Germany: call for an improvement of the Supply Chain Due Diligence Act

15/11/2021
Press release
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The Supply chain due diligence act was adopted by the German Federal Parliament on 11 June 2021 and will enter into force on 1 January 2023. It aims to improve the protection of international human rights and the environment by setting binding standards for large companies and their value chains. Following the adoption of the UN Guiding Principles on Business and Human Rights (UNGPs) in 2011, Germany adopted a National Action Plan on Business and Human Rights, which recalled (without setting legal standards) that companies should respect human rights in their operations and their value chains. But ten years after the adoption of the UNGPs, according to a study commissioned by the government, only a very small proportion of German companies have shown the will to adequately comply with their due diligence obligations on a voluntary basis: only 13-17% of companies were considered to be "in compliance" with their obligations, while 83-87% were not, and less than 1% were classified as "companies with an implementation plan" with regard to these obligations.

As part of the fight against human rights violations and environmental degradation, the new law notably aims to protect people from modern slavery, forced labour, human trafficking, hazardous work and exploitation in accordance with the standards of the International Labour Organisation (ILO) and the relevant articles of the International Covenant on Economic, Social and Cultural Rights (UN Social Covenant). It also seeks to protect the rights of the approximately 168 million children and adolescents worldwide who perform the most arduous work on cocoa, coffee and tobacco plantations - often in contact with pesticides - who manufacture electronic devices, clothes and toys in exploitative factories or who extract mineral resources to the detriment of their health, and who require special protection in accordance with the principal of best interest of the child (Article 3 CRC).

This law, the first in Germany to establish binding standards for companies with regard to human rights and the environment, was adopted in a context of development of similar pieces of legislation in other states and at the European level. It marks a paradigm shift, away from the voluntary standards and self-regulation principles that have prevailed since today. However, the act is also the reflection of an insufficiently ambitious political compromise, which will not be able to meaningfully protect victims of human rights abuses and the environment. On many crucial points, policy-makers weren’t able to withstand the massive pressure to weaken the text exerted by business associations and some political representatives. As a result, the act risks losing effectiveness and falls short of upholding and implementing the standards set in UNGPs on important points.

Starting on 1 January 2023, the Supply Chain Act will apply to companies with a head office or branch office in German that have more than 3,000 employees, and from 2024 to those with more than 1,000 employees. Due diligence obligations reach only to a corporation’s direct suppliers, not to indirect suppliers. For indirect suppliers, companies only have to carry out a risk analysis if they have "proven knowledge" of human rights violations. This is regrettable, since it is well known that most human rights violations occur at the beginning of the supply chain.

Without creating new avenues for civil remedy, the law introduces the possibility for victims of human rights violations to assert their rights before German courts through trade unions and NGOs (using the existing, limited avenues under German law). Victims can also lodge complaints with the Federal Office of Economics and Export Control (BAFA) on a particular situation. If affected persons report violations of a company’s due diligence obligations to the BAFA, it must take action, investigate the allegation and, if necessary, it can impose fines proportional to the company’s total turnover and to the gravity of the violation. In case of serious human rights violations, the Supply Chain Act provides for temporary exclusion from public procurement and fines of at least EUR 175,000. However, it is questionable whether the BAFA, which is the highest federal authority in the portfolio of the Federal Ministry of Economics and Energy, can be expected to take adequate measures and act with the necessary guarantees of independence.

Unfortunately, the law also fails to provide for a specific civil liability regime for companies that cause or contribute to harm by failing to comply with their due diligence obligations or whose business relationships are responsible for abuses. This means that the principles of the third pillar of the UNGPs, such as the possibility of legal protection with the participation of those affected, an effective remedy and compensation for damages caused, are not guaranteed in the German law. The absence of such a regime also means the law could fail to exert the necessary deterrent pressure on companies to prevent future violations.

Regarding environmental matters, the Supply Chain Act refers only to three conventions ratified by Germany: the prevention of persistent organic pollutants under the Stockholm Convention on POPs, the release of mercury emissions under the Minamata Convention and the control of transboundary movements of hazardous waste and their disposal under the Basel Convention. This is not enough to cover all risks in the area of protected resources such as soil, water and air, especially at the beginning of the supply chain.

Although Germany has recently ratified International Labour Organisation (ILO) Convention 169, the only international legally binding instrument that protects indigenous rights, the German law offers no avenue to strengthen such rights nor to protect indigenous peoples’s habitats from violent evictions and the destruction of tropical forests. The right to free, prior and informed consent of indigenous peoples, provided for in ILO Convention 169, is not mentioned. Neither is gender equality: Gender-based violence and discrimination are not listed as human rights violations, although they are known to be widespread along global supply chains.

The EU and its Member States are bound, not only by the International Covenants on Civil and Political Rights, and on Economic, Social and Cultural Rights, but also by Articles 3 and 21 of the Lisbon Treaty, to respect and promote human rights at home and abroad in their trade and investment policy. Thanks to a cross-party majority of 504 votes, the European Parliament adopted a legislative report "on corporate due diligence and corporate accountability" on 10 March 2021, which clearly goes beyond the requirements of the German law. In the context of the EU Commission’s proposal for a directive on due diligence, expected by the end of the year, close monitoring by civil society is necessary to ensure that the European Parliament’s stricter recommendations as well as the standards set in the UNGPs are respected and strengthened, not weakened by the European Council’s vote.

FIDH and the Internationale Liga für Menschenrechte regret the shortcomings of the German law and call on the European Union to provide the framework for an improved law through a directive that is consistent with the highest human rights standards and geared towards the protection of the environment. They call the new Bundestag to adopt legislation that meets international standards:

- with a scope covering all companies;
- that covers the entire supply and value chain, i.e. all subsidiaries, subcontractors and direct and indirect suppliers of a company;
- that establishes liability rules for human rights and environmental damage caused and contributed to by companies within their supply chains;
- that guarantees and protects the right to free, prior and informed consent of indigenous peoples;
- that prohibits and sanctions gender-based violence and discrimination along supply chains;
- that establishes a monitoring body independent from the Ministry of Economic Affairs.

FIDH and the Internationale Liga für Menschenrechte are monitoring the situation and call on human rights organisations worldwide to expose corporate-related human rights violations and report them to the BAFA.

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