The “Act on Corporate Due Diligence in Supply Chains” was passed by the Bundestag in June 2021 and will come into force in a few days – on January 1, 2023. It initially covers large companies with more than 3,000 employees, and from 2024 also companies with more than 1,000 employees.
What does this mean for companies? From Sunday, they must identify risks of human rights violations and environmental destruction at direct suppliers and, if necessary, also at indirect suppliers (i.e. those commissioned by third parties), take countermeasures and document these to the Federal Office of Economics and Export Control (BAFA).
Supply chain law represents a milestone
It is widely regarded as a milestone, especially beyond Germany’s borders, as the new supply chain law forces companies to take responsibility for the conditions in their supply chains. But there is still room for improvement, such as the inclusion of small and medium-sized businesses, a liability rule under civil law and more detailed environmental and climate protection rules that need to be worked out in the future.
“The signature of the business lobby and the Union is clearly recognizable in the law. Above all, there is no civil law liability rule that better protects those affected. In addition, the law neglects many aspects of environmental and climate protection. It is also shocking that the same actors use global crises such as the corona pandemic and the Russian war of aggression against Ukraine as an excuse to prevent the law from coming into force on January 1st,” comments Johanna Kusch, coordinator of the alliance “Initiative Supply Chain Act,” in a statement.
Effective implementation is important
Heike Drillisch, coordinator of the CorA network for corporate responsibility, is now concerned with implementation: “In Germany, binding due diligence obligations finally apply to large companies. The Supply Chain Due Diligence Act must now be effectively implemented by BAFA, also in close cooperation with civil society and representatives of those affected. Precisely because official control is the only lever for enforcing the law, it has to be effective,” she warns.
“BAFA must make full use of its powers, set up effective test criteria and carry out risk-based controls at companies,” demands Drillisch. “Evidence of certifications or involvement in industry initiatives alone is not sufficient evidence that due diligence has been observed – examples such as the dam failure in Brumadinho, Brazil, have proven this.”
Sufficient staff must also be available for this: “The law also provides that the authority can act upon the request of those affected. This application process must be designed to be accessible, legitimate and predictable in accordance with the UN Guiding Principles on Business and Human Rights. The prerequisite for good implementation is that the responsible department of the Federal Office of Economics and Export Control is assigned sufficient staff,” says Drillisch.
Germany takes on a pioneering role in Europe
In view of the current EU negotiations on European supply chain regulation, Drillisch points to the pioneering role and role model function that Germany is assuming in official enforcement for Europe.
On December 1, 2022, the European Council of Member States decided its position on a proposal by the European Commission in this regard. The position of the European Parliament is expected in May 2023, after which all three institutions must agree on a common regulation.
“What we need now is good implementation in Germany and a commitment to strong EU regulation that can permanently close the gaps in German law. With a view to a European regulation, the federal government must keep its promise from the coalition agreement and campaign for an effective EU supply chain law in the coming year,” demands Kusch.