Let’s start with the basics: What is SAQ 5.0? The Sustainability Assessment Questionnaire (SAQ) is a sustainability tool for automotive suppliers. It has been developed by Drive Sustainability, a partnership of 16 car manufacturers. Drive Sustainability partners include BMW Group, Daimler Truck, Ford, Honda, Jaguar Land Rover, Mercedes-Benz, Scania, Toyota, Volkswagen Group, Volvo Group and Volvo Cars. The SAQ is revised every two years, and the latest version is SAQ 5.0.
Drive Sustainability’s objective in developing SAQ 5.0 is to drive sustainability throughout the automotive supply chain by promoting a common approach within the industry. SAQ 5.0 is designed to indicate and verify supplier compliance with social, environmental and governance responsibilities. The principles are consistent with applicable laws and international standards such as the UN Guiding Principles on Business and Human Rights, ILO Conventions, OECD Guidelines for Multinational Enterprises, the Paris Agreement, etc. In this newsletter we will compare the SAQ 5.0 topics with EU and German legislation such as the Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz – LkSG), the Whistleblower Protection Act (Hinweisgeberschutzgesetz – HinSchG) and the EU-level Corporate Sustainability Reporting Directive (CSRD).
A general look into SAQ 5.0
SAQ 5.0 has 22 main questions divided into 8 sections, namely:
- Company management,
- Human rights and working conditions,
- Health and safety,
- Business ethics,
- Environment,
- Responsible supply chain management,
- Responsible sourcing of raw materials and
- Additional information.
Each of the above sections contains detailed and sub-questions to assess the automotive supplier’s performance within the topic, with the supplier receiving an indicative score at the end of each section. In essence, certain sections correlate with the obligations of German companies under the LkSG, HinSchG and CSRD.
For example, the questions in the Responsible Supply Chain Management section resemble those in the LkSG. Questions in the Business Ethics section touch on articles in the HinSchG, and finally, in the Corporate Governance, Business Ethics and Environment sections, the topics are similar to those in the CSRD. Let’s dive in and compare the laws with SAQ 5.0.
LkSG
The LkSG is a German Act on corporate due diligence obligations for the prevention of human rights violations in supply chains. It applies to German companies with more than 1.000 employees.
Human rights violations in the LkSG include child labour, all forms of slavery, disregard for freedom of association, disregard for occupational health and safety obligations, unequal treatment in employment, for example on the grounds of national and ethnic origin, and causing any harmful soil change, water pollution, harmful noise emissions, etc. (§ 2 LkSG).
To prevent or minimise risks to human rights or the environment, the LkSG requires companies to establish a risk management system, designate a responsible person within the company issue a policy statement and establish a complaints procedure as a due diligence obligation in their supply chains (§ 3 LkSG).
In the Responsible Supply Chain Management section of SAQ 5.0, the first question is whether the company has a specific supplier code of conduct or company policy document to promote healthy working conditions, human rights and environmental responsibility throughout the supply chain (F.18. SAQ 5.0).
If the answer is “yes” to having such a document, SAQ 5.0 considers certain areas for scoring (F.18.a SAQ 5.0). The areas that should be addressed in the supplier code of conduct essentially correspond to the human rights risks listed in the LkSG, such as child labor, all forms of slavery, disregard for freedom of association, disregard for occupational health and safety obligations and discrimination. (§ 2 para. 2 LkSG).
Another section of SAQ 5.0 to consider is the Company Management section (SAQ 5.0 A.). Question A.1a. asks whether the company has a management person responsible for Social Sustainability. Social Sustainability relates to practices that contribute to the quality of life of both employees and communities that may be affected by the company’s operations. SAQ 5.0 notes that for companies that fall within the scope of the LkSG, the official responsible for social sustainability may also be considered responsible for human rights issues as required by the law. Secondly, question A.2c. specifically asks whether the company reports annually on the fulfilment of statutory due diligence obligations (e.g. the LkSG). Therefore, compliance with the LkSG on due diligence obligations would tick a box in SAQ 5.0.
HinSchG
The HinSchG mandates the protection of whistleblowers who have obtained information about alleged violations of laws in connection with the company’s business activity or their professional activity and reported such information (§ 1 HinSchG). Violations that fall within the material scope of application of HinSchG include, but are not limited to, anti-money laundering, environmental protection, competition rules, applicable tax laws, and protection of personal data, etc. (§ 2 HinSchG).
