The Supply Chain Due Diligence Act (LkSG) at Funk

The Supply Chain Due Diligence Act (LkSG) pursues the goal of ensuring human rights and environmental standards along the entire supply chain. It defines a number of protected legal statuses for this purpose, and the threat of any violation of these is to be prevented by extensive due diligence.

According to § 6 (2) LkSG, each company falling within the scope of the LkSG must adopt a policy statement on their human rights strategy. This must describe the procedure by which a company complies with its due diligence obligations in its own business area and throughout the entire 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 protecting human rights and the environment are reflected in the German Supply Chain Due Diligence Act in § 2 (2) and (4) LkSG. Accordingly, Funk commits, 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 reasonable wage, at least equal to the minimum wage established under applicable law;
• comply with the prohibition on causing harmful changes to the soil, water pollution, air pollution, harmful noise emissions, or excessive water consumption;
• comply with the prohibition of unlawful eviction or dispossession of land, forests and waters;
• 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.

Funktakes appropriate and effective measures to identify and verify human rights and environmental risks in its own business area and throughout the entire supply chain and to prevent risks from being realised. If it is determined that the violation of a human-rights-related or environmental obligation has occurred or is directly imminent, a targeted remedial process will take place, within the framework of which individual measures will be taken to put an end to any violation and to minimise its consequences.

All measures taken within the framework 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 we abandon business relationships or switch to alternative sources of supply

The due diligence obligations are implemented for our own area of business as well as the entire supply chain within the framework of a risk management system. 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 in a Group-wide manner and is centrally controlled and monitored.

a) Measures for effective risk management

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

The due diligence obligations are anchored horizontally within the Funk. All relevant departments – Process and Quality Management, Operational Management/Purchasing, HR 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 bears the responsibility for risk reduction measures per § 3 Abs. (1) No. 2 LkSG and checks the effectiveness of the internal control and risk management systems within the framework of regular and ad hoc audits.

The management has overall responsibility for the implementation of the due diligence obligations relating 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 further development of the catalogue of measures for complying with the due diligence obligations. They report directly to the management.

b) Identifying, evaluating and prioritising risks

Funk carries out comprehensive risk analyses with regard to 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 that help us to identify, verify, evaluate and prioritise risks.

Our risk analysis system makes it possible to determine the individual risks of each business partner. Based on the general supplier information – in particular, country of origin and industry – an abstract risk analysis is carried out based on a large number of recognised indices and studies by external experts. On the basis of supplier self-assessments, proven certifications and our own findings from controls or business processes, we then check business partners for concrete human rights or environmental risks. In doing so, we do not only take account of the country of origin and the industry of the business partner. We also analyse product risks, trading 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 possible infringement and its irreversibility with the probability of occurrence. We also take into account our own possible causal contributions and the degree of our ability to influence matters, in order to prioritise risks and take targeted action where there is a threat that risks will be realised. 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 educational opportunities that employees can take advantage of. The employees entrusted with the implementation of the due diligence obligations with respect 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 offer our business partners training and further training opportunities so that they, too, are empowered to help uphold human rights and environmental protection in their business area.

We carry out checks both regularly and on a case-by-case basis within our own area of business in order to identify and minimise risks at an early stage. We control our business partners within the framework of legal possibilities and regulations. In particular, before we enter into new business relationships, direct suppliers are subjected to a careful review.

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 immediately after identification of a corresponding violation. In doing so, we develop tailor-made remedial measures for every situation and every direct or indirect supplier in order to put an end to violations in a targeted manner. At the same time, we have developed a number of framework measures that, in line with a modular principle, 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

A functioning complaints procedure that is accessible to all those affected in the supply chain – from employees to suppliers to third parties who are affected by our or our suppliers' activities – plays an important role in identifying risks and violations in the supply chain. It is important here for tips to be able to be submitted anonymously and confidentially.

Our whistleblower system, which is accessible via our online presence, via email and by telephone, takes into account the complexity of our supply chain. All barriers to access are set low in order to make submitting reports as easy as possible.

Tip-offs are handled confidentially and promptly. The employees involved in the processing of 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 that are submitted are also taken into account in the risk analysis.

f) Documentation and reporting

The implementation of all due diligence obligations is continuously documented. By means of a central risk management system, we combine all information that is available to us about identified risks and the preventive and remedial measures taken.

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

Funk undertakes to continuously review, develop and improve its own measures. The effectiveness and validity of all human-rights-related and environmental due diligence obligations must always be guaranteed. Efficacy reviews take place on a case-by-case basis and at least annually.