"Observe human rights due diligence": This is what German companies have to do with the Supply Chain Act

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On January 1st, the time has come - the Supply Chain Act will come into force in Germany.

Large companies are then legally responsible for ensuring that human rights are respected in their supply chains.

Many German companies are now networked worldwide - with production sites in Europe, Africa or Asia.

The law should therefore oblige them “to observe human rights due diligence in their supply chains”.

Specifically, it is about child labour, types of slavery, occupational safety, but also environmental protection measures against soil and water pollution if these lead to human rights violations.

Here is an overview of the most important points.

To whom the law applies

The “Supply Chain Due Diligence Act”, as it is officially called, initially applies to companies with more than 3,000 employees.

According to the Federal Ministry for Economic Cooperation and Development (BMZ), around 900 companies are affected.

There are different requirements for them, for their own business area as well as for direct and indirect suppliers.

From 2024, the requirements should also apply to companies with 1,000 or more employees.

Small and medium-sized companies are explicitly excluded.

However, the rules also apply to dependent branches of foreign companies in Germany if they exceed the required number of employees.

What changes

Among other things, the affected companies must carry out a risk analysis, set up risk management and a complaints mechanism and report on them publicly.

In the event of violations in their own business or at direct suppliers, companies are required by law to take prompt corrective action "to prevent, stop, or minimize the extent of the violation."

What happens in case of violations

The law provides for fines of up to two percent of annual sales for large companies if they do not take action against human rights violations and environmental violations at their global suppliers.

It is graded according to the possibility of influence and the amount of the worldwide average annual turnover.

Companies can also be temporarily excluded from awarding public contracts.

However, this ends the responsibility of the companies – liability under civil law is excluded.

Negotiations are still ongoing at EU level

A corresponding law is still being negotiated at EU level, which – at least if the EU Commission had its way – would be stricter than the German one.

The 27 member states have agreed on a position that would weaken the Commission's proposal somewhat.

The law still has to be finally negotiated with the EU Parliament.

However, it will probably be years before an agreement is reached and until it actually comes into force.

Germany would then have to adapt its own law.

Split Echo - "Bureaucrat Monster"

Affected companies complained about new bureaucratic burdens caused by the law.

"The law has become a bureaucracy monster that neither promotes its acceptance among the companies concerned nor has much to do with the basic idea of ​​the law," said Holger Görn, President of the Kiel Institute for the World Economy, according to a statement.

Companies with more than 3,000 employees currently have to "struggle" through a catalog of 400 questions from the Federal Office of Economics and Export Control.

"Here, the ability of industrial medium-sized companies to act is at risk," said Karl Haeusgen, President of the Association of German Mechanical and Plant Engineering, according to a statement.

He criticized the fact that companies had to make reports accessible to everyone - including competitors.

For others, the law does not go far enough.

Critics complain about the exception for small and medium-sized companies.

In addition, the role of indirect suppliers is debatable.

For them, the duty of care only applies if the company learns of human rights violations at this level.

That could offer loopholes via subsidiaries, for example.

Environmentalists are also neglected when it comes to protecting the environment.

“The industry lobby has severely undermined the law.

It has become a toothless paper tiger,” said Greenpeace's Viola Wohlgemuth.

ani/dpa/AFP