Companies with at least 50 employees are obliged to set up internal reporting offices (§ 12 HinSchG). Whistleblowers are comprehensively protected against reprisals or retaliation during the operation of the reporting offices within the scope of the HinSchG (§ 1 & § 36 HinSchG).
Right at the beginning, under Company Management section, SAQ 5.0 asks whether the company has a grievance mechanism or documented complaint procedure (A.4. SAQ 5.0). If the answer is “yes”, the sub-questions continue topics such as keeping the identity of the complainant confidential, commitment to non-retaliation against complainants, anonymous reporting, acknowledgement of receipt provided to complainant, complaints regarding human rights, environment, and unethical business practices, making the complaint mechanism available to company employees, direct and indirect suppliers, etc. (A.4a-4c SAQ 5.0).
These questions correspond to the obligations under the HinSchG, such as maintaining the confidentiality of identity (§ 8 HinSchG), operating the established internal reporting office (§ 13 HinSchG), processing the reports received anonymously (§ 16 HinSchG), confirming the receipt of a report (§ 17 HinSchG) and so on. These questions also correlate with the LkSG’s obligation to establish a complaints procedure that allows for the receipt of human rights and environmental-related complaints (§ 8 LkSG). Therefore, complying with HinSchG and LkSG would help German companies to tick most of the boxes listed under Company Management section.
Whistleblowing and protection against retaliation is also mentioned in question 9a of the SAQ 5.0’s Business Ethics section. In this section, SAQ 5.0 asks whether the company has a policy covering business ethics issues, including whistleblowing and protection against retaliation. In contrast, the HinSchG does not require companies to have a policy on whistleblowing systems. However, companies under HinSchG can improve their score in SAQ 5.0 by adding whistleblowing and protection against retaliation to their existing or new policies.
CSRD
The CSRD is a European Union (EU) Directive, entered into force in 2023, that aims to improve the transparency and comparability of sustainability reporting in the EU. German companies within the thresholds of the CSRD are required to publish a sustainability report in accordance with the European Sustainability Reporting Standards (ESRS).
Sustainability reporting is first mentioned in SAQ 5.0 in question 2 of the section Company Management. With a maximum indicator of a 3.75 %, it can be argued that SAQ 5.0 places importance on having a sustainability report. SAQ 5.0 lists the Global Reporting Initiative (GRI) standards as an example of an internationally recognised standard for the basis of the information in the sustainability report. As SAQ 5.0 was last updated in 2022, it only mentions the Non-Financial Reporting Directive (NFRD, Directive 2014/95/EU) as another source of non-financial disclosures. It is likely that in 2024, when the SAQ is updated, the CSRD will be mentioned as background information in the SAQ 6.0 as sustainability reporting regulation.
In addition to the reporting itself, the SAQ 5.0 also assesses the sustainable practices embodied within the company. The Environment section is dedicated to questions about the company’s sustainability performance, such as the existence of an environmental policy, including a commitment to legal compliance, continuous measurement and improvement of environmental performance, environmental and energy management systems, use of electricity and heating/cooling from renewable sources, GhG reduction targets, CDP score on climate change, etc. (E.10-17c SAQ 5.0).
The topics listed in the Environment section of SAQ 5.0 are similar to those in the ESRS, under the topics of climate change, pollution, water and marine sources, and biodiversity and ecosystems (ESRS E1, E2, E3 and E4). Of course, ESRS reporting is much more than just listing environmental issues. It also includes social and governance issues, where these are already included in SAQ 5.0 with a reference to “sustainability reports being in line with international standards”.
Conclusion
In conclusion, achieving a good SAQ 5.0 score is not hard as imagined. SAQ 5.0 presents an opportunity for German automotive suppliers to align their sustainability practices with not only industry expectations by simply being compliant with German legal requirements. By ensuring compliance with laws such as the LkSG, HinSchG, and the CSRD, German automotive suppliers are inherently positioned to achieve good scores in the SAQ 5.0 assessment. No matter a company is required to comply with German laws or not, it is clear that compliance with these legislations serves as a strategic advantage in achieving good scores in the SAQ 5.0, thereby enhancing a German supplier’s sustainability profile and market position.