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GERMANY ANNOUNCES SUPPLY CHAIN DUE DILIGENCE LAW

GERMANY ANNOUNCES SUPPLY CHAIN DUE DILIGENCE LAW

The debate about whether legislation is needed to stop human rights violations in the supply chain has been going on for some time. In Germany, discussions have come to an end: the so-called Lieferkettensorgfaltspflichtengesetz (LkSG) has been decided. From 2023 onwards, large companies will be legally required to take responsibility for human rights in their supply chains. The decision also fuels efforts to establish a human rights due diligence law at the EU-level.

BACKGROUND

For almost two years now, prominent politicians in Germany have been battling on the question of whether or not to introduce legally binding requirements for human rights due diligence. After a heated debate, Chancellor Angela Merkel personally intervened and insisted that a law was to be expected before the end of this legislative period. In April 2021, a draft was released that outlined the main features of the new legislation. After some more delays and with minor adjustments, the final supply chain due diligence act was passed in June 2021. As you would expect from German law, the name is a mouthful: Lieferkettensorgfaltspflichtengesetz stands for supply chain due diligence law, and it is abbreviated as LkSG.

WHICH COMPANIES ARE AFFECTED?

From January 1, 2023 onwards, the LkSG will apply to companies with 3000 employees or more in Germany. From January 1, 2024, the Supply Chain Act will apply to companies with 1000 employees or more in Germany. The law also applies to companies that are headquartered abroad, if they exceed the number of employees based in Germany.

The five core elements of due diligence
      1. A public policy statement on respect for human rights is available
      2. There is a process for identifying actual and potentially adverse effects on human rights (risk analysis).
      3. Corresponding measures to prevent and control their effectiveness have been introduced.
      4. The company reports on its impacts
      5. The company establishes or participates in a grievance mechanism.

WHO IS LIABLE FOR WHAT?

According to the Lieferkettensorgfaltspflichtengesetz, companies should assume responsibility for their entire supply chain, but with a gradually reduced liability. This means that companies are initially only responsible for their direct suppliers, not for lower-tier suppliers.

However, if a company becomes aware of a grievance in the supply chain, it will be required to take remedial action. As soon as a company can be shown to have known about human rights violations in the supply chain but failed to take action, heavy fines can be imposed. In addition, companies can be excluded from public tenders for up to three years.

The Federal Office of Economics and Export Control (Bafa) will be responsible for monitoring. The authority is to be given a „robust mandate” and can thus carry out on-site inspections and impose penalties, according to Labor Minister Hubertus Heil (SPD).

In addition, non-governmental organizations and trade unions are to be given the opportunity in the future to file lawsuits against human rights violations on behalf of foreign workers. Until now, injured parties have been able to sue on their own, but in practice this has often failed because affected workers did not have the resources to file a complaint.

Another important point to note is that the new legislation does not propose civil liability.

WHAT THIS MEANS FOR LEGISLATION AT THE EU LEVEL

There are also efforts at the EU level to establish a regulation on human rights due diligence. Currently, the EU Parliament is pushing the Commission to design an EU-wide regulation. The push from Germany, the largest economy in the Union, will not only accelerate this process, but also increase the pressure on the EU to create a level playing field. If EU legislation enters into force, the German Lieferkettensorgfaltspflichtengesetz will be adjusted accordingly.

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HOW DQS CAN SUPPORT YOU:

As an independent audit and assessment provider, we can support your due diligence processes with the following services:

  • Gap analysis and validation of your due diligence procedures
  • Human Rights Assessments
  • Social and environmental compliance audits
  • Supplier audits across the globe
  • Training and capability building
  • Verification of sustainability reporting
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