The “Sup­p­ly Chain Act”: Over­view and Classification

Given pro­mi­nent pla­ce­ment by the Fede­ral Minis­try for Eco­no­mic Coope­ra­ti­on and Deve­lo­p­ment and the Fede­ral Minis­try of Labor and Social Affairs, the “Sup­p­ly Chain Act” has been the sub­ject of inten­se dis­cus­sion for months, but the govern­ment has yet to pre­sent a bin­ding draft: only a few key points and requi­re­ments have been announ­ced so far. At the same time, the­re has been some acti­vi­ty at the EU level, whe­re working groups have been crea­ted. Accor­din­gly, it is to be expec­ted that man­da­to­ry gui­de­lines will be adopted at the Euro­pean level in the not all-too distant future. If the struc­tures and con­tent which have beco­me known so far pro­ve to be in the final ver­si­on, the­se gui­de­lines will be very simi­lar to what is curr­ent­ly known about the Ger­man Sup­p­ly Chain Act.

Back­ground and cur­rent sta­te of things

In 2011, the United Nati­ons adopted Gui­ding Prin­ci­ples on Busi­ness and Human Rights, which defi­ned sta­te duties and cor­po­ra­te respon­si­bi­li­ties to respect human rights in glo­bal sup­p­ly chains. In its “Natio­nal Action Plan to Imple­ment the UN Gui­ding Prin­ci­ples” (NAP) (PDF only in Ger­man) in Decem­ber 2016, the Ger­man govern­ment initi­al­ly sought to imple­ment the­se prin­ci­ples on a vol­un­t­a­ry basis, in the expec­ta­ti­on that Ger­man com­pa­nies would ensu­re that their busi­ness does not have an adver­se impact on fun­da­men­tal rights. But sin­ce two rounds of stu­dies have yiel­ded only meager and unsa­tis­fac­to­ry results, the two Fede­ral Minis­tries have now sta­ted that they are working on the initi­al drafts of a “Sup­p­ly Chain Act” based on the rele­vant pro­vi­si­ons of the NAP and the pre­sent Coali­ti­on Agreement.

Known pro­vi­si­ons

The bill will app­ly to com­pa­nies based in Ger­ma­ny with more than 500 employees and will focus on “rele­vant risk are­as” such as forced labor, child labor and dis­cri­mi­na­ti­on. Its pro­vi­si­ons will be based on the afo­re­men­tio­ned UN Gui­ding Prin­ci­ples on Busi­ness and Human Rights, as well as the OECD Gui­de­lines for Mul­ti­na­tio­nal Enter­pri­ses: Due Dili­gence Gui­dance fir Respon­si­ble Sup­p­ly Chains. It will defi­ne requi­red actions as well as report­ing duties. The­re has also been talk in this con­text of a fede­ral agen­cy with regu­la­to­ry func­tions. Com­pa­nies will essen­ti­al­ly be requi­red to inves­ti­ga­te, ana­ly­ze, pre­vent, mini­mi­ze and, if neces­sa­ry, reme­dy poten­ti­al adver­se effects which their acti­vi­ties may be having on human rights. The bill will also pro­vi­de for fines against com­pa­nies and enforceable dama­ge claims for inju­red par­ties, but both the fines and the dama­ge claims will be con­tin­gent upon the company’s fail­ure to satis­fy its “duty to make best efforts.” What this means from a legal view­point is that the type and degree of due dili­gence which com­pa­nies are requi­red to exer­cise depend on an ex-ante ana­ly­sis of the requi­re­ments for pru­dent and con­sci­en­tious manage­ment given the spe­ci­fic posi­ti­on and social role of the acting par­ty. In other words, if the com­pa­ny does ever­y­thing that it could reason­ab­ly be expec­ted to do within the limits of its legal and fac­tu­al abili­ty but an inju­ry nevert­hel­ess occurs, the com­pa­ny can­not be held liable.

Con­se­quen­ces for com­pa­nies if the curr­ent­ly known con­tent is implemented

It remains to be seen whe­ther this bill will even make it to Fede­ral Par­lia­ment this ses­si­on, or if the Euro­pean Uni­on will pre­empt it in the end with regu­la­ti­ons of its own.

Chal­lenges for the future

The requi­re­ments which have beco­me known so far go much fur­ther than exis­ting sta­tu­to­ry pro­vi­si­ons. This will come into play espe­ci­al­ly for high­ly com­plex sup­p­ly chain struc­tures in which the stake­hol­ders are con­stant­ly chan­ging. Com­pa­nies which are affec­ted by the­se chan­ges will face gre­at chal­lenges not only due to the need to crea­te struc­tures and resour­ces of their own, but will also have to rely on exter­nal struc­tures such as e.g. infor­ma­ti­on and ana­ly­tics plat­forms or inspec­tion ser­vice providers.

Com­pre­hen­si­ve “tools” and bin­ding stan­dards which busi­nesses could use to ori­ent them­sel­ves are only available in iso­la­ted cases and the poten­ti­al bur­den of seve­re fines and dama­ge claims will exert sub­stan­ti­al pres­su­re on com­pa­nies, which can ulti­m­ate­ly be coun­te­red only at con­sidera­ble expen­se. As a result, it is of urgent importance for com­pa­nies to stay “up-to-date” on future deve­lo­p­ments. Ide­al­ly, they should act now to ana­ly­ze their own cor­po­ra­te and sup­pli­er struc­tu­re, as well as their hand­ling of sus­taina­bi­li­ty requi­re­ments. Iden­ti­fy­ing and addres­sing cri­ti­cal are­as and poten­ti­al solu­ti­ons in advan­ce will redu­ce stress in the future. We look for­ward to hea­ring from you.


Stay up-to-date

We use your email address exclusively for sending our newsletter. You have the right to revoke your consent at any time with effect for the future. For further information, please refer to our privacy policy.