On March 3, 2021, the German cabinet proposed a supply chain law (Lieferkettengesetz) obliging companies active in Germany to ensure that their entire supply chain meets human rights standards. Under the National Action Plan (Nationaler Aktionsplan), Germany has promoted human rights among companies since 2016, but a study in 2020 found that only 22% of responding firms had undertaken the recommended measures. Under this plan, modeled on the United Nations Guiding Principles on Business and Human Rights, the German government agreed to consider imposing a mandatory due diligence law if fewer than half of German firms satisfied the human rights monitoring criteria.
Although the cabinet had planned to present a draft of the law in March 2020, Peter Altmeier, the Minister of Economic Affairs and Energy, held up the proceedings. On February 2021, the two ministers driving the law announced that they reached a consensus with Altmeier. Hubertus Heil, Minister for Development Co-Operation, and Gerd Müller, Minister for Labor and Social Affairs, both pushed for more impactful human rights protection, while Altmeier was adamant about safeguarding German economic competitiveness.
What Germany’s Supply Chain Law Imposes
Germany’s supply chain law requires firms active in Germany to perform various due diligence procedures in order to monitor, prevent and ameliorate potential human rights abuses in their supply chains. In its current form, the law would come into effect in 2023 and in its first year only apply to the 600 largest companies, all with more than 3,000 employees. After the first year, it would apply to a further 2,900 companies, all with more than 1,000 employees. By 2026, the government or a contracted body will carry out an evaluation of the law’s effectiveness and, if necessary, provide ideas for improvement.
For suppliers with whom they have a contractual relationship, companies have to set up a risk management system, conduct regular risk analyses and take action against known human rights breaches. They also have to establish a procedure through which to hear complaints. For example, people working in unsafe conditions can theoretically voice their situation through this channel. That being said, many of these people are often not aware of their right to do so, nor are many of them able to navigate the German legal system. To overcome this problem, Germany’s supply chain law grants civil society organizations the power to file lawsuits on behalf of these mistreated workers.
Remaining Problems of the Draft
For suppliers they do not have direct contact with, companies only have to perform risk analyses if they are aware of a potential human rights breach. If, for example, Amnesty International publishes information about human rights abuses in Congolese mines that supply electric car batteries for Volkswagen, then the law requires Volkswagen to conduct a risk analysis.
However, as this demonstrates, companies have less monitoring responsibility for more removed suppliers. Many non-governmental organizations argue that this provides too little protection for the mining industry. Moreover, many direct suppliers of the largest German companies are already located in Germany, potentially limiting the law’s impact abroad.
How Germany’s Supply Chain Law Monitors and Enforces Compliance
The German Federal Bureau for the Economy and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle) will monitor whether companies are complying with Germany’s supply chain law. Companies judged to fall short of what the law demands will face fines and sanctions. Fines will not exceed 8 million euros or 2% of annual revenue for companies with annual revenue of over 400 million euros. If a company receives a fine of more than 175,000 euros, it also cannot compete for public procurement contracts for three years.
Aside from these punitive measures, the law also requires companies to hire or designate an employee who is responsible for evaluating whether the company is abiding by the law or not. The company’s leadership, whatever form it may take, must regularly meet with this employee.
In April 2021, Germany’s supply chain law will enter into discussion in the Bundestag, Germany’s lower chamber of parliament. Non-governmental organizations are trying to galvanize public support in order to convince or pressure parliament into making the law more comprehensive and stringent. In addition to arguing that the restriction to direct suppliers makes the law too small in scope, they have criticized that companies face neither civil nor criminal liability.
Whether they will successfully strengthen Germany’s supply chain law is too early to say. However, the government aims to approve the law before Germany’s elections in September 2021. By then, the extent and potential impact of Germany’s supply chain law on global human rights will be clearer. For now, it is a promising and hopeful, yet somewhat restrained, step in the right direction.
– Alex Vanezis