From 2023, the law will initially only come into force for large companies
In the first stage 2023, the new Supply Chain Act will only apply to companies that have more than 3,000 employees. From 2024, the second stage of the law will come into force, affecting all companies with more than 1,000 employees. In Germany, this means around 2,900 companies. German branches of foreign companies are also subject to this due diligence obligation.
The most important regulations
Graded according to the degree of influence, the responsibility of companies is to extend to the entire supply chain. Companies must implement the obligations in their own business sector and also towards their direct suppliers. Indirect suppliers are included in these obligations as soon as the company receives substantiated information of possible human rights violations.
The law implies that companies must fulfil human rights due diligence by analysing human rights risks, taking preventive and remedial measures, establishing grievance mechanisms and reporting on their activities. The draft law also covers environmental protection, but only if environmental risks can lead to human rights violations.
The Federal Office of Economics and Export Control monitors compliance with the law. It checks company reports, investigates complaints submitted and, if necessary, also imposes sanctions. Fines can also be levied for violations of the law. Thus, people affected by human rights violations can now also assert their rights in German courts and file complaints with the above-mentioned authority.
What companies must do now
Companies must implement these measures in their own business operations and also with their direct suppliers:
- Adopt a policy statement on respect for human rights.
- Risk analysis: a process to identify adverse human rights impacts must be carried out.
- Risk management: preventive and remedial measures shall be taken to avert potential adverse human rights impacts.
- Establishment of a grievance mechanism.
- Transparent and public reporting.
In the event of a violation in their own business, companies must take immediate action to end the violation. In the case of violations by the supplier, the company must present a concrete plan for minimisation and prevention if the violation cannot be stopped immediately.
In the pdf of the Federal Ministry for Economic Cooperation and Development you will find a summary of questions and answers on the new Supply Chain Act (original german version): View pdf
Further goal: a Europe-wide regulation
The major goal remains to achieve a uniform Europe-wide regulation on this issue. Until then, however, it may still take a few years. The German law should serve as a template here.
Cf. Lieferkettengesetz.de, Das Lieferkettengesetz ist da! accessed 15.06.2021
Cf. Die Bundesregierung, Lieferkettengesetz, accessed 15.06.2021
Cf. Springer Professional, Das bedeutet das Lieferkettengesetz für Unternehmen, accessed 15.06.2021
Cf. energiezukunft, Was das neue Lieferkettengesetz für Klima und Umwelt bedeutet, accessed 17.06.2021