Information on the planned german act on corporate due diligence in supply chains

Status*

• Coordination of the three ministers (economy, labor and cooperation) has taken place
• Draft bill is available
• Submission to the cabinet expected in March 2021
• Association hearings and the development of the catalog of fines are planned
• Adoption of the law expected in this legislative period
• Entry into force in Germany expected 1.1.2023
• Vote in the EU Parlarment on 8.3.2021, then legislative procedure by the Commission expected

History

• In 2011, the United Nations adopted the Guiding Principles on Business and Human Rights. In it, principles were formulated for states and for companies to strengthen human rights.
• In Germany, the federal government adopted the National Action Plan on Business and Human Rights (NAP) in 2016. In it, the federal government for the first time enshrines the responsibility of German companies to respect human rights.
• Reviews of the implementation of the National Action Plan fell short of expectations, so the coalition agreed of a bill.

What does the law regulate?

The law regulates requirements for responsible management of global supply chains for certain companies. Companies are provided with a legal framework for fulfilling human rights due diligence obligations. An authority is appointed to monitor and enforce compliance with due diligence obligations and is given powers to intervene. The law establishes a duty of effort. It establishes neither a duty to succeed nor guarantee liability for the companies.

Who is affected?

• Companies, regardless of their legal form, which 1. have their head office, principal place of business or registered office in the country and generally employ more than 3,000 employees (from 2023) or more than 1,000 employees (from 2024).
• Even though the draft bill excludes smaller companies, they will most likely be held responsible by their larger customers if the customers themselves fall under the law.

What are the requirements?

• Risk Management. The law requires the implementation of effective risk management in all relevant corporate operations. Appropriate measures must be embedded to identify and avert risks, and to stop and minimize breaches. This applies to risks within the supply chain in the company's own business or in the business of a direct or indirect supplier. Businesses should designate a person responsible for monitoring. The management should be informed regularly (at least once a year) about the work.
• Risks Risks include disregard for the prohibition of the employment of children, disregard for the prohibition of forced labor, disregard for occupational health and safety, disregard for the freedom of association and the freedom to form unions, Unequal treatment in employment, withholding a decent wage, causing harmful pollution or excessive consumption of resources, resulting in the restriction of health or quality of life of those involved.
• Risk analysis Risks are to be analyzed, evaluated and prioritized in the company's own business area and with direct suppliers. The risk analysis is to be carried out at least once a year or more often in the case of indications or changes.
• Preventive measures To identified risks, preventive measures are to be anchored in the business processes.
• Statement of Principles The management has to declare in a statement of principles the strategy for compliance with human rights, in which, among other things, a procedure for compliance with due diligence, the identified risks and expectations regarding human rights issues are to be named.
• Remedial Measures If violations have occurred, remedial measures are to be taken and their effectiveness reviewed.
• Complaint Procedure For the possibility to report violations, companies must establish a complaint procedure in their own business sector and in the supply chain and regularly review its effectiveness. Complaints must be reported publicly. It must be accessible, ensuring protection against disadvantage or punishment.
• Documentation and reporting obligation The procedures and measures to fulfill the due diligence obligations must be documented internally below the company. In addition, a report must be submitted to the authority (presumably the Bafa) annually.

What does the control authority do?

• Authority report review. The authority checks the reports for plausibility and demands improvements if necessary. It can order measures in the event of non-compliance and obtains rights of entry. It can impose coercive fines or fines.
• Handouts The authority publishes information, assistance or recommendations for compliance with this law.
• Accountability The Authority shall report on its activities at least annually.

What else should you know?

• Litigant status. Affected persons who have suffered disadvantages as a result of a violation may grant authorization to trade unions and non-governmental organizations to take legal action.
• Coming EU Directive. The EU is currently looking at the activities in Germany. The draft law is considered very progressive. A European directive or similar is expected, which will additionally introduce civil liability. The EU rules will be transposed into national law. I.e. the German law will be replaced.
UN Guiding Principles. The "Guiding Principles on Business and Human Rights" of the United Nations do not include exceptions for smaller companies. It may therefore come in the EU Directive that smaller companies also fall under the regulations.

What to do now?

• Check if your company is covered by the law or could be affected . If your company reaches the 1000-employee size threshold or supplies to companies that do reach the size threshold, then it is likely that you will need to take a hard look at the law.
• Designate a responsible party. Don't wait until the last minute. The risk analysis or even the introduction of the complaints mechanism takes time. No matter who you appoint, the person needs the support of many stakeholders.
• Follow up as the law is introduced. Some items will be fleshed out and touched up in the coming weeks. Stay tuned for updates.
• Contact interested parties to gauge their needs and capabilities. List interested parties and capture their needs and opportunities. What can your suppliers do to promote the grievance mechanism to their employees, for example? Which departments and people are affected in your own business unit? Who needs to be trained?
• Start now to map the supply chains, risks and relevant processes. You will need supply chains, risks and governing processes when you need to make the policy statement.
• Look for opportunities to implement the grievance mechanism in a timely manner. In the textile sector, for example, there are industry solutions (see https://www.fairwear.org/programmes/complaints). Contact industry partners or associations.

* Status 28.2.2021

DISCLAIMER This information is based on the status of the draft bill of 15.2.2021 and information from a webinar (26.2.2021) organized by the Helpdesk Business & Human Rights of the German Government with the participation of Ms. Anosha Wahidi, BMZ, and own conclusions. Amendments to the draft law are to be expected. Since the act is still work in progress, we cannot be held liable for the accuracy or completeness.