Legislation Update: German Supply Chain Law

If passed the German supply chain law will add considerable momentum to the trend across the EU, as seen in France’s Vigilance Law, the Dutch Child Labour Due Diligence Law, and most recently, the European Commission’s plans to develop a legislative proposal for mandatory human rights due diligence by 2021. Against this backdrop, Germany will join a host of large European economies to place mandatory human rights due diligence at the top of their agendas. 

Labour Minister Hubertus Heil called the German legislation “the most ambitious” in the world and stated that he hoped it would “set a standard” for the rest of Europe. Only time will tell whether this will be the case but the law has the potential to do just that. With an obligation to map supply chains and take corrective actions, as well as a controlling body to carry out checks and impose fines, the law may well raise the bar in implementing mandatory due diligence. The current iteration does however fall short of previous drafts by omitting civil liability for harm caused to people overseas. The frequency with which this continues to appear in early drafts of due diligence legislation suggests that the idea is here to stay and should not be discounted. 

European nations continue to progress towards mandatory due diligence at different paces, with Switzerland’s far-reaching proposal to introduce new human rights and environmental due diligence and corporate liability obligations failing to get the required majority in a referendum. The counter proposal will see due diligence limited to conflict minerals and child labour, with broader human rights and environmental issues subjected to a less ambitious reporting obligation, similar to that of the Non-Financial Reporting Directive. As we have previously discussed, the distinction between due diligence and reporting is significant.  

What will be expected of companies under the new German supply chain law? 

Full details, requirements, and implications for companies are not yet known but the press release from the Federal Ministry of Labour and Social Affairs give us an indication of what to expect. 

At the time of writing the scope will encompass companies that are resident in Germany (meaning strong domestic connection and that entrepreneurial management decisions are taken in Germany). The Labour Minister has indicated that it will apply to companies with over 3,000 employees, before being rolled out to include those with 1,000 employees from 2024.

The corporate due diligence obligations defined in the law will be derived from the requirements of the UN Guidelines for Business and Human Rights (and) the OECD Guidelines for Multinational Enterprises. The draft contains various obligations, such as a duty to conduct risk analysis and take measures if violations are discovered. There is also an obligation to transparently and publicly report on actual and potential human rights violations caused by the company’s actions. 

It should also be noted that the due diligence expectation will be proportionate to scale and circumstances of the business, including: the type of business activity and its individual context, probability of risks materialising, and ability to influence other parties in the supply chain.

Penalties for failure to comply with the Act have not yet been finalised. According to the German supply chain law draft, if the company’s annual turnover exceeds 400 million euros, a fine of up to 2% of worldwide turnover could be issued. Companies with large fines may also be excluded from public contracts.

What can Ardea do to help you address these due diligence expectations?

In order to keep track of the rapidly forming patchwork of regulations, Ardea have developed a human rights and environmental mandatory disclosure and due diligence supply chain legal register that consolidates all of the human rights legislation discussed above, amongst other existing and incoming legislation from jurisdictions across the world.   

To learn more, you might like to attend our NEW Business and Human Rights- Online Training and Support Programme

This online training and support programme will provide you with the information you need to understand human rights and business issues and gives you a practical guide on how to be compliant with the relevant laws and guidelines, including adherence to the UNGPs and reference to relevant international law. As an introduction to B&HR, we have developed a 30 minute e-learning: Business and human rights: 7 steps to implement the UNGPs

We are also able to offer this workshop on a bespoke basis to companies. If you are interested in discussing this option, please email us.

We also have  a range of free and paid resources on our website and we hope that you will enjoy browsing! 

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