More fairness in global supply chains – Germany leads the way
The downside of globalisation: Many products and raw materials that make our life in Europe more comfortable are produced or mined under unacceptable environmental and working conditions, with workers being paid a pittance or even using exploitative child labour.
Seeking to change that, the German government agreed on the draft Act on Corporate Due Diligence in Supply Chains (supply chain law). The Federal Cabinet adopted the draft legislation on 3 March 2021. It was passed in parlament on 11 June 2021.
The aim is to improve the protection of human rights all along global supply chains, preventing, for instance, child and forced labour and banning substances that are harmful to people and the environment. Companies in Germany have a responsibility to help protect human rights, too. They must ensure that fundamental human rights standards are respected in their supply chains.
The German government is pushing for the adoption of EU-wide legal standards for fair global supply and value chains. As this can be expected to take some time yet, Germany is taking the lead by adopting national legislation.
Key provisions of Germany’s Act on Corporate Due Diligence in Supply Chains
1. Clear requirements – for the first time – for corporate due diligence obligations
- This creates legal certainty for companies and affected persons.
2. Responsibility for the entire supply chain
- Corporate due diligence obligations apply in principle to the entire supply chain – from the raw materials to the completed sales product.
- The requirements that companies must meet are tiered, based in particular on the degree of influence the company has on those committing the human rights violation and also based on the different stages within the supply chain.
- Companies must take action if there are clear indications of violations being committed.
3. External monitoring by a government authority
- An established government authority, the Federal Office for Economic Affairs and Export Control, is tasked with monitoring compliance with the law.
- It checks company reports and investigates any grievances. If it identifies any violations or failures it can impose fines or exclude companies from public procurement procedures.
4. Better protection of human rights
- Not only can people whose human rights have been violated continue to use the German courts to get their rights upheld, they can now also report their grievances to the Federal Office for Economic Affairs and Export Control.
Facts you didn’t know about supply chains...
Supply chain law FAQs
To whom does the law apply?
Initially, starting in 2023, it will apply to companies with more than 3,000 employees – this means over 600 companies in Germany.
From 2024 on, it will apply to companies with more than 1,000 employees – this means about 2,900 companies in Germany.
A review of the scope of the law will take place after 2024.
What obligations will companies face?
Corporate due diligence obligations apply to the entire supply chain – from the raw materials to the completed sales product.
The requirements that companies must meet are tiered based on the different stages within the supply chain:
- the company’s own business operations,
- direct suppliers,
- indirect suppliers.
And based on:
- the kind and extent of the business activity,
- the degree of influence the company has on the one directly committing the violation,
- the typically expected severity of the violation.
The requirements are tiered based on the degree of influence the company has within the supply chain:
The company itself and direct suppliers must:
- draft and adopt a policy statement on respecting human rights,
- carry out a risk analysis: by implementing procedures for identifying negative impacts on human rights,
- engage in risk management (including remedial measures) to prevent potential negative impacts on human rights,
- establish a grievance mechanism,
- implement transparent public reporting.
In the event of a violation of rights, the company must immediately take steps to remedy the situation in its own area of business, steps that will necessarily cause the violation to cease. In addition to that, it must also introduce further prevention measures.
If the company is not able to end the violation in the case of a direct supplier in the foreseeable future, then it must draw up a concrete plan to minimise and avoid the problem.
For indirect suppliers:
In this case the due diligence obligations apply only as warranted by the circumstances.
If the company learns about a possible violation by an indirect supplier, then it must immediately:
- conduct a risk analysis,
- implement a strategy to minimise and avoid the problem,
- firmly establish appropriate prevention measures vis-à-vis the one committing the violation.
How will the law be implemented?
The Federal Office for Economic Affairs and Export Control will ensure the effective implementation of the law.
- Infringements of the law may result in fines.
- Companies found to have committed serious infringements may be excluded from public procurement procedures for up to three years.
- At the same time, there will be substantial government support programmes for companies.
Nongovernmental organisations do not themselves have any right of action, they can, however, support people affected by non-compliance in pursuing their case before the German courts.
Don’t we need common European rules?
The long-term goal continues to be a uniform European set of rules. A national law is an important interim step and can impact EU legislation.
The then Development Minister Müller stated "Other EU member states have comparable rules, but they are less ambitious. With its supply chain law Germany is sending a strong signal across the European Union for fair globalisation! Our prosperity and economic success must not be rooted in human rights violations in our supply chains."
Do you have any more questions about the law?
More answers can be found here.