On July 22, 2021, the Act on Corporate Due Diligence in Supply Chains (Supply Chain Due Diligence Act) was published in the German Federal Law Gazette. The act will enter into force on January 1, 2023. The Supply Chain Due Diligence Act’s objective is to safeguard human rights and the environment in the global economy more effectively. It obligates companies with 3,000 or more employees in Germany to take “appropriate measures” to respect human rights and the environment within their supply chains “with the goal to prevent or minimize risks related to human rights or the environment or end the violation of duties related to human rights or the environment.” (Supply Chain Due Diligence Act art. 1, §§ 1, 3.)
Content of the Supply Chain Due Diligence Act
The Act applies to companies that have their central administration, principal place of business, administrative headquarters, registered seat, or branch office in Germany and have 3,000 or more employees in Germany. Starting January 1, 2024, the number of employees will be reduced to 1,000. Employees that are posted abroad are included for domestic companies. (§ 1, para. 1.)
Risks Related to Human Rights
A risk related to human rights is defined as “a situation in which there is a sufficient degree of probability based on factual indications that a violation of one of the following prohibitions will occur:”
- Prohibition on employing a child of 15 years or younger.
- Prohibition of the worst forms of child labor of children under 18 in accordance with the ILO Convention on Worst Forms of Child Labor, 1999 (No. 182).
- Prohibition of forced labor.
- Prohibition of all forms of slavery or similar practices of domination or oppression at work.
- Prohibition on disregarding the local applicable rules on workplace safety and working conditions if this could lead to workplace accidents or work-related health risks.
- Prohibition on disregarding freedom of association.
- Prohibition of employment discrimination.
- Prohibition of wage discrimination.
- Prohibition on causing harmful changes to the soil, polluting water, polluting air, causing harmful noise emission, or overconsuming water, which severely impairs the natural resources necessary to preserve or produce food, denies access to drinking water, destroys or impedes access to hygiene facilities, or has harmful effects on human health.
- Prohibition on those who acquire, develop, or otherwise use land, forest, or water from unlawfully evicting persons from or depriving them of the use of such land, forest, or water when those persons are dependent on the land, forest, or water for their livelihood.
- Prohibition on commissioning or using private or public security forces to protect a business project if, due to a lack of control, the security forces will infringe the prohibition on torture, harm life or limb, or interfere with freedom of association and the right to collective bargaining.
- Prohibition of an action or inaction that is directly capable of infringing a protected legal interest in a particularly serious manner and whose illegality is obvious, taking into account all circumstances. (§ 2, para. 2.)
Risks Related to the Environment
A risk related to the environment is defined as “a situation in which there is a sufficient degree of probability based on factual indications that a violation of one of the following prohibitions will occur:”
- Ban on the manufacture of mercury-added products in accordance with article 4, paragraph 1 of the Minamata Convention.
- Ban on the use of mercury or mercury compounds in manufacturing processes in accordance with article 5, paragraph 2 of the Minamata Convention after the phaseout date.
- Ban on the handling of mercury waste contrary to the requirements of article 11, paragraph 3 of the Minamata Convention.
- Ban on the production and use of chemicals according to article 3, paragraph 1, letter a of the Stockholm Convention on Persistent Organic Pollutions (POPs Convention).
- Ban on the non-environmentally sound handling, collection, storage, and disposal of chemical waste contrary to the requirements of article 6, paragraph 1, letter d of the POPs Convention.
- Ban on the export of hazardous wastes and other wastes according to article 1, paragraphs 1 and 2 of the Basel Convention to a state party that prohibits the import of such wastes, to an importing state that does not consent in writing to the specific import, to a nonstate party, or to an importing state where the wastes will not be managed in an environmentally sound manner.
- Ban on the export of hazardous wastes from states listed in annex VII of the Basel Convention to states not listed therein.
- Ban on the import of hazardous wastes and other wastes from nonstate parties of the Basel Convention. (§ 2, para. 3.)
Due Diligence Procedures
Companies within the scope of the act must set up each of the following due diligence procedures to safeguard human rights and the environment in their global supply chain:
- Establish a risk management system.
- Define internal responsibility for compliance with the risk management system—for example, by appointing a human rights ombudsperson.
- Carry out regular risk analyses.
- Adopt a policy statement on the company’s general human rights strategy.
- Implement preventive measures in the company’s own business area, which includes the activities of subsidiaries, if the parent company exerts “decisive influence,” and vis-à-vis its direct suppliers.
- Take remedial actions if a violation has already occurred or is imminent.
- Set up an internal complaints procedure.
- Establish due diligence procedures regarding risks associated with indirect suppliers that will be applied when the company has substantiated knowledge of a violation.
- Document the company’s due diligence procedures, risks identified, and measures taken, and then publish a yearly report on its website, which must be free of charge and publicly available. (§ 3.)
Sanctions and Legal Action
Companies that violate the act are not civilly liable. (§ 3, para. 3.) However, companies can be fined depending on the severity of the violation. Large companies with an annual global turnover or more than 400 million euros (about US$475 million) can be required to pay fines of up to 2% of their annual global turnover. (§ 24.) Furthermore, companies that have been fined a minimum of 175,000 euros (about US$208,000) can be excluded from public procurement for up to three years. (§ 22.)
When a person’s “legal interest of paramount importance” protected in one the international agreements listed in the annex to the Supply Chain Due Diligence Act has been violated, that person may authorize a nongovernmental agency or trade union to sue on his or her behalf. (§ 11.) Such protected legal interests of paramount importance include life and limb. (Explanatory memorandum at 52.)