as the improper handling of mercury waste;
• comply with the prohibition of the production and use of prohibited chemicals;
• comply with the prohibition of non-environmentally sound handling, collection, storage and disposal of waste and unauthorised export and import of hazardous waste.

Funk takes appropriate and effective measures to identify and verify human rights and environmental risks in its own operations and throughout its supply chain, and to prevent risks from materialising. If it is determined that a violation of a human-rights-related or environmental obligation has occurred or is imminent, a targeted remediation process will take place, with specific measures to end the violation and minimise its impact.

All measures taken as part of our responsibility for human rights and the environment follow the principle of "empowerment before withdrawal": we are committed to supporting our business partners in preventing and ending violations of human rights or environmental regulations before terminating business relationships or switching to alternative sources of supply.

The due diligence obligations are implemented within the framework of a risk management system for the company's own business area as well as for the entire supply chain. By integrating the due diligence obligations horizontally and vertically into all relevant business processes, Funk ensures that risks are identified and that preventive and remedial measures are implemented in a targeted manner. Risk management is implemented throughout the Group and is centrally controlled and monitored.

a) Measures for effective risk management

The risk management system establishes processes for the implementation of due diligence obligations and defines areas of responsibility, authorities and reporting lines.

The due diligence obligations are horizontally anchored within Funk. All relevant departments - Process and Quality Management, Operational Management/Purchasing, Human Resources and Legal/Compliance - are included in the implementation steps. Operationally, the implementation of the due diligence obligations is controlled by the Process and Quality Management department. It is responsible for risk reduction measures in accordance with § 3 (1) no. 2 of the LkSG and monitors the effectiveness of the internal control and risk management systems by means of regular and ad hoc audits.

The management bears overall responsibility for the implementation of the due diligence obligations with regard to human rights and the environment.

In accordance with § 4 (3) LkSG, Funk has appointed three responsible persons within the company from the areas of Process and Quality Management, Funk Consulting and Legal/Compliance, who monitor risk management for Funk's own area of business as well as the entire supply chain and carry out regular effectiveness reviews. Together with the Purchasing/Operational Management, Human Resources and Legal/Compliance departments, they work on the continuous development of the catalogue of measures to comply with due diligence obligations. They report directly to the management.

b) Identification, assessment and prioritisation of risks

Funk conducts comprehensive risk analyses regarding compliance with human-rights-related and environmental obligations within its own area of business and with its direct suppliers. In doing so, we draw on both internal and external expertise. The complexity and scale of our international supply chain requires the use of technical solutions to help us identify, verify, assess and prioritise risks.

Our risk analysis system allows us to identify the individual risks of each business partner. Based on general supplier information – in particular country of origin and industry – an abstract risk analysis is performed using a variety of recognised indices and studies by external experts. We then screen our business partners for specific human rights and environmental risks based on supplier self-assessments, verified certifications and our own findings from audits or business processes. In doing so, we take into account not only the country of origin and sector of the business partner. We also analyse product risks, trade level risks, the complexity of upstream supply chains, and a variety of other data to limit and localise risks and identify them at an early stage.

We evaluate and prioritise risks by comparing the typically expected severity of a potential breach and its irreversibility with the likelihood of it occurring. We also take into account our own potential causal contributions and the degree to which we can influence matters in order to prioritise risks and take targeted action where there is a likelihood of risks materialising. With the help of a risk matrix, we identify our need for action and initiate preventive and remedial measures where necessary.

c) Taking preventive action

The extensive risk analysis is supplemented by appropriate and effective preventive measures.

Within Funk's own area of business, internal company guidelines apply that clearly and comprehensibly summarise the expectations placed on employees and their rights.

Funk offers extensive training and development opportunities for employees to take advantage of. The employees entrusted with the implementation of due diligence obligations with regard to human rights and the environment regularly participate in further training measures in order to be able to implement the international requirements for human rights and environmental protection throughout the entire supply chain. We provide training and development opportunities to our business partners to enable them to contribute to the protection of human rights and the environment in their business area.

We conduct regular and case-by-case reviews of our own business operations to identify and minimise risks. We monitor our business partners to the extent permitted by law and regulations. In particular, direct suppliers are carefully screened before we enter into new business relationships.

We require business partners to pass on our expectations with respect to human rights and the environment in the supply chain and to check compliance with them on an ongoing basis.

d) Taking remedial action

Effective remedial measures must be taken if the violation of a human-rights-related or environmental obligation occurs or is directly imminent.

Funk initiates remedial measures as soon as a violation is identified. In doing so, we develop tailor-made remedial measures for each situation and each direct or indirect supplier in order to put an end to violations in a targeted manner. At the same time, we have developed a set of modular framework measures that can be activated immediately and filled with specific content in response to violations.

For each remedial measure, we define a process, targets that denote success, and a clear internal company responsibility. Each remedial measure contains a concrete schedule and can be furnished with interim goals. The system-supported measures processes connect all relevant actors in a network.

e) Following up on information

An effective complaints procedure that is accessible to all those affected in the supply chain - from employees to suppliers to third parties affected by our or our suppliers' activities - plays an important role in identifying risks and violations in the supply chain. It is important that information can be submitted anonymously and confidentially.

Our whistleblower system, accessible via our website, email and telephone, recognises the complexity of our supply chain. Barriers to access are kept low to make reporting as easy as possible.

Tip-offs are handled confidentially and promptly. The employees involved in processing the information are not subject to any instructions within the framework of complaints management; their neutrality is maintained. Each complaint triggers an evaluation and action process that ends with the cessation of the reported violation or the minimisation of an identified risk.

Tip-offs and complaints are also taken into account in the risk analysis.

f) Documentation and reporting

The implementation of all due diligence obligations is continuously documented. Through a central risk management system, we collate all available information on identified risks and the preventive and remedial measures taken.

We are also committed to transparent communication on human rights and environmental challenges that Funk is facing. Through our public reporting, we communicate identified risks, measures taken and progress made at least annually.

Funk is committed to continually reviewing, developing and improving its own measures. The effectiveness and validity of all human-rights-related and environmental due diligence obligations must be guaranteed at all times. Effectiveness will be reviewed on a case-by-case basis and at least annually.