On January 1, the new German supply chain act came into force, obliging German businesses to identify and account for their impact on human rights – such as forced and child labour, forced evictions, oil pollution and land grabbing – across overseas direct suppliers and, when necessary, also indirect suppliers. Adopted in 2021, the bill was a long-overdue legislative starting point with room for improvement, expected to come at the EU level.
The new law represents an important shift away from purely voluntary corporate social responsibility. According to studies by the European Commission and the German government, many companies do not sufficiently fulfil their responsibilities across global supply chains on a voluntary basis. Less than one in five German companies monitor their foreign subsidiaries and contractors for human rights violations.
The new law lays down due diligence obligations that are based on the UN Guiding Principles and creates strong regulatory oversight and enforcement. If companies violate their obligations, they can be fined by the competent authority, based on the severity of the offense as well as the company’s total turnover. If victims of corporate abuse assert that their rights have been violated or threatened, the authority must investigate the breach and take action. Affected parties can also authorize NGOs and trade unions to raise legal claims on their behalf directly before German courts, thereby reducing some barriers to access to justice.
Despite being a major achievement, the law also falls significantly short on many aspects. In the case of indirect suppliers, companies are not required to conduct risk analyses proactively and systematically, which is incompatible with the UN Guiding Principles. Without knowing the risks, companies cannot adequately avoid them.
Moreover, it does not provide for a new cause of action in civil law, which would allow affected parties to more easily sue companies before German courts for damages suffered. It even partially undermines the participation of affected stakeholders in the due diligence process and remediation.
Environmental obligations are limited to three conventions ratified by Germany aimed at protecting health, while biodiversity loss and climate change are not covered. Instead, a general clause relating to environmental damages is needed.
Similarly, gender-based violence and discrimination, as well as indigenous rights under ILO Convention 169, are not listed in the law, even though such violations are widespread along global value chains.
The bill initially applies to companies with 3,000 or more employees but will expand from 2024 onwards to companies with 1,000 or more employees with a registered office or branch in Germany. According to the Initiative Lieferkettengesetz, the number of businesses covered is too low.
In a 2020 survey, 75% of Germans supported the bill. As part of their election campaigning for the German Federal election in September 2021, various German political parties have publicly committed to strengthening the German law at EU level.
Although Germany is only the second EU country to adopt binding horizontal legislation of this sort, the development is part of a larger movement across Europe. Similar legislation is currently being considered in the Netherlands, Austria, Belgium and Finland.
Want to know more about the German supply chain law? Check out the full briefing by Initiative Lieferkettengesetz.