Bill for a Sup­p­ly Chain Act

Back­ground and cur­rent status

In 2011, the United Nati­ons adopted Gui­ding Prin­ci­ples on Busi­ness and Human Rights. The issue of cor­po­ra­te respon­si­bi­li­ty was also a sub­ject of dis­cus­sion, par­ti­cu­lar­ly with regard to glo­bal sup­p­ly chains. In its “Natio­nal Action Plan” for imple­men­ta­ti­on of the UN Gui­ding Prin­ci­ples, adopted in Decem­ber 2016, the Ger­man govern­ment initi­al­ly imple­men­ted the prin­ci­ples on a vol­un­t­a­ry basis. But now, the Fede­ral Minis­try for Eco­no­mic Coope­ra­ti­on and the Fede­ral Minis­try of Labor and Social Affairs have rea­ched a com­pro­mi­se with the Fede­ral Minis­try of Eco­no­mics and Ener­gy on a bill (PDF only in Ger­man) for an Act on Cor­po­ra­te Due Dili­gence Requi­re­ments in the Sup­p­ly Chain (the Due Dili­gence Act). This bill will be pre­sen­ted to the Cabi­net for a vote in mid-March 2021 and a vote in Fede­ral Par­lia­ment is plan­ned for the cur­rent legis­la­ti­ve session.

Key pro­vi­si­ons of the bill

The law would requi­re Ger­man com­pa­nies abo­ve a cer­tain size to ful­fill their respon­si­bi­li­ties with regard to sup­p­ly chains, which would ser­ve to advan­ce the cau­se of inter­na­tio­nal human rights and har­mo­ni­ze cor­po­ra­te due dili­gence requi­re­ments. To this end, requi­re­ments for respon­si­ble manage­ment will be defi­ned for cer­tain com­pa­nies. The­se due dili­gence requi­re­ments will take effect on 1 Janu­ary 2023 for lar­ge Ger­man com­pa­nies with 3,000 or more employees and on 1 Janu­ary 2024 for smal­ler com­pa­nies, with at least 1,000 employees. Sec­tion 1(3) of the bill con­ta­ins an inte­res­t­ing pro­vi­si­on with regard to cor­po­ra­te groups: for affi­lia­ted com­pa­nies in accordance § 15 of the Cor­po­ra­ti­on Act, the employees of all Group com­pa­nies count towards the num­ber of employees of the Group parent company.

The risks addres­sed by the law par­ti­cu­lar­ly include forced labor, child labor, dis­cri­mi­na­ti­on, hiring prac­ti­ces, working con­di­ti­ons and dama­ge to the envi­ron­ment. Com­pa­nies would be requi­red to exami­ne their own busi­nesses, and tho­se of their direct sup­pli­ers, for human rights vio­la­ti­ons. This risk ana­ly­sis would include only a limi­t­ed exami­na­ti­on of the company’s indi­rect sup­pli­ers. Such an exami­na­ti­on may be requi­red e.g. if the com­pa­ny beco­mes awa­re of com­plaints by the indi­rect supplier’s employees.

After com­ple­ting the risk ana­ly­sis, com­pa­nies would be requi­red to work with their sup­pli­er to deve­lop solu­ti­ons or pur­sue reme­dies within the indus­try. Ter­mi­na­ti­on of the busi­ness rela­ti­onship is to be con­side­red only as a last resort.

The afo­re­men­tio­ned requi­re­ments will be desi­gned as a duty to make best efforts. Accor­din­gly, com­pa­nies will not be requi­red to pre­vent all human rights vio­la­ti­ons within their sup­p­ly chains. Rather, they will only be requi­red to take ade­qua­te and reasonable mea­su­res con­sis­tent with the prin­ci­ple of pro­por­tio­na­li­ty, taking into account the seve­ri­ty of the poten­ti­al harm, the pro­ba­bi­li­ty of the risk and the natu­re of the company’s busi­ness activities.

No lia­bi­li­ty for natio­nal companies

The Due Dili­gence Act does not make Ger­man com­pa­nies lia­ble for dama­ges occur­ring within their sup­p­ly chain abroad. But the enforce­ment and super­vi­so­ry aut­ho­ri­ty, the Fede­ral Office of Eco­no­mics and Export Con­trol, has the opti­on of impo­sing sub­stan­ti­al fines and pen­al­ties in the event that com­pa­nies vio­la­te their due dili­gence requi­re­ments. It can also exclude com­pa­nies from the award of public con­tracts for up to three years, a pos­si­bi­li­ty which should not be unde­re­sti­ma­ted. This penal­ty can be impo­sed in case of fines of EUR 175,000 or higher.

Con­se­quen­ces of imple­men­ta­ti­on for companies

About 3,500 com­pa­nies would be affec­ted by imple­men­ta­ti­on of the­se requi­re­ments, accor­ding to the Fede­ral Minis­try of Labor and Social Affairs. The bill will be pre­sen­ted to the Cabi­net for a vote in March, and a vote in Fede­ral Par­lia­ment is plan­ned for the cur­rent legis­la­ti­ve session.

Chal­lenges for the future

Com­pa­nies with high­ly com­plex sup­p­ly struc­tures in par­ti­cu­lar will encoun­ter pro­blems once the Due Dili­gence Act takes effect. The bill has alre­a­dy faced seve­re cri­ti­cism, as the bill seeks to hold com­pa­nies respon­si­ble regard­less of whe­ther sta­tes are able and wil­ling to pro­tect human rights. In the view of the Steel and Metal Pro­ces­sing Asso­cia­ti­on, this cir­cum­s­tance can­not be taken as a reason to trans­fer this respon­si­bi­li­ty to indi­vi­du­al companies.


Becau­se of the new risk ana­ly­sis, the impen­ding imple­men­ta­ti­on of the Due Dili­gence Act will pose a gro­wing chall­enge for Ger­man com­pa­nies. Given the thre­at of seve­re fines, com­pa­nies should the­r­e­fo­re estab­lish a com­pli­ance manage­ment sys­tem to ensu­re the pro­tec­tion of human rights within their sup­p­ly chains, kee­ping in mind the fol­lo­wing key aspects:

  • appli­ca­bi­li­ty of the Due Dili­gence Act (depends on the size of the company);
  • risk ana­ly­sis to iden­ti­fy human rights vio­la­ti­ons (e.g. vio­la­ti­ons by direct or indi­rect suppliers);
  • cau­se to inves­ti­ga­te an indi­rect sup­pli­er (e.g. com­plaints from the indi­rect supplier’s employees);
  • annu­al reporting;
  • con­ti­nuous moni­to­ring and super­vi­si­on of suppliers;
  • deve­lo­ping solu­ti­ons with the sup­pli­er or within the industry.

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