Federal Cabinet adopts Supply Chain Act

The German government has adopted a draft "Act on Corporate Due Diligence in Supply Chains." The bill is intended to strengthen corporate compliance with human rights.

The Federal Cabinet has reached agreement on the Supply Chain Act and passed a draft bill entitled "Corporate Due Diligence in Supply Chains." It is intended to oblige companies to ensure that human rights violations do not occur throughout their entire supply chain.

Fast implementation planned

More on the Supply Chain Act- Supply Chain Act: Draft bill proposes stricter rules
- Federal government agrees on supply chain law
- Supply Chain Act: It's all about balance"The Supply Chain Act will be passed during this legislative period and is a breakthrough for strengthening human rights," said Labor Minister Hubertus Heil (SPD). Fairness should no longer be a competitive disadvantage. A clear signal goes out to companies that have weighed human rights against their economic interests. "That's over now."

You might also be interested in:

Operations management

The economy in the skilled trades is stagnating.

SMEs not included

Economics Minister Peter Altmaier (CDU) speaks of a clear and practical law that doesn't require companies to do anything they ultimately can't enforce. "And we're focusing on larger companies; small and medium-sized enterprises are expressly excluded."

Specifically, the agreement provides for the following provisions:

• Goal: The law requires companies based in Germany of a certain size to better fulfill their responsibility in the supply chain with regard to respect for internationally recognized human rights by implementing human rights due diligence.
• Company size: From 2023, the law will be binding for large companies with at least 3.000 employees in Germany (around 600 companies), and from 2024 for all companies with at least 1.000 employees in Germany (around 2.900 companies).
• Better protection of human rights and legal certainty for companies: The law is intended to oblige German-based companies of a certain size and above to better fulfill their supply chain responsibilities with regard to respecting internationally recognized human rights by implementing human rights due diligence. This is intended to strengthen the rights of people affected by corporate activities in supply chains and, at the same time, to take into account companies' legitimate interests in legal certainty and fair competition.
• Scope of responsibility in the supply chain: Corporate responsibility extends throughout the entire supply chain, with corporate responsibility being graded according to the degree of influence. The elements of human rights due diligence apply first and foremost to the companies themselves, as well as to direct suppliers. Human rights risks at indirect suppliers, i.e., those further down the supply chain, must be analyzed and addressed when companies gain substantive knowledge of them.
• Victims of human rights violations and civil society are strengthened: The draft Due Diligence Act covers environmental protection to the extent that environmental risks could lead to human rights violations. It also establishes environmental obligations arising from two international agreements on protection against the health and environmental hazards posed by mercury and persistent organic pollutants. The draft law thus represents an important step and a signal for strengthening environmental protection in supply chains. On this basis, as well as on the basis of the Council conclusions on "Human Rights and Decent Work in Global Supply Chains," we will work to strengthen environmental due diligence obligations across Europe in future legislative processes at the EU level. In the future, affected parties will be able to be represented by non-governmental organizations and trade unions before German courts and authorize them to conduct legal proceedings if they believe their fundamental legal rights have been violated by a breach of corporate due diligence (litigation representation).
• Basis for a common international understanding of due diligence: The Supply Chain Act lays the foundation for a common international understanding of due diligence. It will contribute to harmonizing the legal requirements for corporate due diligence and shape the debate on EU legislation.
• First comprehensive regulatory control: A supervisory authority will ensure enforcement of the legal requirements. The Federal Office for Economic Affairs and Export Control (BAFA) has been mandated to support businesses with concrete information for implementation and, at the same time, to act as a supervisory authority. It will be provided with appropriate human and financial resources. The authority can impose appropriate fines and coercive penalties for violations. For serious violations, the fine ranges up to 100 percent of global group turnover. Depending on the type of violation, a company can be excluded from public procurement if it receives a fine of €175.000 or more.

Source: Federal Government