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On 3 March 2021, the Federal Cabinet adopted draft legislation on Corporate Due Diligence in Supply Chains. This so-called Due-Diligence (or Supply-Chain) Act will provide clarity for businesses and strengthen companies’ compliance with human rights.

Federal Minister of Labour and Social Affairs Hubertus Heil commented: “The Supply-Chain Act, which will be introduced during this legislative term, is a breakthrough for better human rights protection. Through this Act, we are setting clear rules as to the extent to which companies are responsible for the working conditions in their supply chain. This is about human rights and decent conditions of work. It is a clear message to all the companies that are already monitoring their supply chains to this effect and ensuring decent working conditions. We are strengthening their position. After all, fairness must no longer be a competitive disadvantage. At the same time, it is also a clear message to the firms that have so far been weighing up human rights against their own economic interest. This will now end. Most importantly, it is a success for people across the world who are exposed to bad, dangerous and sometimes deadly working conditions. Our Act will give them greater legal rights.”

Federal Minister for Economic Affairs Peter Altmaier said: “I attach great importance to protecting and fostering human rights internationally. This is why, over the last few months, I have been so determined to ensure that we draft a law which is clear and practical, works in practice, and truly improves the situation of those affected. We have developed a tiered system of due-diligence requirements that takes account of a company’s level of influence over its supply chain. This ensures that we do not ask anything impossible. Our focus is on larger companies, whereas small and medium-sized enterprises are explicitly not covered by the rules. Our draft legislation is leading the way and will thus provide important pointers for European regulation, particularly by highlighting what is actually feasible for the business community to implement in practice.”

Said Gerd Müller, Federal Minister for Economic Cooperation and Development: “Every human being has a right to a life in dignity - not just in Germany, but across the globe. No child should have to graft on a cocoa or cotton plantation to add to our prosperity. This is why the Act covers the entire supply chain, from raw materials to the finished product. The Act will be effective and was also drafted with a sense of proportion. A tiered system of responsibility applies, depending on where a company finds itself in the supply chain, and there are transitional periods. We are particularly bearing the interests of SMEs in mind. And, what has been extremely important to me, is that this is an effective way of enforcing the band on child and forced labour.”

The agreement provides for the following rules:

  • Objective: The new legislation obliges companies based in Germany, above a certain size, to fulfil their responsibilities in the supply chain vis-à-vis internationally recognised human rights by exercising due diligence.
  • Company size: As of 2023, the new legislation will be binding on large companies employing at least 3,000 people in Germany (c. 600 companies); as of 2024, all companies employing at least 1,000 people in Germany will also have to comply (c. 2,900 companies).
  • Improved human rights protection and legal certainty for companies: The new legislation obliges companies based in Germany, above a certain size, to fulfil their responsibilities in the supply chain vis-à-vis internationally recognised human rights by exercising due diligence. This is to strengthen the rights of people working in the supply chain and affected by companies’ activities, whilst also protecting companies’ legitimate interest in having legal certainty and a fair competitive environment.
  • Responsibility along the supply chain: Corporate responsibility applies across the entire supply chain, depending on a company’s individual ability to exert influence. First of all, the elements of human rights due diligence apply to the company itself and its direct suppliers. Human rights risks in indirect suppliers, i.e. further along the supply chain, need to be analysed and addressed if and when companies obtain substantiated knowledge of them
  • Strengthening civil society and victims of human rights violations: The draft for the Due Diligence Act also covers the issue of environmental protection, to the extent that environmental risks can result in human rights violations. In addition to this, obligations to protect the environment that result from two international agreements designed to afford protection from dangers to health and the environment caused by mercury and long-living organic pollutants have also been incorporated into the draft. This makes this draft legislation an important step forward and sends a message about stronger environmental protection in supply chains. In the course of future legislative projects at EU level, we will work to strengthen environmental due diligence requirements across the EU, and do so on the basis of our German Act and on the basis of the Council conclusions on Human Rights and Decent Work in Global Supply Chains (Council document 12945/20).
    In future, persons affected by human rights breaches will be able to have themselves represented by NGOs and unions before German courts and authorise these organisations to conduct court cases on their behalf if they feel that any of their overriding legal rights have been violated.
  • Basis for shared international understanding of due diligence: The Supply Chain Act creates the basis for a shared international understanding of due diligence. It will help harmonise the legal requirements to which corporate due diligence amounts and shape the debate on EU legislation on the subject
  • Comprehensive checks by the authorities: For the first time, implementation of the legal requirements will be overseen by a supervisory authority. The Federal Office for Economic Affairs and Export Control will be issued with the mandate to support businesses with specific information on implementation and to also act as a watchdog at the same time. It is to be given the necessary staff and financial resources. If the authority finds violations, it can impose fines. The amount of these fines will depend on the severity of the breach and may be as high as one per cent of the corporation’s global turnover. Depending on the time of the infringement, companies having received a fine of €175,000 or more may be excluded from public procurement procedures.