Germany Latest EU Country to Introduce Due Diligence Rules
On 11 June 2021, the German Supply Chain Act was adopted by the German Parliament by a large majority, introducing binding human rights and environmental due diligence obligations for companies. After lengthy and difficult negotiations, the political groups found compromises on several key aspects of the law ranging from the scope of companies covered to the question of liability. The aim of the law is to foster responsible business conduct and remove illicit practices such as child labour from supply chains.
Once formally signed, the law will require large German companies as well as foreign companies with branches in Germany to identify and address human rights and certain environmental risks in their own as well as in their direct suppliers’ operations. While the due diligence obligation is limited to direct suppliers, companies will have to take measures if they are made aware of potential abuses in any part of their supply chain, for example via a complaint. Companies will have to regularly conduct a risk assessment, implement preventive measures where needed and annually report on their due diligence processes.
The due diligence duty builds on the UN Guiding Principles on Business and Human Rights. Its thematic scope encompasses human rights and labor rights as expressed in ILO conventions as well as the following environmental conventions:
- The Minamata Convention on Mercury;
- The Stockholm Convention on Persistent Organic Pollutants; and
- The Basel Convention on the Control of Transboundary Movements of Hazardous Waste
In case of violations, companies will face administrative fines of up to 800 000 EUR or two percent of annual revenue and potential exclusion from public procurement for up to three years.
The German Supply Chain Act does not create a liability regime for companies – an important aspect that was clarified in the political negotiations. It does, however, enable trade unions and NGOs to initiate legal proceedings against companies on behalf of victims.
The law will be implemented in two phases: from January 2023, companies with more than 3 000 employees will have to abide by the new rules; and as of January 2024 the threshold will be lowered to companies with more than 1 000 employees.
For Germany, the law presents a paradigm shift, away from voluntary CSR initiatives towards binding due diligence obligations. Several other Member States already have due diligence laws in place or are contemplating introducing such laws. In parallel, the pending EU proposal on Sustainable Corporate Governance (SCG) and Due Diligence legislation is expected in the second half of this year. With this pending proposal, the European Commission aims to create legal certainty across the Union by introducing a harmonized set of rules applicable across Member States.
IPC continues to engage with policymakers on this topic to advocate on behalf of the electronics industry for a framework that is feasible and workable for industry while protecting human rights and the environment. For additional information, please contact me at AlisonJames@ipc.org.