A toxic mix of COVID-19, regulation and liability will further heighten focus on supply chain risk in 2022

The disruption wrought by the pandemic upon global supply chains propelled the issue to the top of the board agenda – new legislation and an evolving risk landscape will keep it there.

The supply chain issues generated by widespread and prolonged COVID-19 lockdowns will continue to dominate the global economy through 2022. Disrupted patterns of consumer demand and product supply will persist, exacerbated by knock-on factors including port backlogs and truck driver shortages. Meanwhile, cyberattacks on supply chains quadrupled in 2021 and the combination of organisations’ ever-growing dependence on digital systems and the growth of organised cybercrime into a sophisticated global business to exploit them will ensure this trend continues. Cyber security will become an indispensable facet of supply chain protection.

Company boards will also have to turn their attention to compliance with a raft of new supply chain regulation. In Germany, the Supply Chain Act comes into force in 2023, the result of a perceived lack of self-regulation of companies in order to avoid human rights violations by suppliers. The law now obliges companies to ensure that they and their suppliers respect human rights. Failure to do so could result in fines of up to two percent of the company’s average annual turnover.

Elsewhere, the EU's plan for mandatory supply chain due diligence will gain pace. The European Commission’s draft supply chain directive is expected to be adopted in January 2022 and implemented into national law across the EU 27 member states within 24 months. This will see the creation of a liability regime under which corporations can be held liable under national law for damages resulting from potential or actual adverse effects on human rights, the environment or good governance which they, or companies controlled by them, have caused or contributed to by their acts or omissions, and shall provide for redress. Companies have no time to waste in beginning their preparations for the due diligence requirements they will face.

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