The new German supply chain law is just the beginning

Summary: The Bundesrat, the German upper chamber of parliament, has recently approved the German Supply Chain Due Diligence Act (Liefer­ketten­sorgfalts­pflichten­gesetz), which is now set to enter into force on January 1st, 2023. This obliges German companies of a certain size to perform better due diligence on their supply chains.

Why this is important: Companies are being increasingly held accountable for actions taken on territory which is not their country of domiciliation nor necessarily the country of the jurisdiction. The emergence of enforceability of human rights in the courts of Europe and the US (and elsewhere) is likely to become a massive challenge for companies, unless they start putting in place adequate policies and internal mechanisms now.

The big theme: Avoiding human rights abuses in supply chains is becoming increasingly important. This is partly about addressing inequalities and related social issues such as poverty, lack of access to education, health and housing. But its increasingly becoming an economic and financial risk. Investors need to ensure that the companies they are involved with are taking the necessary measures to address exploitation in their supply chains.

Summary of a report published in minespider:

On June 25th 2021, the strive to ensure more socially and environmentally sustainable business practices reached a new level. That day, the Bundesrat, the German upper chamber of parliament, approved the German Supply Chain Due Diligence Act (Liefer­ketten­sorgfalts­pflichten­gesetz), which is now set to enter into force on January 1st, 2023. The aim of this law? To better protect human rights and the environment in a global economy by obliging German companies of a certain size to perform better due diligence on their supply chains. This is no longer a voluntary CSR activity, but required by law, and companies who do not comply risk facing penalties.

Germany is not the first country to have passed a law on supply chain due diligence, and it will certainly not be the last. Already in 2015, Great Britain passed the Modern Slavery Act, which includes “Transparency in Supply Chain Provisions”, requiring companies with a turnover higher than GBP36 million to publish statements on the actions they take to avoid human trafficking and slavery happening in their business and supply chains. France passed a Vigilance Law (“Loi de Vigilance”) in 2017, which mandates French companies with more than 5,000 employees in France, or 10,000 worldwide, to adopt plans in order to address risks around human rights, occupational health and safety, and environmental damage in their supply chains. Lastly, in 2019 the Netherlands adopted their Child Labor Due Diligence Law which will, once it enteris into effect in 2022, require Dutch companies to inspect their supply chains for child labor. If they find any instances, they are required to prevent it.